Is bitcoin legal currency

Countries Where Bitcoin Is Legal and Illegal

Prableen Bajpai is the founder of FinFix and Analytics Private Limited. She has 10+ years of experience as a finance, cryptocurrency, and trading strategy expert.

The peer-to-peer digital currency bitcoin made its debut in 2009 and with it ushered in a new era of cryptocurrency. While tax authorities, enforcement agencies, and regulators worldwide are still debating best practices, one pertinent question: Is bitcoin legal or illegal? The answer—it depends on the location and activity of the user.

Bitcoins are not issued, endorsed, or regulated by any central bank. Instead, they are created through a computer-generated process known as mining. In addition to being a cryptocurrency unrelated to any government, bitcoin is a peer-to-peer payment system since it does not exist in a physical form. As such, it offers a convenient way to conduct cross-border transactions with no exchange rate fees. It also allows users to remain anonymous.

Consumers have greater ability to purchase goods and services with Bitcoin directly at online retailers, pull cash out of bitcoin ATMs, and use bitcoin at some brick-and-mortar stores. The currency is being traded on exchanges, and virtual currency-related ventures and ICOs draw interest from across the investment spectrum. While bitcoin appears at glance to be a well-established virtual currency system, there are still no uniform international laws that regulate bitcoin.

Countries That Say Yes to Bitcoin

Bitcoin can be used anonymously to conduct transactions between any account holders, anywhere and anytime across the globe, which makes it attractive to criminals and terror organizations. They may use bitcoin to buy or sell illegal goods like drugs or weapons. Most countries have not clearly determined the legality of bitcoin, preferring instead to take a wait-and-see approach.

Some countries have indirectly assented to the legal use of bitcoin by enacting some regulatory oversight. However, bitcoin is never legally acceptable as a substitute for a country’s legal tender.

The United States

The United States has taken a generally positive stance toward bitcoin, though several government agencies work to prevent or reduce Bitcoin use for illegal transactions. Prominent businesses like Dish Network (DISH), the Microsoft Store, sandwich retailer Subway, and Overstock.com (OSTK) welcome payment in bitcoin. The digital currency has also made its way to the U.S. derivatives markets, which speaks about its increasingly legitimate presence.

The U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) has been issuing guidance on bitcoin since 2013. The Treasury has defined Bitcoin not as currency, but as a money services business (MSB). This places it under the Bank Secrecy Act, which requires exchanges and payment processors to adhere to certain responsibilities like reporting, registration, and record keeping.

In addition, bitcoin is categorized as property for taxation purposes by the Internal Revenue Service (IRS).

Canada

Like its southern neighbor, the United States, Canada maintains a generally bitcoin-friendly stance while also ensuring the cryptocurrency is not used for money laundering. Bitcoin is viewed as a commodity by the Canada Revenue Agency (CRA). This means that bitcoin transactions are viewed as barter transactions, and the income generated is considered as business income. The taxation also depends on whether the individual has a buying-selling business or is only concerned with investing.

Canada considers bitcoin exchanges to be money service businesses. This brings them under the purview of the anti-money laundering (AML) laws. Bitcoin exchanges need to register with Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), report any suspicious transactions, abide by the compliance plans, and even keep certain records. In addition, some major Canadian banks have banned the use of their credit or debit cards for bitcoin transactions.

Australia

Similar to Canada, Australia considers bitcoin neither money nor a foreign currency, with the Australian Taxation Office (ATO) ruling it an asset for capital gains tax purposes.

The European Union

On Oct. 22, 2015, the European Court of Justice (ECJ) ruled that buying and selling digital currencies is considered a supply of services, and that this is exempt from value-added tax (VAT) in all European Union (EU) member states. Additionally, some individual EU countries have also developed their own bitcoin stances.

In Finland, the Central Board of Taxes (CBT) has given bitcoin a VAT exempt status by classifying it as a financial service. Bitcoin is treated as a commodity in Finland and not as a currency. The Federal Public Service Finance of Belgium has also made bitcoin exempt from VAT. In Cyprus, bitcoin is not controlled or regulated either. The Financial Conduct Authority (FCA) in the United Kingdom (U.K.) has a pro-bitcoin stance and wants the regulatory environment to be supportive of the digital currency. Bitcoin is under certain tax regulations in the U.K.

The National Revenue Agency (NRA) of Bulgaria has also brought bitcoin under its existing tax laws. Germany is open to bitcoin; it is considered legal but taxed differently depending upon whether the authorities are dealing with exchanges, miners, enterprises, or users.

Countries That Say No to Bitcoin

While bitcoin is welcomed in many parts of the world, a few countries are wary because of its volatility, decentralized nature, perceived threat to current monetary systems, and links to illicit activities like drug trafficking and money laundering. Some nations have outright banned the digital currency, while others have tried to cut off any support from the banking and financial system essential for its trading and use.

China

Bitcoin is essentially banned in China. All banks and other financial institutions like payment processors are prohibited from transacting or dealing in bitcoin. Cryptocurrency exchanges are banned. The government has cracked down on miners.

