The Republic of the Marshall Islands (RMI), an island country located near the equator in the Pacific Ocean with a population of about 50,000, is poised to become the first sovereign nation to issue a cryptocurrency that will be legal tender.
The new currency is called “Sovereign” with the symbol “SOV.” The SOV, which will be distributed to the public via an Initial Currency Offering (ICO), will circulate as legal tender in the country, alongside its current local currency, the U.S. dollar.
Y-combinator Israeli fintech startup Neema is partnering with RMI to issue the SOV, starting with a presale that will be followed by an ICO later this year.
“SOV is a big deal because, until now, all cryptos were in regulatory limbo,” Barak Ben-Ezer, co-founder of Neema, told Bitcoin Magazine. “None of them was considered ‘real’ money by the IRS, SEC, etc. Accordingly, the IRS taxed them with capital gain tax, and the SEC wants to regulate all ICOs as issuance of securities. The IRS explained in 2014 why it’s not considered real money: because it’s not the legal tender of a sovereign nation.”
The solution for Neema was to find a country to partner with to create a cryptocurrency which would become the legal tender of a sovereign nation. “So SOV has the benefits of cryptocurrency and the legal and regulatory framework that covers sovereign currencies. You can use it without worrying about capital gains and even the ICO may be like selling any currency — Euro, Yen, etc.,” said Ben-Ezer.
SOV is based on a permissioned protocol, dubbed “‘Yokwe” (meaning “hello” in the local language), which requires blockchain users to authenticate. According to the SOV promoters, this “solves the anonymity problem that plagued bitcoin and precluded its mainstream adoption.”
The official statement notes that there’s a huge market need for a non-anonymous blockchain system that can operate within a regulated environment. The SOV wants to be part of a broader E-conomy vision to create a society that uses blockchain technology intensively, with a cryptocurrency and biometric IDs securely recorded on the blockchain.
“SOV is the promising starting point for the adoption of cryptocurrencies by sovereign nations,” said Peter Dittus, former secretary general of the Bank of International Settlements and Neema’s senior economic advisor. “The Yokwe protocol provides a promising balance between transparency and privacy and we’re excited to develop it further. It’s state of the art technology, put to good use, with the right values in mind and a clear purpose.”
“This is a historic moment for our people, finally issuing and using our own currency, alongside the USD,” said RMI President Hilda C. Heine. “It is another step of manifesting our national liberty. Allocating SOV units directly to the citizens will circulate the currency and distribute wealth efficiently to our people. In addition, The RMI will invest the revenues to support its climate change efforts, green energy, healthcare for those still affected by the U.S. nuclear tests and education.”
“The Marshall Islands is the first nation to adopt a transparent crypto monetary system, and we are proud of it,” added David Paul, Minister-in-Assistance to the President and Environment Minister of the RMI. “We are excited to be the world’s first nation to leapfrog into the era of digital currencies. 10 percent of our proceeds from the ICO will be directed toward a Green Climate Fund.” Paul added that he is especially proud of SOV since it is based on the Yokwe blockchain framework that has all the benefits of Bitcoin minus the anonymity.
Earlier in 2018, the Maduro government in Venezuela launched a cryptocurrency dubbed Petro, claiming that it was the world’s first sovereign cryptocurrency. The SOV statement notes that, contrary to the Petro, the SOV will be legal tender of the country, as defined in a bill passed by the parliament. Furthermore, the RMI is a close ally of the U.S., whereas Venezuela is under embargo. SOV will be a decentralized cryptocurrency with a price that is uniquely determined by the market, whereas the Petro, initially pegged to the price of oil, can be manipulated at will by the Venezuelan government.
The RMI is a tiny island nation, but it is a sovereign nation and a member of the UN. Therefore, if the RMI will eventually deploy a cryptocurrency that is also legal tender, the impact could be huge.