Bits of Gold's Legal Victory: One Step Forward, Two Steps Back
- The Israeli crypto exchange may have won this battle against Israel's banks, but the war for banking rights is far from over
The Israeli cryptocurrency industry is still in limbo. The biggest legal discussion involving Bits of Gold, an Israeli exchange, and Bank Leumi, one of the top two largest banks in Israel, has ended in a settlement that essentially meant a win for Bits of Gold, forcing a stalemate situation in which the bank’s attempt to deny service to the exchange was struck down.
Gil Solomon is a Partner at Gil Solomon & Co
Currently, Israeli banks categorically deny opening accounts for clients that have cryptocurrency or Blockchain Blockchain Blockchain comprises a digital network of blocks with a comprehensive ledger of transactions made in a cryptocurrency such as Bitcoin or other altcoins.One of the signature features of blockchain is that it is maintained across more than one computer. The ledger can be public or private (permissioned.) In this sense, blockchain is immune to the manipulation of data making it not only open but verifiable. Because a blockchain is stored across a network of computers, it is very difficult to tamper with. The Evolution of BlockchainBlockchain was originally invented by an individual or group of people under the name of Satoshi Nakamoto in 2008. The purpose of blockchain was originally to serve as the public transaction ledger of Bitcoin, the world’s first cryptocurrency.In particular, bundles of transaction data, called “blocks”, are added to the ledger in a chronological fashion, forming a “chain.” These blocks include things like date, time, dollar amount, and (in some cases) the public addresses of the sender and the receiver.The computers responsible for upholding a blockchain network are called “nodes.” These nodes carry out the duties necessary to confirm the transactions and add them to the ledger. In exchange for their work, the nodes receive rewards in the form of crypto tokens.By storing data via a peer-to-peer network (P2P), blockchain controls for a wide range of risks that are traditionally inherent with data being held centrally.Of note, P2P blockchain networks lack centralized points of vulnerability. Consequently, hackers cannot exploit these networks via normalized means nor does the network possess a central failure point.In order to hack or alter a blockchain’s ledger, more than half of the nodes must be compromised. Looking ahead, blockchain technology is an area of extensive research across multiple industries, including financial services and payments, among others. Blockchain comprises a digital network of blocks with a comprehensive ledger of transactions made in a cryptocurrency such as Bitcoin or other altcoins.One of the signature features of blockchain is that it is maintained across more than one computer. The ledger can be public or private (permissioned.) In this sense, blockchain is immune to the manipulation of data making it not only open but verifiable. Because a blockchain is stored across a network of computers, it is very difficult to tamper with. The Evolution of BlockchainBlockchain was originally invented by an individual or group of people under the name of Satoshi Nakamoto in 2008. The purpose of blockchain was originally to serve as the public transaction ledger of Bitcoin, the world’s first cryptocurrency.In particular, bundles of transaction data, called “blocks”, are added to the ledger in a chronological fashion, forming a “chain.” These blocks include things like date, time, dollar amount, and (in some cases) the public addresses of the sender and the receiver.The computers responsible for upholding a blockchain network are called “nodes.” These nodes carry out the duties necessary to confirm the transactions and add them to the ledger. In exchange for their work, the nodes receive rewards in the form of crypto tokens.By storing data via a peer-to-peer network (P2P), blockchain controls for a wide range of risks that are traditionally inherent with data being held centrally.Of note, P2P blockchain networks lack centralized points of vulnerability. Consequently, hackers cannot exploit these networks via normalized means nor does the network possess a central failure point.In order to hack or alter a blockchain’s ledger, more than half of the nodes must be compromised. Looking ahead, blockchain technology is an area of extensive research across multiple industries, including financial services and payments, among others. Read this Term-related activity, which places the entire industry in limbo. This situation means banks will refuse cryptocurrency clients, keep closing accounts, or never open them in the first place until the next ‘Bits of Gold’ will go ‘all the way’ and secure a legal precedent that will apply across the industry or the Israeli regulators or legislators will care to do their job in a timely manner.
Background and Legal Proceedings
Bits of Gold is an exchange that is licensed as a currency changer business (the common license for fiat currency service providers in Israel). Since its incorporation in 2014, the company has been holding an account with Bank Leumi – one of the top two largest banks in Israel. In 2015, the bank decided to close the company's account despite the company’s meticulous conduct – due to the fact that the company deals in cryptocurrency.
Bits of Gold appealed to an Israeli district court to continue to make use of its bank account and conduct its operations. The district court determined that the bank’s decision to cease the activity in Bits of Gold's account was reasonable and ruled that the bank may prevent such cryptocurrency-related activity.
