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Survey Respondents
Saul Adereth
Partner at Shibolet & Co., Founding Member of Blockchain & Smart Contracts Group.
Jonathan Irom
Partner at Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co. Blockchain, cryptocurrency and digital coin practice leader.
Zvi Gabbay
Partner at Barnea & Co, Head of Financial Regulation and Securities Department.
Eyal Haskal
Co-Founder of MH Law Office
Rafi Cohen
Principal at Cohen, Light and Associates
Aviya Arika
Head of Blockchain Innovation at Nir Porat & Co. Law Firm
Yigal Deitcher
Partner at ConsulTech
How will blockchain impact the legal profession?
Jonathan Irom
Partner at Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co. Blockchain, cryptocurrency and digital coin practice leader.
The disruptive nature of blockchain technology has the potential of revolutionizing many aspects of everyday life, as well as common business practices. The legal profession is not immune to such changes and will also need to adapt to the innovative possibilities made possible by blockchain technology.

Chief among such possibilities, is the use of "smart contracts", pre-defined set of rules coded into the blockchain platform with the purpose of governing transactions conducted over the blockchain.

As the use of blockchain technologies and "smart contracts" grows, legal professionals will need to adapt their offering to extend beyond drafting written agreements on paper and into designing automated tools for the purpose of minimizing friction and facilitating safe and trusted business transactions.
Saul Adereth
Partner at Shibolet & Co., Founding Member of Blockchain & Smart Contracts Group.
Blockchain might impact the legal profession in 3 aspects:

1) Some technical simple agreements will be codified and many people will be able to choose a blockchain solution, without the need to seek legal advice, and with the comfort of immediate execution, and in some cases with immutable compensation mechanism;

2) Clients will require advice on global legal systems, which will require lawyers to form international alliances, to better and more efficiently provide the required information;

3) The underlying blockchain technology will most likely start to raise legal questions, mainly in the legal fields of data protection and privacy.
Zvi Gabbay
Partner at Barnea & Co, Head of Financial Regulation and Securities Department.
There's a question how much we technician as opposed to how much provide real value in terms of our imagination and creativity. Are we technicians or are we artists, as lawyers? So personally I can tell that the area of financial regulations is very heavy on a technical side. There are many rules, you need to imagine everything as little boxes, as little draws. And when a client comes and says "okay, I want to provide so many services, I want to manage someone's portfolio, it as a financial regulation lawyer I know which box do you need, I full out that box and put your little issue in that box and stop there in. That technical and that's boring.

What we like and what we find interesting it doesn't fit in one box, and being creative and trying to work out how to address the regulator, the legal issues, but allow the client to do a business in a way a client want to, that's is something that makes our work interesting, and I'm not sure a machine can replace it quickly. One day it will, but not yet.

Hopefully, 10 years from now we'll still have a profession.
I'm not sure blockchain will impact legal professions, but maybe sometimes we will need less contracts. I do think that it will impact the financial services professions dramatically. This goes to what I said before: when you are streamlining processes, when you removing intermediaries, basically everything is quicker and you have less of that dilemma of need to protect client's money on a way to do whatever they need to be doing. It gets cheaper, it's faster and it safer, because people know.

So here's the thing, by saying this I can tell you that, for example, it regards to legal professions, as it relates to financial services that there will be less real track contract, there will be less need for a certain types of protection. As lawyers we put into these mechanisms together. And another issue also will have to do with a financial sector is money laundering. Here the blockchain technology will be able to store all that, so now we know it's not necessarily public information to whoever it want, but it's there, so we can decide what kind of mechanism and who will be exposed to this information, but it is tracked. That information exists, so we know where the money came from and where it's gone.

In a way that could happen I think that blockchain will probably affect the legal professions on technical side. On the other hand I think there's always be room for a need for the creative aspect of it. When issues don't fit exactly into those pre-defined draws, you'll need to figure out ways of dealing with it. Hopefully, 10 years from now we'll still have a profession.
Rafi Cohen
Principal at Cohen, Light and Associates
On the most basic level, blockchain represents a groundbreaking technology that will touch upon many areas of law, and in respect of which legal solutions will be needed to be thought through and applied. For example, questions of intellectual property law, such as regarding infringement, as well as data privacy and antitrust issues—just to name a few—will need to be examined through the prism of the novel technology.

In addition, blockchain has opened up new possibilities for the entirety of legally intensive fields, such as corporate structure, capital markets, and others, and this is irrespective of legal questions regarding the blockchain technology itself. For example, the advent of ICOs has garnered much attention from securities law attorneys. Will any given ICO be subject to securities regulations? This is a question that has, and will continue to be, analyzed intensively.

Finally, blockchain constitutes a technology that can have repercussions on the inner workings of the legal profession itself, through smart contracts, alternate escrow arrangements, alternate possibilities for dispute resolution, etc.
Eyal Haskal
Co-Founder of MH Law Office
It brings new business models and services, with strong focus on globality, decentralization, anonymity, etc. Those are not addressed (or partly addressed) by laws/regulations applicable in the different relevant jurisdictions, and sometimes there are conflicts between different jurisdictions approaches. We face lack of or conflicts between regulations, especially in these fields: securities, AML, tax, IP and data protection.