Russia

Bitcoin is not regulated in Russia, though its use as payment for goods or services is illegal. 

Vietnam

Vietnam’s government and its state bank maintain that bitcoin is not a legitimate payment method, though it is not regulated as an investment.

Bolivia, Columbia, and Ecuador

El Banco Central de Bolivia has banned the use of bitcoin and other cryptocurrencies. Columbia does not allow bitcoin use or investment. Bitcoin and other cryptocurrencies were banned in Ecuador by a majority vote in the national assembly.

The Bottom Line

Although bitcoin is now almost 10 years old, many countries still do not have explicit systems that restrict, regulate, or ban the cryptocurrency. The decentralized and anonymous nature of bitcoin has challenged many governments on how to allow legal use while preventing criminal transactions. Many countries are still analyzing ways to regulate the cryptocurrency. Overall, Bitcoin remains in a legal gray area for much of the world.

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Is Bitcoin Legal?

The Legal Status of Bitcoins in the U.S. and Elsewhere

As of February 2020, Bitcoin was legal in the U.S., Japan, the U.K., and most other developed countries. In the emerging markets, the legal status of Bitcoin still varied dramatically. China heavily restricted Bitcoin without actually criminalizing the holding of bitcoins. India banned banks from dealing in bitcoins and left the overall legal status of cryptocurrencies unclear. In general, it is necessary to look at Bitcoin laws in specific countries.

Even where Bitcoin is legal, most of the laws that apply to other assets also apply to Bitcoin. Tax laws are the area where most people are likely to run into trouble. For tax purposes, bitcoins are usually treated as property rather than currency. Bitcoin is generally not considered legal tender.

Key Takeaways

• As of February 2020, Bitcoin was legal in the U.S., Japan, the U.K., and most other developed countries.
• In general, it is necessary to look at Bitcoin laws in specific countries.
• In the U.S., the IRS has taken an increasing interest in Bitcoin and issued guidelines for taxpayers.
• Bitcoin has serious flaws for those seeking anonymity, so illegal activity is moving to other cryptocurrencies.

IRS Guidance for U.S. Taxpayers

In the United States, the IRS has taken an increasing interest in Bitcoin and issued guidelines. In 2014, the agency issued IRS Notice 2014-21 to provide information on the tax treatment of virtual currencies. Virtual currency is the term that the IRS uses for cryptocurrency.   In 2020, the IRS created a new tax form requiring taxpayers to declare if they engaged in any virtual currency transactions during 2019. 

Other Legal and Regulatory Issues

Bitcoin exists in a deregulated marketplace, so there is no centralized issuing authority. Bitcoin addresses do not require Social Security Numbers (SSNs) or other personal information like standard bank accounts in the United States. That initially raised concerns about the use of bitcoins for illegal activity.

In its early years, the perceived anonymity of Bitcoin led to many illegal uses. Drug traffickers were known to use it, with the best-known example being the Silk Road market. It was a section of the so-called dark web where users could buy illicit drugs. All transactions on the Silk Road used bitcoins. It was eventually shut down by the FBI in October 2013.

However, Bitcoin has several serious flaws for those seeking anonymity. In particular, Bitcoin creates a permanent public record of all transactions. Once an individual is linked to an address, that person can be connected to other transactions using that address. Competing cryptocurrencies, such as Monero and Zcash, now provide much better privacy protection. Given this situation, illegal activity is moving away from Bitcoin.

Defining Bitcoin

The digital currency known as Bitcoin was created in 2009 by a person or organization using the alias Satoshi Nakamoto. The real identity of Satoshi Nakamoto has never been established. There are no physical bitcoins that correspond with dollar bills and euro notes. They exist only on the Internet, usually in digital wallets. Ledgers known as blockchains are used to keep track of the existence of bitcoin. It can be given directly to or received from anyone who has a bitcoin address via peer-to-peer transactions. Bitcoin also trades on various exchanges around the world, which is how its price is established.

Bitcoin can be transferred from one country to another without limitation. However, the exchange rate against government-backed currencies can be very volatile. That is partly because speculation often drives the price, but also because bitcoins have a relatively small market compared to traditional currencies.

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Is Bitcoin Legal?

Is Bitcoin legal? The short answer is most likely yes — but it depends on where you are and what you do with it.

The debate surrounding the legality of Bitcoin and cryptocurrencies is picking up. More lawmakers talk about it now, with the spread of digital currencies. Usually, people are allowed to trade with the legal tender in their country, but not create money themselves.

Bitcoin, with its miners and verification system, introduces a problem for lawmakers. Given that Bitcoin is a currency separate from the national money, Bitcoin mining is technically not counterfeiting.

Bitcoin isn’t counterfeit, as it’s not trying to pass off as another currency. Still, lack of proper regulation still makes Bitcoin somewhat of a grey area. Trying to fit Bitcoin trading into the box of currency legislation has not always been successful.

Given that Bitcoin is still in its infancy, relatively speaking, the laws are bound to change. We do know some of the rules and regulations, however, and will continue to update this article as different countries progress in their legislation.

