Israel Is Becoming Key To The Future Of Blockchain

Israel has long had a reputation for punching above its weight in the global technology sector, with its innovative spirit driving the growth of one of the world’s most thriving startup ecosystems. 

More of its entrepreneurs are now turning their attention to the emerging Web3 industry, which encompasses the idea of a new, decentralized internet built on blockchains. Progress in this industry has accelerated at breakneck speed, and Israel can already claim to be one of the globe’s leading hubs for Web3 startups.

Israel’s growing presence on the Web3 scene is a boon for its already powerful tech sector, creating hundreds of new jobs and attracting millions of dollars in investment. 

The startup capital that keeps on growing

Israel is widely regarded as a hotbed of technology talent and it has routinely been labeled as one of the world’s startup capitals, currently home to 24 “unicorns” or private companies valued at over $1 billion, as of January 2024. In 2023, Israeli startups raised a combined $7.9 billion in disclosed capital, according to a report from Startup Nation Central, though the real figure, including undisclosed numbers, is likely to be closer to $10 billion. 

The influx of investor capital helped push Tel Aviv into fifth place in an annual survey by Startup Genome that ranks the world’s most attractive startup ecosystems. 

What’s remarkable is that Israel’s tech sector went from strength to strength despite a year of unprecedented disruption. Adding to the global macroeconomic challenges facing the entire world, Israel had to endure civil unrest sparked by a controversial judicial reform proposal and the terrorist attack by Hamas on October 7, leading to the still-ongoing war in Gaza. 

The robustness of Israel’s tech scene, its deep talent pool and its vibrant startup culture bodes well for the growth of a Web3 ecosystem that is already recognized as one of the most innovative around. 

Israel’s blockchain startups on the rise

In March, a map of Israel’s crypto ecosystem was published, illustrating how the industry has flourished since the approval of the first Bitcoin ETF by the U.S. SEC in January. Crypto startups worldwide have raised more than $11 billion since then, and a significant amount of that cash went to those based in Israel.

The report reveals Israeli crypto startups have raised a combined $115 million since the Oct. 7 attacks, calling out companies including Blockaid, Addressable, Ingonyama and Utila, as well as Starkware, the company behind one of the best known Ethereum scaling technologies, which recently hit a cool $20 billion valuation, becoming the nation’s first crypto “Decacorn”.

The growing prominence of Israeli crypto startups appears to be having a knock-on effect throughout the country, increasing both the awareness and allure of digital assets. Until recently, Israel’s fascination with blockchain and crypto was mostly restricted to the pool of entrepreneurs and investors that saw potential in the technology. In 2023, a mere 1.24% of Israelis were believed to own some kind of cryptocurrency, according to the crypto payment startup Triple-A. However, that figure has since leapt to an impressive 7.3% crypto ownership rate, reflecting the rapid growth of the country’s Web3 startup ecosystem. 

Who is nurturing this growth? 

Recognizing the potential of Israel’s Web3 startup space, the industry has redoubled its efforts to inject further momentum into the sector. Some of Israel’s biggest Web3 firms, along with the leading lights of its investor community, are collaborating to support the next generation of blockchain startups. 

In March, we saw additional impetus coming from the Mamram Alumni Association, affiliated with the IDF’s Centre of Computing and Information Systems, which launched the Mamram Blockchain Incubator. It’s the very first blockchain incubation program in Israel that’s dedicated to early-stage Web3 startups, with the aim being to furnish new project leaders with the tools, knowledge, capital and connections needed to thrive in what has become one of the world’s most competitive industries. Mamram is being backed in its efforts by StarkWare, FireBlocks, Collider VC and Gornitzky & Co. 

Israel’s government is also fanning the flames of Web3 innovation with its proactive stance towards digital transformation. For instance, Israel’s Central Bank began exploring the idea of introducing a CBDC (Central Bank Digital Coin) as early as 2021, when it created a prototype of the “Digital Shekel”.

In a continuation of those experiments, the Bank of Israel recently announced a Digital Shekel Challenge initiative to look at possible applications of a CBDC. It explained that it has already created a prototype system for the Digital Shekel, and will now allow payment services providers to access it to offer advanced payment options, such as micropayments and split payments, to Israeli citizens. 

Israel’s blockchain bellwethers

We cannot explore the growth of Israel as a Web3 innovation hub without looking at some of its most prominent startups. 

The country is home to dozens of noteworthy blockchain pioneers, including StarkWare, which is focused on building scalability solutions for blockchains such as Ethereum. It has emerged as one of the industry’s foremost developers of Zero-Knowledge Proof technology, which is a breakthrough privacy solution that was first conceived by the Technion-Israel Institute of Technology. StarkWare’s offering is focused on boosting the throughput of blockchains and making them more efficient and private, in order to make them more viable platforms for decentralized applications. 

Another leading light is FireBlocks, which has raised over $1 billion in venture capital. It has created a platform for managing and protecting digital assets, which is used by numerous cryptocurrency exchanges, liquidity providers, OTCs, Hedge funds and other institutional investors with crypto interests. Its tools enable those customers to securely move and manage digital assets across a range of products and services. 

But it’s not just software where Israel excels. The country has a reputation as a pioneer in the semiconductor industry, and Chain Reaction, which was recently ranked 4th overall in Calcalist’s 2024 list of promising Israeli startups, is expanding this heritage with promising new chip for mining cryptocurrencies. It’s aiming to launch its first product this year, and will take on Chinese firm Bitmain, which currently dominates a global crypto mining market valued at between $15-20 billion. 

It’s tough to put a number on just how big Israel’s blockchain startup sector has grown, but it’s clearly becoming more active by the day. F6S, a networking platform for startup founders and entrepreneurs, recently documented no less than 53 of the country’s most promising blockchain startups.

Shaping blockchain’s future

Blockchain is believed to hold immense promise in tackling some of the world’s biggest socio-economic challenges, from improving access to financial services, building more transparent supply chains, and enhancing the efficiency of global markets.

For those who closely follow Israel’s technology scene, the country’s rise to the forefront of Web3 innovation comes as no surprise. Israel has often been at the cutting edge of technology development, emerging as a leader in everything from computer chips to cybersecurity, and big data to cloud computing. 

As the potential of blockchain becomes more apparent, Israel’s brightest minds have once again stepped up, and the country now seems destined to play a key role in shaping its future.