The Bank of Israel reportedly disclosed the experimental outcomes of user privacy examinations and smart contract-enabled payment testing it conducted. 

Specifically, the initiative was reportedly the central bank’s first technological experiment with a central bank digital currency (CBDC).

The first phase of the testing ran modeling for the sale of a car within a two-level network, with an intermediary payment service provider. The bank revealed that the service provider finalized Know Your Customer (KYC)/Anti-Money Laundering (AML) checks and provided the required blockchain addresses.

The issuance of a nonfungible token (NFT) was reportedly carried out to display ownership of the car, without the presence of a licensing authority to have any impact the transfer. 

A smart contract exchanged the seller’s NFT and the buyer’s money, with the seller still has a hold of the power to cancel the transaction should the conditions on it, nominally the price of the car, were not satisfied.

The testing reportedly posed two inquiries. The first being the sum of fund kept in digital form. To keep away from bank disintermediation – significant withdrawal of traditional shekels and their conversion to digital form – a limit for day-to-day was put forward which could be written into the smart contract.

The second was about the nature of smart contract. To bring down the occurrences of intentional or unintentional misuse of smart contracts, a recommendation for the payment service provider to be the sole entity that can write smart contracts on the blockchain, but the supervision scope needed in that instance is yet to be finalized.

The initial phase of the testing further emphasized the necessity of establishing identity so that KYC/AML could be carried out via a centralized database. The second phase was about private digital shekels and ordinary digital shekels creation, on blockchain infrastructure in a zero-knowledge-proof environment, to run analysis regarding the limited privacy dependent on eCash tech in a vast array of incidents.

Israel has been contemplating upon the decision to carry out the issuance of a CBDC since 2017. It conducted a pilot test last year.