Easy Money? What We Learned about Regulation When We Sold Our Small Bitcoin Fortune

Easy Money? What We Learned about Regulation When We Sold Our Small Bitcoin Fortune

Published: July 22th, 2018 at Medium






A tale of our sudden unexpected Bitcoin wealth and the ensuing bureaucratic mess we had to resolve in order to sell it.

Our small bitcoin fortune turned out to be worth a bit more than what we paid for it

This post was born when we acquired a small quantity of Bitcoins for research purposes. Like most of the cryptocurrency market, the coins climbed in value in late 2017 (at one point our Bitcoins were actually worth 35 times what we originally paid for them). We got a bit nervous and decided to sell them. Then we realized:

boromir bitcoin

We embarked on a long and arduous journey jumping through many regulatory hoops. Here are the insights we gained along the way.

Lesson 1: Lack of formal regulation leads to excessive self-regulation.

In order to buy our Bitcoins, we convinced the university and our funding agency to spend a small amount of grant money (under 2K USD) to buy bitcoins. We approached “Bits of Gold” –  one of Israel’s Bitcoin sellers to make the buy.

As part of the authentication process required by Bits of Gold we had to upload a picture of Tamar holding her credit card. This in addition to a lot of online form filling.

Tamar holding a credit card (a recreation of the original picture)

Later when we sold our Bitcoins, we discovered that everyone was worried about explaining the source of the funds. We had to supply documents establishing the origins of the money. Some of these required a trip to the university’s archive to locate documents related to the original transfer.


A university official took a “short” trip to the archives to locate a bank statement related to the original transfer (this is truly the archive from “Raiders of the Lost Arc”, though we imagine that HUJI’s archive is very similar).

Since we asked Bits of Gold to send the money generated by the sale directly to the university’s account, we also had to provide KYC documentation showing that the university was a properly-established entity under Israeli law. Here are some of the documents we had to produce:


On the right: A cabinet decision allowing the Hebrew University to continue to operate after the establishment of the State of Israel (dated August 1948). On the left: A certificate signed by Yitzhak Ben-Zvi (then President of Israel) and Abba Eban (then Minister of Education) stating that the Hebrew University is an institution of higher learning (dated August 1962).

Gathering all the required documentation on the University’s side was also hard. We submitted around a dozen documents and involved around 20 people in order to acquire and properly sign them.

Once we managed to convince Bits of Gold to do the sale, they in turn, had to convince their own bank to allow them to send the proceeds to our account. The fact that they even have a bank account is not as obvious as you’d expect. Bits of Gold recently forced their bank to provide service with a temporary injunction (link in Hebrew).

In short, it seems that banks and currency traders are afraid of what regulators might say in the future, and this drives them to be extra careful.

When it comes to Bitcoin trading, banks and exchanges try to be holier than the pope

Lesson 2: A high level of understanding is required to trade bitcoins

In order to get the bank’s approval for the wire transfer back into the University’s account, we were asked to fill out a questionnaire detailing the origins of the funds, including a complete trace of all movements on the blockchain. Luckily, we had not moved the funds too much, and could provide a list of addresses from the initial buy through to the sale.

Some technical know-how is required when explaining to the bank where your Bitcoins came from

Here, it is important to note that Bitcoin wallets generate a new Bitcoin address after every small transfer. Even the transfer of a small sum to a research assistant who was learning how to use wallets had generated an additional address for the rest of the sum. Pulling all this data off the blockchain and making sense of it is definitely not within easy reach of every regular Joe.

Adding to the complexity of our report to the bank, Bitcoin underwent a major split: everyone holding Bitcoins on August 1st, 2017 found that they actually had both regular Bitcoins and another cryptocurrency called “Bitcoin cash.” We ended up converting our “Bitcoin cash” into Bitcoins, so we had to explain to the bank how it was that we ended up selling more Bitcoins in the final sale than we had originally bought.



Lesson 3: “The system” is not set up for Bitcoins. Everyone makes it up as they go along.

While Bits of Gold and their bank are already somewhat experienced working with cryptocurrencies, other organizations still have a hard time dealing with them. The Hebrew University for example, had never before had to face the question of how to buy, hold, and later sell cryptocurrencies.

At first, the university treated our request to purchase bitcoins like it would any other item: upon purchase, we just had to supply a receipt. In fact, when currency is acquired, the university should keep track of its use by researchers and not be content with the purchase itself. This behavior reflects the debate around the nature of cryptographic tokens: Are they assets? Are they currency? How should they be taxed, monitored, and regulated?


Israeli authorities are still working to define a regulatory regime. A recent report by the Israeli Securities Authority offers a set of recommendations (and requests comments) on how to discern between tokens that are considered “money” and those that are “assets”. Their report recommends that Bitcoins be considered a currency. In stark contrast, an older regulation (from 2015) by the Israeli Tax Authority clearly states that cryptocurrencies should not be considered as currency for tax purposes.

Where are we headed?

Clearly, we still have a way to go before regulations are consistently and uniformly applied across different branches of government. Perhaps the most important element required to improve regulation is better education for regulators and policy makers on the technological aspects of cryptocurrencies.

Such education is necessary not only for the current state of cryptocurrencies, but also to keep up with rapid developments. Regulation that will remain relevant and effective requires the consideration of new directions in which cryptocurrencies are headed. The use of technologies such as Zero-Knowledge Proofs (that strengthen anonymity) and off-chain transaction channels (which remove a considerable amount of accounting from the blockchain) will undoubtedly shift the technological landscape and should similarly impact regulation.

Dr. Tamar Berenblum and Prof. Aviv Zohar
Easy Money?
What We Learned about Regulation When We Sold Our Small Bitcoin Fortune