Israeli attorneys can accept payment in bitcoin. This ruling was made this month by the a regional ethics committee of the Israel Bar Association, despite the regulatory problems surrounding the independent virtual currency.

Bitcoin is a decentralized virtual currency based on a system of encrypting and mining – or, in other words, open-source software – that enables secure online transactions. The currency was first introduced to the public in a 2008 paper by Satoshi Nakamoto - apparently a pseudonym. If you are online, you can own, use and trade in bitcoin, even using a false identity. Its clandestine nature enables it to operate “under the radar” of economic, tax and law enforcement authorities, while its exchange rate in relation to other currencies is determined by the markets that trade in bitcoin. Nevertheless, buying bitcoin through the use of traditional currencies could expose buyers to the authorities.

In 2012, the European authorities granted bitcoin the official status of a supplier of means of payment, and assigned it the code of an international bank. The central bank of Thailand, however, recently outlawed the use of bitcoin, pending further investigation.

In Israel, the banking system has placed restrictions on commercial transactions based on bitcoin, while the Bank of Israel yet to decide whether to require the nation’s banks to permit or forbid such transactions.

The Ethics Committee’s decision was made in response to an inquiry by attorney Matan Shok. The bitcoin community asked Shok, who himself is in possession of the currency, to advertise on its website that he is prepared to supply legal services in return for payment in bitcoin. The rules of the Israel Bar Association’s Ethics Committee state that “attorneys must be paid with money for their professional services.” Since he was dealing with a precedent, Shok turned to the Tel Aviv-Central District Ethics Committee for a ruling, which was handed down two weeks later. “There is no reason why attorneys cannot supply legal services in return for payment in bitcoin,” Michal Kasotsky-Yehezkel, coordinator of the Ethics Committee, wrote.

The committee’s authorization is the first part of a two-stage process that, if successful, will enable Shok to be paid in bitcoin. The second involves applying proper taxation procedures in transactions involving the currency. Since value-added tax receipts cannot be issued in bitcoin, and since the currency has no official exchange rate, it is still unclear what bitcoin-shekel exchange rate can be applied for the purposes of issuing a VAT receipt.

“The entire issue of bitcoin raises complex, complicated legal questions,” Shok told Haaretz. “The difficulty of identifying those who pay in bitcoin can generate serious problems in various fields – such as gambling, drugs, payment for illegal activities, etc. However, today an attorney can receive payment in cash and, when you receive cash, there is no way of tracing the source of the money. Personally, I think that the Ethics Committee should not issue rulings on moral questions, unless it considers bitcoin a legitimate currency. According to its decision, the answer is yes.”

In April, Army Radio reported that Israeli banks were making it difficult for their clients to buy bitcoin. A month later, a client of First International Bank of Israel, Assaf Bahat, complained that the bank forbade him to conduct commercial transactions in that currency.

“Virtual currencies,” the bank informed him, “are anonymous and cannot be monitored. Transactions in such currencies are not regulated and thus pose a high risk for the bank.” Regarding the loopholes existing on the web, the bank added, “Transactions in virtual currencies are neither regulated nor monitored and they present a high risk of both money laundering and the funding of terrorism.”