The trial court explained that the details of the public key, and especially the private key, are stored in the private Bitcoin wallet. The Bitcoin wallet does not contain the stored value of Bitcoin, but rather allows access to the blockchain (a visible ledger of transfers) and transactions at the relevant public address using the private key stored in the wallet.
- All of what has been said so far has been described, as a prelude to the fact that for our purposes, the public key, and more importantly, the private key, can be recovered by means of recovery kernels. They can be used to recover the wallet and gain access to the public and private key, even on a device other than the device on which the digital wallet was created. The kernels of the reconstruction are a string of words that are written in a certain order. By entering the words into the software, it is possible to generate the public key and the private key. A recovery kernel as well as a Bitcoin wallet are means to generate a private key through which at the end of the day a given value of Bitcoin can be transferred from one public address to another.
Hence the conclusion that the transfer of information about the recovery kernels gives the new data holder the ability to have irrevocable control over the contents of the wallet, since it allows for a transaction to be executed unilaterally.
The words and determinations of the trial court so far are acceptable to me, and it seems that they are even acceptable to the appellant's counsel (see paragraph 36 of the notice of appeal).
- According to the appellant, the transfer of the recovery kernels as an asset/property owned by him to the authorities in the United States, an action that was carried out in violation of the law, in a flawed proceeding, violated his proprietary rights. All this, in contrast to the Inter-State Legal Aid Law, which requires unique procedures when it comes to the transfer of property (as opposed to mere evidence). According to him, the reconstruction nuclei do not constitute only an object/evidence within the meaning of this term in the law in legal aid, but rather it is actually property for all intents and purposes.
- According to the Respondents, the computer material extracted from the Applicant's computer was transferred to the authorities in the United States in accordance with the Inter-State Legal Aid Law. An "object" is defined in the Legal Aid Law as computer material as defined in computer material. It was claimed that no property was transferred, but rather a transfer of a copy of information/evidence that led the American authorities to temporarily seize the property.
- The appellant argued that even under the "naïve negligence assumption" that the materials were not deliberately transferred by the Israel Police in favor of the seizure of Bitcoin in the United States, the police should still have warned and clarified to their American colleagues that the reconstruction kernels contained in the transferred material were provided as evidence and for investigative purposes only, and not for the purpose of seizure and forfeiture.
According to Israeli law, an asset that can be seized in a temporary forfeiture order is any type of valuable property right, whether it is material objects, money, or any right that may be expressed in material value. Therefore, according to the appellant, since the Legal Aid Law does not allow the removal of property from Israel for the purpose of seizure by a foreign country, but only permits the enforcement of the seizure in Israel, the transfer of the recovery kernels to the United States is contrary to the provisions of the law and the purpose of the law.
- As stated, according to the state, the original computer material, or the original computer, was not transferred to the American authorities, but only a copy of the original material was transferred, and therefore this is not a proprietary transfer.
- Hence the importance of the conceptual-legal decision, what is the classification of the recovery kernels that were transferred to the US authorities as part of the computer material that was transferred, whether it is "evidence material" or "property located in Israel".
- The Honorable Court of First Instance ruled that by transferring a copy of the computer material while leaving the 'iron' in Israel, the appellant's proprietary right was not violated. The trial court's conclusion is that the process of transferring the recovery kernels itself has no property value unless it is accompanied by a transfer of the Bitcoin from the original virtual vault to a vault controlled by American law enforcement. Only at this stage was the property of a certain person damaged. The trial court also ruled that if the private key is lost without copies of it, there is in fact no way to carry out transactions from that public address, and the value of the Bitcoin stored in it will be lost forever.
Therefore, the trial court held that only the transfer of the coin itself - its movement from one place to another - will be defined as seizure of property.