Bits of Gold then appealed to Israel's Supreme Court in two motions - one of which was for an immediate injunctive relief that was supposed to stay the closure procedure until the appeal over the decision to close the account was decided.
The Supreme Court granted the immediate injunctive relief, which de facto overturned the district court’s ruling for the time being since Bits of Gold was allowed to continue its operations, while stating that it appears that the damages that the bank might incur were purely speculative for now. The decision of the bank is based on the assumption that the company’s activity indeed carries risks that arise in violation of the provisions of the law, and therefore the bank is liable to pay the price for the materialization of those risks. However, until now, for more than five years, in which the account has been operating, these fears have not materialized as the district court has determined that the company acted transparently and did not violate any statutory provision.
Yes!!! https://t.co/i6Uf2nV3OH
— Youval Rouach (@YouvalRouach) June 4, 2019
The Supreme Court’s ruling in providing the immediate injunctive relief has, so it seems, motivated the bank to settle with Bits of Gold. Such a solution was indeed reached, and on June 3, 2019, the Supreme Court validated the settlement as a judgment. The settlement provided that Bits of Gold shall continue to make use of the account and to conduct its operations as such are being conducted today. The bank, on the other hand, may examine every transaction on a case by case basis to determine the risks that it deems to be arising from Bits of Gold’s activity. As per the settlement, the company is obliged to fully cooperate with the bank.
All That Glitters Is Not Gold
All of the above seems quite the achievement, and indeed, for Bits of Gold and its legal advisors this is a big win, since the bank can no longer deny transactions without reasoning, decline to provide its services, or generally deny activity in the account and is now required to scrutinize each single transaction on a case by case basis.
However, while Bits of Gold secured this massive achievement, the cryptocurrency industry has sustained a significant loss. The court’s ruling specifically provided that it applies only to the parties involved (i.e., Bits of Gold and Bank Leumi) and only to the matter on hand without serving as legal precedent.
This means that the cryptocurrency industry and everyone involved is left in the same spot – waiting for the regulator to finally adopt a proper regulatory regime that will allow the activity and operation of accounts related to cryptocurrency activities; or, waiting for the next ‘Bits of Gold’ to face the banks and go ‘all the way’ to obtain a legal precedent that will apply across the industry.
Gil Solomon is a partner at Gil Solomon & Co. - a corporate & high tech law firm
The Israeli cryptocurrency industry is still in limbo. The biggest legal discussion involving Bits of Gold, an Israeli exchange, and Bank Leumi, one of the top two largest banks in Israel, has ended in a settlement that essentially meant a win for Bits of Gold, forcing a stalemate situation in which the bank’s attempt to deny service to the exchange was struck down.
Gil Solomon is a Partner at Gil Solomon & Co
Currently, Israeli banks categorically deny opening accounts for clients that have cryptocurrency or Blockchain Blockchain Blockchain comprises a digital network of blocks with a comprehensive ledger of transactions made in a cryptocurrency such as Bitcoin or other altcoins.One of the signature features of blockchain is that it is maintained across more than one computer. The ledger can be public or private (permissioned.) In this sense, blockchain is immune to the manipulation of data making it not only open but verifiable. Because a blockchain is stored across a network of computers, it is very difficult to tamper with. The Evolution of BlockchainBlockchain was originally invented by an individual or group of people under the name of Satoshi Nakamoto in 2008. The purpose of blockchain was originally to serve as the public transaction ledger of Bitcoin, the world’s first cryptocurrency.In particular, bundles of transaction data, called “blocks”, are added to the ledger in a chronological fashion, forming a “chain.” These blocks include things like date, time, dollar amount, and (in some cases) the public addresses of the sender and the receiver.The computers responsible for upholding a blockchain network are called “nodes.” These nodes carry out the duties necessary to confirm the transactions and add them to the ledger. In exchange for their work, the nodes receive rewards in the form of crypto tokens.By storing data via a peer-to-peer network (P2P), blockchain controls for a wide range of risks that are traditionally inherent with data being held centrally.Of note, P2P blockchain networks lack centralized points of vulnerability. Consequently, hackers cannot exploit these networks via normalized means nor does the network possess a central failure point.In order to hack or alter a blockchain’s ledger, more than half of the nodes must be compromised. Looking ahead, blockchain technology is an area of extensive research across multiple industries, including financial services and payments, among others. Blockchain comprises a digital network of blocks with a comprehensive ledger of transactions made in a cryptocurrency such as Bitcoin or other altcoins.One of the signature features of blockchain is that it is maintained across more than one computer. The ledger can be public or private (permissioned.) In this sense, blockchain