Deciding on these questions is very important for the police to deal with international crime, which is partly carried out in Israel and which makes use of cryptographic assets. For this reason, I have decided to grant the Applicant permission to appeal "in a third incarnation" against the decision that is the subject of the application.
- I will preface by stating that I have decided to accept the appeal, to cancel the decision that is the subject of the application and to determine that the applicant acted lawfully, within the framework of Section 3 30Police Ordinance, regarding its voluntary cooperation with the Tether. As a result of this determination, Freezing the digital wallet and cryptocurrencies by Tether, as stated, was done of its own free will - and is still dependent on its consent - Not damaged by any defect. The Police's Authority to Initiate and Maintain Voluntary Cooperation is Anchored In section 3 30Police Ordinance - This is because it is a voluntary action that does not impose anything on the Respondent or on the Company Tether. I come to a similar conclusion with regard to the second issue, which concerns the Magistrate's Court's authority to issue an order.
- My way of reaching these conclusions will be as follows. First, I will discuss the nature of various types of cryptocurrencies and their location in relation to the ability of the Israel Police to seize and freeze them as part of an investigative process. Afterwards, I will make a fundamental distinction between actions by government authorities, such as the police, which constitute coercion and deprivation of enduring rights, and actions that are free from coercion and infringement of rights. In this framework, I will discuss the case law that determined that actions of the first type require explicit authorization by virtue of the Knesset Law, which does not contradict any constitutional norm, while actions of the second type - which are free from coercion and infringement of granted rights - can rely on general authorization, such as section 3 of the Police Ordinance, which authorizes the Israel Police to engage in "the prevention and detection of offenses, the apprehension of offenders and their prosecution, in the safe custody of prisoners, and in the maintenance of public order and the security of life and property." Afterwards, I will move on to the application of the aforementioned rule to the facts of the present case and examine the Magistrate's Court's authority to issue appropriate orders. I will also examine the implications of the freeze order issued by the Magistrate's Court, which, as noted, was poorly drafted.
Bitcoin and Company-Associated Cryptocurrencies
- Cryptocurrencies are part of computerized economic trading that operates similarly to the markets of the past, which used metals such as silver and gold as a currency that passes to the trader before moving to money that comes in banknotes and coins issued by countries.
- The entry of silver and gold into the markets as a means of purchasing goods and services, as well as selling them, came to reduce the enormous transaction costs in the ancient world of barter, which had slowed down to the point of paralysis. This paralysis was due to the absence of a simultaneous bilateral overlap of desires: double coincidence of wants (as illustrated by the typical case of a wheat grower who needed shoes and had trouble finding a shoemaker who needed wheat at that very point in time). In order to prevent such paralysis, people sought - and found - means of exchange in the form of valuable goods that meet the following requirements: scarcity, durability, mobility, and the possibility of dividing into units in order to match the value of the goods being purchased. These means of exchange were found in precious metals, mainly silver and gold (for a classic description and analysis of this development in trade, see: Carl Menger, Principles of Economics 257-282 (1871) (Ludwig von Mises Institute, 2007) (hereinafter: Menger)). Later, the countries of the world, which established their own laws, regulated the ways of commerce and began to collect taxes, institutionalized official money, most of which was carried on paper notes, as a legal tender in commerce (see: Abba P. Lerner, Money as a Creature of the State, 37 Econ. Rev. 312 (1947); Felix Martin, Money: The Unauthorised Biography Ch. 4 (2013)). Prior to the institutionalization of money by such countries, trade, most of which was done using precious metals such as silver and gold, was a socio-economic convention. As Carl Menger wrote:
“Money is not an invention of the state. It is not the product of a legislative act. Even the sanction of political authority is not necessary for its existence. Certain commodities came to be money quite naturally, as the result of economic relationships that were independent of the power of the state”.