There have been reports in the Israeli media over the past few days that Israel’s tax authorities are examining the possibility of imposing taxes on profits earned from transactions conducted with bitcoins. At the same time, it has also been reported that banks are limiting the use of this currency. Since bitcoins are not currently recognized by Israel as legal tender, issues pertaining to this currency are especially complicated. With no supervision over bitcoin transactions and no requirement to report trade in the currency, questions relating to their taxation are in a state of limbo.

Following a decision by a federal court in Texas, the United States recognized the virtual currency including in all matters pertaining to taxation in August 2013. So did Germany, which established the first bitcoin trade platform in Europe, in an act of collaboration between the country’s Finance Ministry and a local bank.

There is some activity involving the virtual currency in Israel as well. This includes currency exchange services that trade bitcoins, several businesses that accept bitcoins as a form of payment and an Internet community, where sites such as Wikipedia explain how the currency is used.

Bitcoin is a virtual, digital currency based on open source programming and protocol, which acts as a decentralized method for two parties involved in a transaction to exchange direct payments. As a currency, it allows for the immediate transfer of funds throughout the world at zero cost — or close to zero cost — anonymously and without any supervisory body overseeing the transaction or any banking authority mediating between the parties involved.