As lawyers, when in comes to blockchain activities we have to:
1) Go global and build a strong international team to represent the clients worldwide;
2) Be very creative when interpreting the existing laws which were acted a long time before the blockchain bloom;
3) Advocate blockchain activities when meeting/contacting the regulators.
Aviya Arika
Head of Blockchain Innovation at Nir Porat & Co. Law Firm
Blockchain is disrupting the concept of jurisdictions. With blockchain, you can have the closest thing to a "jurisdiction-less" company, in the sense that even if a company is registered in jurisdiction A, the decentralization and lack of central point of failure that blockchain brings into the picture disseminate the importance of the jurisdiction of the company itself and makes the jurisdictions of other business participants just as important. Therefore, legally, blockchain entails an amazing change which will not be free of difficulties, to say the least.

As blockchain expands into more and more industries, lawyers in these industries will have to completely change their thinking and working patterns, start thinking in terms of horizontal organizations and adopt border-less frameworks. In the legal and regulatory realms this is a very hard task, since states are sovereign and have their own regulatory bodies. Therefore, lawyers will need to become deeply familiar with many more jurisdictional legal frameworks in order to serve blockchain businesses appropriately.
Yigal Deitcher
Partner at ConsulTech
Blockchain is a game changing technology which will change basically all fields that adopt it. The legal profession will take more time to adopt uses of this technology but it can and for sure will be implemented. If just the fact that soon lawyers will be accepting funds from cryptoassets such as BTC.
Will current dispute resolution mechanisms be sufficient to settle blockchain disputes?
Jonathan Irom
Partner at Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co. Blockchain, cryptocurrency and digital coin practice leader.
One of the key features of current blockchain technology is the distribution and decentralization of the network, meaning that no single person or entity controls transactions conducted over the blockchain infrastructure. Current dispute resolution mechanisms could potentially be effective to settle blockchain disputes, in a similar manner to how they are used for resolving disputes with respect to e-commerce and online platforms.

One of the main challenges in implementing dispute resolution mechanisms in blockchain disputes would be ascertaining the identity of the counterparty to a transaction. Unlike transactions conducted through a financial institution intermediary, blockchain transactions could be conducted on a pseudonymous basis, making enforcement of court rulings difficult.
Saul Adereth
Partner at Shibolet & Co., Founding Member of Blockchain & Smart Contracts Group.
It is hard to imagine at this early stage if blockchain technology will bring about a new type of 'blockchain crime'. But other than that, the saying that 'the code is the law' also goes the other way – 'the law is the code' – the new technology is not likely to dramatically affect the common dispute resolution mechanisms.
Zvi Gabbay
Partner at Barnea & Co, Head of Financial Regulation and Securities Department.
First of all, dispute resolution mechanisms are mostly locals, and when you have international dispute resolution mechanisms, they become very complicated. In the business form, for example, you have arbitrations, well-known institutions in Paris or London that will have some kind of mutual ground. But still you have lawyers, coming and talking and becomes extremely cumbersome and expensive. So blockchain technology becomes more common and starts replacing the traditional ways of doing business that we are familiar with. It's just like an internet that turned the world in a global farm or made it smaller. I think the blockchain will make the world even smaller, and streamline processes, so it makes information more reliable and faster, and quicker. Not only information, but smart contracts, that's a part of the idea. I think that's all probably need to go through some kind of adoption, but maybe someone will develop based on blockchain technology, blockchain mechanisms of dispute resolution.

Once a world is getting smaller, it's tricking in terms of people interacting from different places in the world, you cannot rely anymore on local jurisdictions. And the law is still very local, it's not international. Most of the law is local, and the jurisdictions are very protective of their laws and like to distinguish themselves, which is fine in terms of financial services. If I have a found and i've got the approval of regulator in UK, it would be nice if based on the approval I can offer the same solution in USA, but I can't, because what's good enough for UK is not good enough for USA. And what's good enough for USA, is not good enough for Israel, and what's good enough for Israel is not good enough for Cyprus. So it's ridiculous. You may have a wonderful product, but then you need to go to each local jurisdiction and get the approval. Hopefully, one day this will be streamlined, but that's how law and regulation currently operate. That being said, due to the fact I think that blockchain will probably have an impact on making the world smaller, and the law will have to adapt as well.

Rafi Cohen
Principal at Cohen, Light and Associates
This will likely depend on the nature of the dispute. Because of the decentralized nature of the blockchain, questions of governing law and IP infringement, to choose but two examples, might be difficult to determine. Myriad legal jurisdictions are likely to be at play with respect to a given blockchain, and certain rules will have to take shape in order to deal with disputes relating to these sorts of cases.

In another example, blockchain technologies may simply present a defined set of parties with an alternate, potentially more efficient, means of entering into a contractual relationship. In such a case, the parties would be able to agree on the appropriate dispute resolution mechanism, whether these be existing mechanisms, or new blockchain-based mechanisms such as Jury.Online.
Eyal Haskal
Co-Founder of MH Law Office
Yes. But, like whenever litigation brings to court any other complex-professional issues (medical issues for example), we assume that courts shall be assisted by blockchain experts which shall provide their opinion.
Aviya Arika
Head of Blockchain Innovation at Nir Porat & Co. Law Firm
We believe not, and that relates to the previous question. In a world where legal jurisdictions bear little meaning, or in a business reality where a company or an agreement has hundreds of jurisdictions, current dispute resolution mechanisms will fail to keep up. It isn't farfetched to think that over time, smart contracts will revolutionize dispute resolution as well, or - that smart contracts will significantly reduce the need for dispute resolution, since unlike traditional contracts, smart contracts leave no room for interpretation and almost don't allow any manipulation after the business agreement has been reached.
Yigal Deitcher
Partner at ConsulTech
Even the most perfect ledger can sometimes be questioned and brought to court. I don't see this as any different.
How will the parties in distributed blockchain ecosystem determine which laws apply and which forum should be used to resolve disputes?
Jonathan Irom
Partner at Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co. Blockchain, cryptocurrency and digital coin practice leader.
We are already seeing a very large number of international transactions being conducted over the internet on a daily basis. In very much the same way, parties transacting over a blockchain network would be able to choose the set of rules governing their engagement, whether by choosing the laws of a specific jurisdiction or by accepting a voluntary code or self-regulation framework published by leading market players.

