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The US-Israel Legal Review 2019 65
and Verge) and using anonymous browsers
(e.g., Tor), all methods often used to disguise
user identity. Such measures may compromise
some of the privacy principles at the base of
blockchain technology.
Once enacted, the Order will provide much-
needed clarity to companies and institutions
wishing to take a step into the blockchain space,
but who fear the current uncertainty regarding
the applicable regime for AML/CTF prevention.
Once the new AML Order is enacted, it is likely
that Israeli banks will no longer feel compelled
or legally-justified to automatically decline
blockchain companies and virtual currency-related
transactions claiming that the lack of clear regime
put them at non-measurable risk.
As for Securities Law, the current definition of
a security in Israel is quite broad and could include
virtual currencies issued by a centralised entity. The
Israel Securities Authority (ISA) has yet to publish its
formal opinion on this matter, leaving it in a state of
uncertainty. Under the current status, most token-
issuers have avoided even offering “utility tokens”
to the Israeli public, unless an applicable exemption
from a prospectus was available (e.g. by offering to
accredited investors only). In March 2018, a special
ISA committee published its interim report, which
includesitsrecommendationsonthematter,primarily
suggesting a balanced approach be taken, as a general
rule, and advocating an approach classifying any
virtual currency conferring rights similar to those
conferred by traditional securities (i.e. shares, bonds,
and participation units) as securities.
In contrast, the ISA proposed that virtual
currencies representing rights to a product or
service and acquired solely for the purpose of
consumption and not for investment purposes,
not be considered securities. In this regard, the
proposed relevant test is the actual purpose of
the acquisition. Therefore, if the virtual currency
cannot be used once issued or can be traded on a
secondarymarket,thesemaybekeyindicationsthat
its acquisition was made for investment purposes
rather than for consumption. The publication
further states that where virtual currency does
not confer rights in a specific enterprise and is
not controlled by any central body, (e.g. Bitcoin or
Ether), it should not be considered a security.
This report does not, however, reflect the current
law, and only indicates possible future regulatory
adjustments. It does offer a glimpse into the positive
approachbeingtakenbytheregulator,whichappears
to be open to allowing innovative technologies like
blockchain into the mainstream, provided token
purchasers’ protection can be guaranteed.
2. Given the convenience of established
currency and payment systems, what is driving
the ever-growing interest in Bitcoin and other
virtual currencies?
The traditional Fintech industry is mainly
comprised of intermediaries, such as PayPal,
standing between users and institutions and
endeavouring to improve user experience. Since
virtual currencies have gained enormous publicity
in recent years, more people are realising that
blockchain technology presents a completely new
vision of decentralised, trust-less systems, and
that its various use cases have the potential to
transform the way financial transactions are made.
The first and most famous application is Bitcoin;
a decentralised payment system and digital store-
of-value, followed by Ethereum, which enables
the storage of additional layers of information on
the blockchain and the use of automated smart
contracts. In addition, Ethereum allows anyone to
issue their own token on the Ethereum network,
a feature that has turned it into a powerful tool
of fundraising for start-ups through issuance of
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PARTNER
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PARTNER