Given the convenience of established currency and payment systems, what is driving the ever-growing interest in Bitcoin and other virtual currencies?
There are several benefits to virtual currencies, which have led to their growing worldwide popularity:
- Unlike traditional currencies, a decentralised virtual currency, such as bitcoin, gives its owner an absolute sense of ownership without the need to rely on banks or financial institutions in order to store or transfer currencies or make a payment.
- Virtual currencies are used globally and are unconnected to the financial stability of any specific country; hence, they provide a safe option for people who worry about saving for a ‘rainy day’ – especially in developing countries, where the inflation of local currency can cause a dramatic devaluation.
- The digital era has opened doors to new forms of online transactions. Virtual currencies play a crucial role in this field, enabling instant transactions, smart contract infrastructures and decentralised applications, such as Ethereum and similar applications based on blockchain.
Has your jurisdiction taken steps to regulate virtual currencies? What is their current status?
Israel is considered to be advanced with respect to its regulatory adoption of virtual currencies, in part due to the increasing role of Israeli entrepreneurs in the blockchain sphere.
Israel’s first law concerning virtual currencies will come into force in October 2018. It will regulate the exchange of such currencies and impose licensing requirements on businesses that provide exchange services.
In addition, in 2018 the Israel Tax Authority published a circular on various tax issues relating to virtual currencies which set out that:
- profits arising from investment in virtual currencies are generally subject to capital gains tax; and
- companies involved in the issuance of initial coin offerings (ICOs) can, under certain conditions, distribute tax duty on these funds over the course of several years.
Different EU member state authorities have thus far taken different approaches to the regulation of virtual currencies. Is this due to the different legal frameworks of the member states or (mainly) by institutional practices of the respective authorities?
How likely is it that the regulation of virtual currencies will be harmonized at EU level? Could a consistent regulatory approach be reached through institutional guidelines for the competent authorities in the member states?