We believe that we will see many suggestions for a uniform voluntary code for blockchain transactions while specific jurisdictions are likely to continue enforcing domestic legislation (such as consumer protection or securities legislation) with respect to offerings made to their residents.

In this respect, as an example to the application of domestic legislation, it is worth mentioning a well-publicized Israeli district court ruling, in which the court held the foreign jurisdiction and governing law provisions in Facebook's standard terms of service and privacy policy to be invalid against Israeli users, under the reasoning that such provisions deter Israeli consumers from exercising their legal rights, while providing Facebook an unreasonable advantage over users.
Saul Adereth
Partner at Shibolet & Co., Founding Member of Blockchain & Smart Contracts Group.
This problem exists already today in every international agreement, and the terms and conditions of every website (which try to enforce a forum convenient to the website owner) and is even dealt with by the United Nations Convention on Contracts for the International Sale of Goods.
Zvi Gabbay
Partner at Barnea & Co, Head of Financial Regulation and Securities Department.
The jurisdiction will not be relevant anymore with blockchain technology
Typically, the way it happens today, I mean, it's not that we're going from living in cage to blockchain, so the world bounce and develops constantly, and we have internet, we have e-commerce all over the world. We have AliExpress and Israel is on the top 5 countries that spend money on AliExpress, which is amazing. When you use any platform, there's terms and conditions for the platform, so when you are entering and saying "Yes, I accept", you have to accept the terms and conditions, that I'm sure you read very carefully each time. And when section 4.3.1 is unacceptable to you, you email the company and tell them "I'm not gonna sign, because of, you know, section 4.3.1". That's typically how it works. AliExpress has its own terms and conditions, so it probably will be Chinese law, Apple has their things, and each company has its own mechanism.

Now, the more we became global, the less it would be important is to where you are located physically, than maybe there is room to think of other alternatives. For example, if we are talking about decentralized coins, no one stands behind them, so you have this diversity, and theoretically you could also have the mediation model that we have in Coti. Its diversified mechanism of distript resolution has nothing to do with a country's law. I think the jurisdiction will not be relevant anymore with blockchain technology. There is a need to develop relevant and diversified non country-based dispute resolution mechanism.
Rafi Cohen
Principal at Cohen, Light and Associates
This is certainly a question that will have to be addressed. It remains to be seen whether existing legal procedures for determination of forum in scenarios which bear some similarity to the class of parties in respect of a given blockchain, such as class actions by an international consortium of shareholders, will be applied. In any event, existing legal frameworks will have to be tweaked in order to cater to the peculiarities of blockchain in general and the nature of any specific blockchain system.
Eyal Haskal
Co-Founder of MH Law Office
Like in any other field, it's a commercial issue, which is subject to negotiation. Normally, we assume that parties shall seek a law and venue with friendly arrangement regarding the blockchain space, with a deep understanding and (a sort of) history/experience in that space (precedents higher the level of certainty), and of course, there are always general issues relating to the picking of certain law (for example: exclusion of liability arrangements) or venue (for example: litigating in the residential jurisdiction, low litigation costs, etc.)

Any choice of law, of course, shall be subject to the cogent laws applicable in any jurisdiction (a party cannot pick a favorable securities law of certain jurisdiction, and each jurisdiction protects its citizens/residents.)
Aviya Arika
Head of Blockchain Innovation at Nir Porat & Co. Law Firm
Currently, parties to distributed mechanisms choose an arbitrary jurisdiction or choose to include any relevant jurisdiction involved in the business as an optional one. Even though this is a reasonable solution, it is still an outcome of trying to drive a car on a road made for horses. Blockchain companies and distributed business arrangements already widely exist, but for the most part, they still have to use "old world" infrastructure. Blockchain started out by disrupting banking and financial systems, but it will not stop at that. It will move on to disrupt and revolutionize insurance companies, aviation, military, medical services, and, among many more - legal mechanisms including dispute resolution.
Yigal Deitcher
Partner at ConsulTech
This is the same as any Internet law. Some ICO's will have a governing law stipulated within the white paper and that will be the forum to decide and others will be based on who brings the claim first to court and the court will decide if they are the correct forum.
Which data protection laws will apply in blockchain companies?
Jonathan Irom
Partner at Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co. Blockchain, cryptocurrency and digital coin practice leader.
As opposed to the Bitcoin and Ethereum networks, where a user's identifier is a string of code commonly referred to as "wallet address" and the blockchain does not contain the user's actual name or information, various blockchain networks currently under development are looking into collecting and transferring users' personal identifiable information.

