When bitcoin entered our lives various technologies were presented as new and efficient solutions to online transactions and trading. Bitcoin was followed by various digital currencies and assets that are held and transferred directly, peer-to-peer, based on stored data about the actions between the two parties to these transactions. These developments created the need for quick contractual solutions.

Bitcoin and other currencies constitute, in some cases, digital units. This means that, in the eyes of the users, it is in fact “money”, but not only in their eyes. Various authorities consider these digital units to be assets, or in some cases securities.

Cryptocurrency technology and progress also posed numerous challenges, which led to the formulation of legal standards to be applied in this field.

Thus, for example, in the cybersecurity field in general, and in the Protection of Privacy Regulations (Data Security), 2017 in particular, there are principles pertaining to data confidentiality, integrity and accessibility. These principles, that are also familiar from other fields, raise the issue of data protection by those holding the data through blockchain technology, as in general this data is decentralized and held by all users. Individually, the data is stored in files by a certain user and linked to another user, thus creating an audit trail of the data transactions performed in a certain currency.

Another cryptocurrency related issue is “smart contracts”, which comprise an integral part of current cryptocurrency transactions. Consider for example smart contracts in currency purchase, conversion, hedging and other transactions. Nonetheless, as of today, the legal discussion on the issue is sparse, mainly examining conversion of currency such as bitcoin into “traditional” currency, such as the Israeli shekel or the U.S. dollar, from the perspective of banking laws or money laundering.   

Thus, with respect to smart contracts, there may be a legal principle for applying Israeli contract law to smart contracts which are written by programmers in software code.

We counsel and accompany companies that engage in digital currency, smart contracts and blockchain from their inception, and also draft complex contracts, with an understanding that this is a highly sensitive field.