Following the lead of European banking regulators, as well as other countries, the authorities in Israel, led by the Bank of Israel (Israel's central bank), published a “Public notice regarding the potential risks inherent in distributed virtual currencies (e.g. Bitcoin)” (available here, in Hebrew). According to the announcement, the authorities, including the Israel Tax Authority, the Israel Securities Authority, and the Israel Money Laundering and Terror Financing Prohibition Authority, are still examining the proper methods to regulate the use, supervision and taxation of currencies such as Bitcoin. Presently, the authorities underscore the main risks that, in their opinion, are important for the public to recognize when it considers the use or trade of virtual currencies:
 

• There is no central bank behind virtual currencies. No one therefore offers any guarantees on their real value or works to preserve confidence in them;

 

• The currencies can be traded and transferred anonymously. This facilitates circumvention of control mechanisms against money laundering and terrorism funding;
 

• Their unique characteristics are particularly suitable for fraud and deceit. For example, the inability to cancel a transaction made in virtual currency, allows a fraudulent party to retain the payment it received in virtual currency, without providing the promised goods or services;
 

• Virtual currencies are prone to extreme and unexpected fluctuations in their real value;
 

• They are kept by computerized means, which are prone to security breaches and theft. If a Bitcoin holder forgets the password for accessing her account, she may permanently lose the balance of virtual money she had;
 

• Even Bitcoin merchants who are registered as “currency service providers” at the Israeli Ministry of Finance, are not subject to regulation and suprevision regarding their activities related to virtual currencies;

• The Israel Securities Authority does not regulate securities whose underlying asset is virtual currency.

 

The public announcement also calls attention to the fact that the name “virtual currencies” may be misleading, as they are not legal tender in any country and therefore, lack any official status.