When collecting and processing personal information, the key issue is to obtain the data subjects' consent for the collection, use and transfer of their personal data. Such consent could be obtained as part of the onboarding process when registering for use of a certain blockchain or utilities built on top of such blockchain.

With respect to data protection legislation, businesses collecting personal information will need to comply with the specific legislation of each jurisdiction in which data subjects are located.
Saul Adereth
Partner at Shibolet & Co., Founding Member of Blockchain & Smart Contracts Group.
National and global data protection laws (such as the GDPR) might already apply to various aspect of data transmitted over the blockchains, and this is the main drive behind the efforts to deploy reliable zero-knowledge proof algorithms.
Zvi Gabbay
Partner at Barnea & Co, Head of Financial Regulation and Securities Department.
Today in almost every ICO there is typically a country that let it's base-stand, there's a country of incorporation and that is where we do have some kind of geographical place to land our feet. The more we detaching ourselves from countries, the more we need the development of best practices. We see there's some in ICO industry, but there is no country that says "come to us and I'll tell you exactly what the recipe is for ICO and you're perfectly fine doing through this is 1-2-3-4 life description". It's not the case.

The second thing is that we like certainty. We like rules. Tell me what is allowed and what's not allowed. When no country set any rules, there's uncertainty. And it's something that as lawyers no one likes. But what you see, nevertheless, lawyers also like to make money. So if a client come over to them and say "I want to do an ICO", the answer is not "I can't help you", because there are no laws. You say "sure, I can help you", because we wanna make money.

But what's happening slowly is that you seeing, that companies that don't match the highest standard in those best practices are having a very difficult time attracting investors. So it's funny, but this distributed diversified market that is dictating the rules. It's funny because what we've just heard now (we were in a meeting with other law firms in a round table at the Israeli regulator, thinking about how to regulate the market, and what we were talking about is how the market is punishing that actors.

If you raised money at ICO and you're making your developments, but you are not sharing information about what's going on, if you took my money, but you are not telling me what you are doing with it, you're gonna be punished by the community, by people from all over the world. So there's no one regulator. There's no one set of rules. Now it's the same thing if that demand for information, but it's the same thing demanding you protect our money, and you protect our privacy.

When you create rules, then you need to make sure to expect people to follow these rules. And the thing is that when you are in a global arena, when you are interacting with people from all over the world, then there is no chance in the world that you can obey by all the protection laws all over the countries. Let's say we'll implement GDPR, so we'll be okay in terms of European Union, and also US, because I'll look at the major markets. There's no way in a world that I can make sure that I'm fine with Indonesia, because I just won't do it. I won't even think about doing it. And on the other hand, what the Indonesians gonna do? They gonna reach out to me, they gonna reach out to everyone, so there's no point in creating rules. That's what I'm saying. The legislator will have to adapt.
Rafi Cohen
Principal at Cohen, Light and Associates
Due to the increased popularity of blockchain coming at the same time as the advent of the EU's expansive new GDPR obligations regarding data privacy, many have sought to apply GDPR obligations to distributed ledgers. This exercise is a solid foundation in beginning to answer the above question. For example, there is currently some disagreement as to who on the blockchain would be a "data processor" and who would be a "data controller" under the GDPR. This is a complicated question, but it is reasonable to believe that, as blockchain-based technologies gain steam, the answer will be clarified by applicable legislators. A similar process will follow for other data privacy regimes.
Eyal Haskal
Co-Founder of MH Law Office
Each jurisdiction protects its own citizens/residents, therefore, generally, a compliance with all the laws applicable in all the target/market jurisdiction is required.
Aviya Arika
Head of Blockchain Innovation at Nir Porat & Co. Law Firm
We actually don't see that much room for concern. First of all, there are wider directives of data protection rules in place today, beyond the nation basis. Therefore, for example, EU or US Federal data protection rules can be applied, depending on the case. Another option is for the business to map main target markets in advance, and then seek counsel in each of those locations in order to ensure compliance to all of the relevant sets of rules. Many times, data protection rules in one country resemble those of another, as the underlying interests and objectives of the law and the regulatory authorities are similar.
Data protection law will need to adjust to blockchain and regulators will have no choice but to observe the reality through new paradigms.
It's more important to note that current data protection regimes were put in place before blockchain. These regimes are aimed many times at "third parties" holding a large amount of trusting clients' data, clients who have no choice but to entrust their personal information with those third parties. Blockchain changes that. Blockchain enables a system of "dis-trust", meaning that the end users don't need to trust any intermediary or third party with their personal data anymore.

Data protection laws sometimes force affected bodies to ensure anonymity, or pseudonymity. Blockchain inherently contains these traits - and this is just one example for how blockchain makes many data protection rules superfluous. Data protection law will need to adjust to blockchain and regulators will have no choice but to observe the reality through new paradigms.
What is the legal status of a distributed autonomous organizations?
Jonathan Irom
Partner at Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co. Blockchain, cryptocurrency and digital coin practice leader.
Unfortunately the legal status of an entirely blockchain-enabled organization is still very uncertain in the vast majority of jurisdictions. In its famous investigative report with respect to the DAO, the US Securities and Exchange Commission announced that the DAO, an unincorporated organization introduced by the founders of Slock.it, a German corporation, had violated US federal securities laws by offering securities for public sale without complying with SEC registration requirements. The SEC further clarified that the automation of certain functions through blockchain technology, does not remove conduct from the purview of the U.S. federal securities laws. This SEC publication, together with similar announcements from regulators over the globe, currently challenges the possibility of investing in a decentralized common enterprise with an expectation of profit through a public token sale.

