THE US-ISRAEL LEGAL REVIEW 2019

68 The US-Israel Legal Review 2019

ISRAEL: CRYPTOCURRENCIES

companies and authorities regarding terrorist

attacks. The investigation revealed that the young

hacker was using highly-sophisticated tools to

cover his tracks and paying for proxy servers with

Bitcoin, making the investigation more difficult,

as tracing the funds was almost impossible.

• In late 2017, Israeli entrepreneurs raised

millions for a project called CoinDash. During

the ICO a hacker breached the project’s website

and modified the wallet address to be used

for transferring Bitcoin. As result of the hack,

during a short period, millions of dollars’-worth

of Bitcoin were sent to the hacker’s address

without the ability to retrieve the funds.

Notwithstanding, the use of virtual currencies

for money laundering is not actually as practical

as commonly thought. Virtual currencies store

transaction-records on a “public ledger”, meaning

every transaction is recorded and remains

viewable indefinitely. Thus, moving large funds on

the blockchain is a transparent act and may even

be traced back to the person behind it. In addition,

if a lawbreaker is interested in “laundering” the

money and depositing it into a bank account, the

recorded history will reveal the source of these

funds. That being said, there are anonymous virtual

currencies in existence (e.g. Monero, Zcash) that do

not maintain a transaction history, and similarly,

many financial institutions refuse to accept funds

originating from such virtual currencies. However,

virtual currencies remain the method of choice for

transactions that are illegal by nature, like the sale

of illegal substances, as previously evidenced in the

case against the notorious darknet site, Silk Road.

7. With specific regard to the United States:

where will we see key trends in investment flow

over the next twelve months?

We anticipate a growing interest in STOs (Security

Token Offerings) as a key trend in the investment

flow of funds in the near future, especially within

the United States. The seeds of this trend are

already visible, along with a growing demand

for operational security token exchanges, mostly

within the US. Once regulators give the green

light for such trading avenues, we are likely to

witness many more exchanges and entrepreneurs

entering this space and capitalising on the resulting

potential liquidity pools. Opening these gateswould

enable entrepreneurs and traditional investors to

raise funds easily, globally, with lower costs, while

still adhering to a fully regulated framework and

providing investors with security, comfort and

liquidity, as in traditional stock markets.

8. How is Israel positioning itself in order to

continue to serve as a pioneer in high-end

technology?

As aforementioned, Israeli authorities are generally

taking a more welcoming approach towards the

FinTechsector,includingtheblockchainindustry,and

have made notable efforts to provide market players

with certainty within a friendly environment.

The Israeli authorities have established

special study groups and dedicated a great deal of

resources to developing a deeper understanding of

the market and to be able to remove unnecessary

barriers, whether regulatory or otherwise, while

protecting investors.

For example, the TASE (Tel Aviv Stock Exchange)

has reportedly teamed up with blockchain start-

ups in order to explore and take advantage of the

blockchain technology to reduce costs, increase

security and provide more flexibility to the trading

systems of the stock exchange.

In addition, inFebruary 2019, an inter-ministerial

study group led by the Ministry of Finance and the

Ministry of Justice recommended the establishment

of a regulatory sandbox to allow FinTech and

blockchain start-ups to grow, while benefitting from

greater certainty ina rapidly-changingenvironment.

This, coupled with other regulatory and financial

efforts are all aimed at advancing the government’s

goal of promoting Israel as a pioneer in technology

driven industries.

ABOUT THE AUTHORS

Yehoshua Gurtler

and

Roni Cohen-Pavon

are partners in HFN’s e-Commerce and Crypto

Department. Yehoshua and Roni advise industry

leaders on all aspects concerning Token Offerings,

Security Tokens, implementation of blockchain and

cryptocurrencies in their clients’ businesses and

other regulatory aspects surrounding this industry.