is immune to the manipulation of data making it not only open but verifiable. Because a blockchain is stored across a network of computers, it is very difficult to tamper with. The Evolution of BlockchainBlockchain was originally invented by an individual or group of people under the name of Satoshi Nakamoto in 2008. The purpose of blockchain was originally to serve as the public transaction ledger of Bitcoin, the world’s first cryptocurrency.In particular, bundles of transaction data, called “blocks”, are added to the ledger in a chronological fashion, forming a “chain.” These blocks include things like date, time, dollar amount, and (in some cases) the public addresses of the sender and the receiver.The computers responsible for upholding a blockchain network are called “nodes.” These nodes carry out the duties necessary to confirm the transactions and add them to the ledger. In exchange for their work, the nodes receive rewards in the form of crypto tokens.By storing data via a peer-to-peer network (P2P), blockchain controls for a wide range of risks that are traditionally inherent with data being held centrally.Of note, P2P blockchain networks lack centralized points of vulnerability. Consequently, hackers cannot exploit these networks via normalized means nor does the network possess a central failure point.In order to hack or alter a blockchain’s ledger, more than half of the nodes must be compromised. Looking ahead, blockchain technology is an area of extensive research across multiple industries, including financial services and payments, among others. Read this Term-related activity, which places the entire industry in limbo. This situation means banks will refuse cryptocurrency clients, keep closing accounts, or never open them in the first place until the next ‘Bits of Gold’ will go ‘all the way’ and secure a legal precedent that will apply across the industry or the Israeli regulators or legislators will care to do their job in a timely manner.
Background and Legal Proceedings
Bits of Gold is an exchange that is licensed as a currency changer business (the common license for fiat currency service providers in Israel). Since its incorporation in 2014, the company has been holding an account with Bank Leumi – one of the top two largest banks in Israel. In 2015, the bank decided to close the company's account despite the company’s meticulous conduct – due to the fact that the company deals in cryptocurrency.
Bits of Gold appealed to an Israeli district court to continue to make use of its bank account and conduct its operations. The district court determined that the bank’s decision to cease the activity in Bits of Gold's account was reasonable and ruled that the bank may prevent such cryptocurrency-related activity.
Bits of Gold then appealed to Israel's Supreme Court in two motions - one of which was for an immediate injunctive relief that was supposed to stay the closure procedure until the appeal over the decision to close the account was decided.
The Supreme Court granted the immediate injunctive relief, which de facto overturned the district court’s ruling for the time being since Bits of Gold was allowed to continue its operations, while stating that it appears that the damages that the bank might incur were purely speculative for now. The decision of the bank is based on the assumption that the company’s activity indeed carries risks that arise in violation of the provisions of the law, and therefore the bank is liable to pay the price for the materialization of those risks. However, until now, for more than five years, in which the account has been operating, these fears have not materialized as the district court has determined that the company acted transparently and did not violate any statutory provision.
Yes!!! https://t.co/i6Uf2nV3OH
— Youval Rouach (@YouvalRouach) June 4, 2019
The Supreme Court’s ruling in providing the immediate injunctive relief has, so it seems, motivated the bank to settle with Bits of Gold. Such a solution was indeed reached, and on June 3, 2019, the Supreme Court validated the settlement as a judgment. The settlement provided that Bits of Gold shall continue to make use of the account and to conduct its operations as such are being conducted today. The bank, on the other hand, may examine every transaction on a case by case basis to determine the risks that it deems to be arising from Bits of Gold’s activity. As per the settlement, the company is obliged to fully cooperate with the bank.
All That Glitters Is Not Gold
All of the above seems quite the achievement, and indeed, for Bits of Gold and its legal advisors this is a big win, since the bank can no longer deny transactions without reasoning, decline to provide its services, or generally deny activity in the account and is now required to scrutinize each single transaction on a case by case basis.
However, while Bits of Gold secured this massive achievement, the cryptocurrency industry has sustained a significant loss. The court’s ruling specifically provided that it applies only to the parties involved (i.e., Bits of Gold and Bank Leumi) and only to the matter on hand without serving as legal precedent.
This means that the cryptocurrency industry and everyone involved is left in the same spot – waiting for the regulator to finally adopt a proper regulatory regime that will allow the activity and operation of accounts related to cryptocurrency activities; or, waiting for the next ‘Bits of Gold’ to face the banks and go ‘all the way’ to obtain a legal precedent that will apply across the industry.
Gil Solomon is a partner at Gil Solomon & Co. - a corporate & high tech law firm