There still remains substantial ambiguity as to regulators' position on decentralized common enterprises where contributors are not investing funds with expectation of profit. We expect to see an evolution in the laws relating to these topics as use of the blockchain grows and legislatures are forced to relate to the legal challenges created as a result.
Saul Adereth
Partner at Shibolet & Co., Founding Member of Blockchain & Smart Contracts Group.
Currently there is no legal status to such entity, and the extremely distributed nature of the controllers ('owners'?) of such entities will make it extremely difficult to assign a jurisdiction. That is why, in the case of The DAO, the majority of claims by the SEC were made against the entrepreneur and the developers.
Zvi Gabbay
Partner at Barnea & Co, Head of Financial Regulation and Securities Department.
Technology will always be ahead of law, will always be ahead of regulation. By definition, always. For lawyers, legislators and regulators it takes some time to identify new technological developments, and it takes even longer to figure out how to address what they've identified. It always takes time. I actually was interested to see in the areas of ICOs how relatively quickly regulators and legislators are addressing the issue. But that's a good question. It's a new world, so I don't know what's the legal status.
Rafi Cohen
Principal at Cohen, Light and Associates
This is a difficult question, because the DAO is quite a unique structure which requires some knowledge about the technical framework that underlies any such entity, which come in many shades and colors. It will certainly be a challenge for different regulators to apply existing systems to DAOs in a comprehensive and appropriate manner. There are those who have compared laws governing general partnerships to DAOs, but it seems as though any given DAO will more likely take the form of a more nuanced conglomerate of different players that needs to be specifically addressed, with special regard for the rules that will account for its "corporate" governance and decision-making after it is launched.
Eyal Haskal
Co-Founder of MH Law Office
We are not aware of any tailor-made law applicable to DAOs, so general laws apply here to the legal entities or individuals which are the developers, promoters or operators of any such DAO.
Aviya Arika
Head of Blockchain Innovation at Nir Porat & Co. Law Firm
A DAO, or as we prefer to call it in light of the DAO negative connotations, a DAC (Decentralized Autonomous Community) is essentially the blockchain ecosystem's idea of a corporation. In the blockchain sphere, normal corporations with vertical control structures and concentrations of decision making power at the top can no longer exist. Blockchain calls and allows for organizations or communities in which the customer, the employee and the shareholder become one. Through incentive models and distributed decision making and voting mechanisms, all of these participants' interest become entwined in one another.

As a community member, one's interests would lie in the success of the community, and would be overlap the interests concerning one's own success. Therefore, one would wear the shareholder, employee and customer hats, among many more possible hats, at the same time and with no distinction. DACs rely on incentive models and distributed control instead of on discipline and company rules and procedures. Blockchain rules such as the consensus rule are the new discipliners.
Yigal Deitcher
Partner at ConsulTech
It is still very early to put a definition on how a DAO will be viewed. This will have to be brought to court and decided by court in each jurisdiction.
Will it be possible to capture all the elements of a 'traditional' contract in the smart contract?
Jonathan Irom
Partner at Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co. Blockchain, cryptocurrency and digital coin practice leader.
The short answer is probably not. The longer answer is that even the best agreements and the most seasoned legal professionals cannot anticipate every potential scenario or circumstance. Agreements sometimes determine principles and general guidelines rather than specific rules. It would be very challenging for current blockchain technology to introduce such principles and general guidelines into smart contracts. Smart contracts have the potential to solve certain technical aspects of contracts, freeing up human time to focus on those aspects of interpretation that require applying judgment.
Saul Adereth
Partner at Shibolet & Co., Founding Member of Blockchain & Smart Contracts Group.
Some simple contracts and standard contracts might very well be codified. But for the most part, a contract is a product of negotiations (and is also defined in this matter in many legal systems) and reflects specific needs, desires and worries of the involved parties – and these are harder to be codified, if at all.
Zvi Gabbay
Partner at Barnea & Co, Head of Financial Regulation and Securities Department.
Of course. I think the smart contract will have a lot in common with commercial agreement, because now, when you are doing an M&A or doing any business together, you are obligated to bring some governmental documents, bank documents, financial documents, and a smart contract can assure that at the closing date or in a signing day all the documents will be collected together, because this might be a point a of a smart contract.
Rafi Cohen
Principal at Cohen, Light and Associates
Anything is possible, but in order to arrive at such a reality, talented contract lawyers and blockchain programmers, among others, will need to come together to create and develop powerful new products. Intuitively, it seems that widespread adoption of smart contracts would occur in connection with straightforward transactions, such as purchases of defined assets or services. These are well-suited to smart contracts due to their self-executing nature, which takes away the requirement for a designated middleman and/or other contractual stipulations needed so as to reduce counterparty risk.

However, maintaining a smart contract blockchain, such as an Ethereum-based one, is expensive, and absent significant technological advances it wouldn't make sense to use these contracts unless there is a high value or risk associated with a transaction. Either way, there will undoubtedly be technical and legal challenges that arise along the way, and attorneys seeking to specialize in this area will probably have to acquire a skill set not traditionally associated with the profession.
Eyal Haskal
Co-Founder of MH Law Office
We don't think so. For example, how can you code arrangement which give a party a right to act based on its reasonable considerations? How can you code loyalty or honesty obligations? How do you code an obligation based on quality and not quantity?
Aviya Arika
Head of Blockchain Innovation at Nir Porat & Co. Law Firm
It is already possible to capture the essential elements of a traditional contract in a smart contract. Generally speaking, in traditional contracts there are many superfluous, over-complicated terms and clauses, meant to prevent misinterpretation or manipulation of the agreement terms. Smart contracts allow almost no room for these mischiefs and so, the need for the complicated clarification or disclaimer clauses becomes much smaller. The conclusion is that with smart contracts in their fully-developed and adopted form, there is no need for traditional contracts only just make things less clear and more complex.
Yigal Deitcher
Partner at ConsulTech
In my opinion, there is always some clauses which may be important to an individual or organization which may need to be added into a contract. However, some of the smart contracts it makes sense that there would be no need for any additional clauses.
How will blockchain-enabled assets, such as Bitcoin, be recovered if they are stolen?
Jonathan Irom
Partner at Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co. Blockchain, cryptocurrency and digital coin practice leader.
This is one of the biggest challenges blockchain technology is facing. Currently the only way to recover stolen crypto assets is to make changes to the decentralized ledger, which requires a very wide consensus among a network's users. Introducing a centralized entity which has the technical ability to make changes to the ledger is a possible solution, but this would miss out on the entire concept of having the blockchain decentralized.
Saul Adereth
Partner at Shibolet & Co., Founding Member of Blockchain & Smart Contracts Group.
It is likely that as the technology will become more user-friendly, and the masses will become involved in the technology – people will understand that with the great freedom of self-control over assets, comes great responsibility and great risk.

At that point, I foresee that current middlemen disposed by the technology, will be replaced by new middlemen, in charge of securing and insuring the assets.
Zvi Gabbay
Partner at Barnea & Co, Head of Financial Regulation and Securities Department.
I have no idea. How do you prevent this? There needs to be some kind of mechanism, that allows to expose hacking, that allows to expose internet-based theft. It will have to happen.


Rafi Cohen
Principal at Cohen, Light and Associates
With regard to cryptocurrencies such as Bitcoin, the process of having the asset classified as a currency (for example, as is happening in certain states in the US), will go a long way toward providing victims with a more defined legal framework for recovering losses. Another avenue that victims have been using are negligence suits filed against exchanges that have been hacked. Ultimately, though, the answer to this question will depend on the status of the cyber wing of law enforcement agencies around the world, because there will be insufficient protection in this field unless law enforcement has enough qualified manpower to keep up with the sophistication of the thieves in what has become a vast industry.

Another issue at play here is jurisdiction, as exchange and cryptocurrency managers, hackers and currency owners are sometimes difficult to locate.

We have a client who is currently undergoing this attempted currency recovery process through a European police department. As blockchain enabled assets become more prevalent the prosecution and enforcement process will certainly become more sophisticated as well.
Yigal Deitcher
Partner at ConsulTech
The same as any asset which is stolen. I presume that soon insurance companies based blockchain technology shall soon be insuring users' crypto assets.
What is the current status of ICO in Israel?
Jonathan Irom
Partner at Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co. Blockchain, cryptocurrency and digital coin practice leader.
The ICO market in Israel is booming and multiple new ICO projects are being introduced every week. It is very interesting to see how an entire ecosphere is being formed around such projects, from traditional service provides such as law firms, accounting firms and financial institutions starting to specialize in blockchain projects, through the creation of a market of advisors, PR firms, storytellers and similar businesses offering ICO related services, to private investors, private equity and venture capital joining the market as investors or crypto token purchasers. That being said, with the large number of new projects it has become more difficult for projects to stand out of the crowd and draw attention from purchasers.

The current legal status on ICOs in Israel is uncertain. The Israeli Securities Authority has established a committee to examine the proper legal treatment of ICOs in Israel, and is aiming to have initial recommendations by the beginning of 2018.
Saul Adereth
Partner at Shibolet & Co., Founding Member of Blockchain & Smart Contracts Group.
ICOs in Israel, as in most places around the globe, do not have specific sets of regulations. Therefore, the most applicable laws are the securities law.

Israeli Securities Law has a very broad definition of what constitutes a security, and most of not all tokens fall within that definition. That being said, as a matter of policy, different types of contracts and commodities, which technically fall under this definitions – are not pursued as securities.

For this matter, the Israel Securities Authority and the Israeli courts have previously adopted the U.S. 'Howey' test for recognizing unusual instruments as securities. Using this test, there are numerous tokens that will escape the definition of securities, in which case they may be offered in Israel, with no specific set of rules applying to such offer.
Zvi Gabbay
Partner at Barnea & Co, Head of Financial Regulation and Securities Department.
The current status of ICO in Israel is undecided. I'm assuming that Israel Securities Authority will definitely use some aspects following the main regulators in the world that have already provided their opinion. First of all, if you're issuing a coin or a token, and that coin and token act like a security, then it's a security. And if it's a security, then security's laws will apply.

The question is what you do with ICOs and ITOs of products that are not securities. So here regulators need to figure out what to do. On the one hand there's an approach that says, if it's a utility token, it's not a security. So theoretically in a typical commodity, utility, crowdfunding typically in this case there is no regulation.

But the risks are extremely high, the amounts of money are crazy high. It's really a new form of funding businesses, so in reality, Israel Securities Authority need to figure out what is it. And they don't know. It needs to be based on some form on the regulation that applies to crowdfunding of shares, but we need to change it, if a token is not a security. I think we need to develop specifically tailor-made regulation, that will be based on crowdfunding platforms for these types of things, but I don't know yet what the ISA will do.
Rafi Cohen
Principal at Cohen, Light and Associates
There have been a number of recent token issuances coming out of Israel, and we have seen among our own clients an interest in raising capital through ICO. The ICO mechanism provides a new opportunity for companies seeking to raise capital and expand their user/investor/partner base. It is too early to fully take stock of whether or not this medium offers more value than risk. Ultimately, an investment must be evaluated on its own merits and the ICO buzz can sometimes cloud what otherwise would not be an opportunity worth acting upon. From a regulatory perspective, the Israeli Securities Authority has yet to issue conclusive guidance as to how to view tokens. It is likely that regulation will somewhat mirror guidance issued by the SEC in the US, which has taken a somewhat stringent approach toward token regulation.
Eyal Haskal
Co-Founder of MH Law Office
We are not aware of any law which directly applicable to the offering of tokens. We have to interpret the general principals and existing language of the Israeli securities law. The same applies to taxation.
Aviya Arika
Head of Blockchain Innovation at Nir Porat & Co. Law Firm
There is no regulatory stand in Israel referring to ICOs. Similarly to the US SEC, The Israeli Securities Authority is examining the possibility of applying existing securities laws to ICOs taking place out of Israel or appealing to Israelis. Practically, we don't see many ICOs registering themselves in Israel – mostly for tax reasons and due to typical regulatory stiffness.
Yigal Deitcher
Partner at ConsulTech
There have been some very successful ICO's in Israel including Bancor and many others. The law in Israel is still lagging behind with respect to taxation however I do see the legislators regulating this quite quickly.
What is the current status of cryptocurrencies in Israel?
Jonathan Irom
Partner at Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co. Blockchain, cryptocurrency and digital coin practice leader.
More and more people and businesses in Israel, from households to hedge funds, started diversifying their investment portfolio by investing in cryptocurrency. In parallel, more and more business in Israel are accepting cryptocurrencies as a means of payment for products or services. The growth in the use of cryptocurrencies in Israel during the last year has been phenomenal and we do not see the trend slowing down.

The tax authorities initially issued guidance stating that cryptocurrencies would be viewed as an asset. They have recently indicated that their viewpoint on that may evolve further. The Israeli Securities Authority and the Finance Ministry are currently evaluating their view on the treatment of cryptocurrencies. Banks currently view cryptocurrencies as high risk for money laundering and terrorist financing activities and therefore have so far chosen to refrain from engaging in the cryptocurrency market.
Saul Adereth
Partner at Shibolet & Co., Founding Member of Blockchain & Smart Contracts Group.
Cryptocurrencies are legally defined in Israel as 'financial assets' and starting in 2018, and any Israeli business which seeks to provided financial services with respect to cryptocurrencies (mainly exchanging with fiat money or between cryptocurrencies) will require to obtain a license.

That being said, the definition will not preclude other authorities to define cryptocurrencies in other ways for different circumstances (for example, the Taxes Authority provided an initial non-binding opinion, according to which cryptocurrencies are assets, and therefore ICOs are viewed as a sale of assets, and should be taxed accordingly).
Zvi Gabbay
Partner at Barnea & Co, Head of Financial Regulation and Securities Department.
The formal approach that Israel Tax Authority have taken is that cryptocurrency is a commodity, so it's like oil, it's like diamonds. The tokens is a different issue. In June 2018 new legislations going to become effective in Israel. So if I am in exchange business and exchanging fiat into cryptocurrency, or cryptocurrency into cryptocurrency, or if I wanna become a broker in that area, if I'm providing any type of financial services in connection with cryptocurrencies, I will need a license. So, let's wait to June.


Rafi Cohen
Principal at Cohen, Light and Associates
Israel is not yet famous for its cryptocurrencies. Whether or not Israeli entrepreneurs enter the cryptocurrency market will have a lot to do with how the Israeli Securities Authority and Tax Authority ultimately elect to view and regulate cryptocurrencies. Regulation is yet unformed, but will likely be coming soon, which will allow us to better evaluate the cryptocurrency market in Israel.

Regarding the trading among Israelis of other cryptocurrencies, such as Bitcoin, there is of course much activity here (along with almost everywhere else in the world). It is not yet fully clear how cryptocurrency transactions will be viewed under Israeli law and regulations, including regarding the applicable tax regime. The tax authority issued a draft tax circular in January 2017, in which the position was taken that Bitcoin is not a currency and that, inter alia, applicable capital gains/corporate tax/VAT requirements would be applied to Bitcoin transactions. Certain aspects covered in the circular, such as VAT reporting requirements for each Bitcoin transaction, have not been enthusiastically received by the cryptocurrency community, and it remains to be seen what regulations will finally come into effect.
Eyal Haskal
Co-Founder of MH Law Office
No direct references in Israeli laws, other than reference to virtual coins in Financial Supervision and AML laws. Again, general laws apply here.
Aviya Arika
Head of Blockchain Innovation at Nir Porat & Co. Law Firm
Israeli authorities made a few references with regards to cryptocurrencies, or virtual currencies, as they like to call it, and there is also new legislation addressing the matter. In 2014 the financial authorities in Israel issues a combined notice which essentially warned the public, as well as credit and financial institutions from adopting virtual currencies. The reasoning behind that notice was based on several issues, the first one being the fact that these virtual currencies are not of legal tender status in any country. The second one was the money laundering and terrorist financing risks which those currencies supposedly entail. Then, the notice maintained that the virtual currencies are a convenient platform for scammers, frauds, and that they are too volatile, prone to stealing and not sufficiently supervised.

The next official reference was in the beginning of 2017, when the Israel Taxes Authority published a draft of an Income Tax Memorandum addressing the taxation status of virtual currencies. This document, although being merely a draft, set the observation of virtual currencies from a tax perspective. It stated that virtual currencies are neither a currency per se, nor a foreign currency or a security, rather an asset. This is somewhat aligned with the American IRS standpoint which views cryptocurrencies as property.

The Israeli Tax Authority's categorization of a virtual currency as an asset meant that if one is trading cryptocurrencies (privately) and profits as a result, then they would be subject to capital gains tax, and in the other case where one is involved in trading, buying or selling cryptocurrency as an occupation, then income tax would be applied, same as any other business.

In last June, new legislation came into effect, the first one to specifically contain (yet not define) "Virtual Currency" within it. It changes the legal arrangement regarding companies or individuals involved in providing "Financial Assets Services" and Non-Institutional Credit, and it replaced the existing arrangement regarding Currency Exchanges.

The meaning of this new law is that a company wishing to perform exchange services involving virtual currencies in Israel, would need to obtain the license specified therein. Beyond the inclusion of virtual currency related activity, there are substantial differences between the current and future regime, like a 300,000 NIS capital requirement for a basic license or a 1,000,000 NIS requirement for an extended license, increased transparency and report requirements, and much stricter screening criteria for applicants.
What are the future trends of blockchain in Israel?
Jonathan Irom
Partner at Gross, Kleinhendler, Hodak, Halevy, Greenberg & Co. Blockchain, cryptocurrency and digital coin practice leader.
Israel is no doubt the leading country in terms of blockchain technology innovation
A lot of projects in various fields of business are looking into incorporating blockchain technology and tokens into their products and services, while, in parallel, many projects are focused on introducing various "native" network projects aimed at replacing or improving the current blockchain infrastructure.

We think that we will see many new projects being introduced in the near future, while, in the not so near future, we will see the blockchain market as a whole moving towards some standardization, with specific networks and projects "winning the market" by taking larger portions of the business activity conducted over the blockchain. Israel is no doubt the leading country in terms of blockchain technology innovation and we strongly believe that the projects launched from Israel could be the ones to revolutionize and take over the blockchain market.

As the blockchain market in Israel grows, we believe that we will begin to see legislation introduced to regulate various aspects of the market. Current indications are that the regulators are looking towards enhancing the market rather than stifling it, and are taking industry perspectives into account. These are encouraging developments, and we believe that if implemented properly, legislation can have the effect of promoting the growth of a healthy market.
Saul Adereth
Partner at Shibolet & Co., Founding Member of Blockchain & Smart Contracts Group.
We see a huge number of Israeli companies interested in developing blockchain platforms and blockchain-based solutions. Currently, these companies are pushed overseas, mainly due to better tax planning. But we are hopeful that the regulators will provide holistic solutions aimed at attracting more businesses to remain in Israel, and attract foreign investors to invest in Israeli technology.
Zvi Gabbay
Partner at Barnea & Co, Head of Financial Regulation and Securities Department.
Iit's a very lively industry, there's a lot going on ICOs and technology developments. I think Israel could catch the real chunk of the global scene. At least from our perspective, people in Israel are expecting for regulation and waiting for Israel Securities Authority. They are waiting for a little more certainty, and that is an interesting phenomena, because Israelis are usually okay with uncertainty.
Rafi Cohen
Principal at Cohen, Light and Associates
Blockchain technology is here to stay. Major international corporations, banks, financial institutions and technology companies are developing blockchain based platforms, either for internal or external use. Israeli entrepreneurs recognize the movement toward blockchain adoption as a technology and are rapidly moving to develop blockchain based startups. We anticipate that as the world moves more and more toward blockchain technology as a core platform, Israel will be at the forefront of that movement in terms of innovation and development.
Eyal Haskal
Co-Founder of MH Law Office
ICO market is cooling a bit. Funds investing in cryptocurrency and blockchain entities – hot. The market (like worldwide) looks for liquidity solutions and alternatives to Ethereum protocol.
Aviya Arika
Head of Blockchain Innovation at Nir Porat & Co. Law Firm
Israeli entrepreneurs are a forward thinking folk. Just like Israel came to be a front runner in the medical, military and AI industries, we see many things happening in the blockchain sphere. We see a lot of action in the ICO (we prefer "token sales") sphere, many token sales teams and minds based in Israel, token sale specific marketing agencies emerging, and also a great amount of action in the VC, PE and hedge funds involvement in blockchain ventures and in fund tokenization.
Yigal Deitcher
Partner at ConsulTech
Israel - the Startup Nation is always first to see trends and adopt new technologies. I see the first top companies which use the blockchain technology come out of Israel. Although this like ICQ, Better Place and other Israeli companies may be first, have a great idea and an amazing company but afterwards some other companies will either acquire their IP or create a better version using the blockchain technology. It is important for me to emphasize that blockchain is the most disruptive technology that I have seen since the Internet.
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