Is using Bitcoin illegal?

Table of Contents

Whether or not Bitcoin is legal depends on what it is being used for. The Silk Road was a marketplace on the Dark Web where people could purchase illegal goods for Bitcoin while remaining completely anonymous. However, this could be done and is done, using fiat currency. Spending your Bitcoins on legal products and services is perfectly legal in the US. At least for now, according to U.S. Treasury Department’s Financial Crimes Enforcement Network .

Is mining Bitcoin legal?

It’s legal to own and run a Bitcoin mining rig in most places. However, consider if it’s financially viable where you live). Certain countries have laws that may restrict your ability to trade. You might have to check what you can do with the yields on exchanges for fiat money. Furthermore, Bitcoin mining might be a problem if you’re sharing your energy bill with other people. If they aren’t aware of your mining activities, then they might be surprised when the bill arrives.

Is Bitcoin taxable?

The IRS in the US sees Bitcoin and other tokens as taxable property like bonds and stocks. The laws differ from country to country. A good rule of thumb is always to pay taxes on your profits. If you’re earning money from trading or mining, then it is considered a taxable income or capital gains in most countries.

Is Bitcoin legal?

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How legal is Bitcoin and Crypto Currencies?

The legality on Bitcoin and other crypto currencies depends on where you are and what you wish to do with it. Governments the world over are trying to get to grips with its risks and rewards, playing the game between consumer protection, anti-criminal activity and encouraging innovation. The risks for Governments can vary, most emerging markets are either heavily anti or pro the use of digital currencies such as Bitcoin but in general western economies are using soft touch principle based regulation to encourage innovation. Regulation is a patchwork of different opinions the world over but see below to get the latest on which governments are thinking what.

Holland – In June 2013 the Dutch Finance Minister released a report that gave Bitcoin the status of an item of barter meaning it needed no specific licensing or compliance requirements. He described Bitcoin as “Bitcoin is not a financial product as defined by law, purchase or sale of bitcoins is not a financial service either, so the financial services act does not apply”. The Dutch Ministry of Economic Affairs has taken a dimmer view through its think tanks and sponsored articles – attempting to encourage its regulation.

Norway – The general of taxation declared at the end of 2013 that “Bticoins don’t fall under the usual definition of money or currency” and therefore making them subject to the usual capital gains tax laws.

Germany – The German Government released a report in August 2013 saying that Bitcoins should be treated as a trading activity and therefore be subject to capital gains taxes unless they were held for a year or more. The German Federal Ministry of Finance further clarified their position by saying that Bitcoin should be treated as a unit of account and private money and should therefore be subject to sales taxes and VAT.

Bulgaria – Bulgaria declared in April 2014 that Bitcoin was a hybrid currency asset that should be subject to a 10% tax when it is used as a currency or sold to and from a fiat currency.

Slovenia – Slovenia took a middle road in Dec 2013 in declaring that Bitcoin was neither a financial asset or a currency and should be taxed based on the circumstance it was used whether it was via trading profits or through mining.

UK – The UK is probably one of the most considered and thoughtful regimes in terms of fostering future industry for Bitcoin and crypto currencies. Their initial knee-jerk reaction to slap a VAT tax on Bitcoin ining was scrapped in March 2014. The HM Treasury has also made a call for information on the digital and crypto currency landscape to determine where and when regulation should be introduced and by whom it should be monitored. This declaration by the UK not to add VAT on Bitcoin services and treat it as a currency rather than an asset has meant a few other Governments are making a volte-face as the UK’s jurisdiction is now the global minimum in terms of cost. In all aspects the United Kingdom’s approach has been one of impeccable caution to play the balance between consumer protection and creating a solid base of support for a nascent industry to thrive in the hope of future tax revenues.

Ireland – The Irish Central Bank has not made any moves towards regulating Bitcoin but has declared that it foresees a dual economy of digital currency and state based fiat currencies – whit various businesses and products being bought or sold in either depending on preferences of the user or producer.

Belgium – has refused to issue any stance regarding Bitcoin and along with a whole host of other countries is waiting for European wide guidance. They have issued a public warning that there is no Government oversight.

Portugal – Again have issued a warning to the public that Bitcoin and digital currencies do not have any Government oversight.

Greece – Another country waiting for a European wide approach to regulation having issued a warning to the public that there is no government protection or oversight of the industry.

Hungary – Again has issued a public warning that there is no Government oversight of Bitcoin and Digital currencies.

Croatia – A further country that is taking a wait and see approach, having issued a public warning that there is no government oversight.

Luxembourg – has taken a hard line with respect to digital currencies and Bitcoin through declaring that as digital currencies operate like money but are regulated in their issuance by the developers, that they should comply with all standard regulation.

Italy – There has been concerted pressure from various organisations to encourage regulation and oversight to curtail the use of digital currencies in facilitating criminal activity.

Ukraine – In July, despite vague Government regulations and the turmoil in Crimea and the East of the country, a major bank announced the ability to purchase Bitcoins in any of its ATM terminals throughout the country.

Poland – The Polish Government refused to recognise Bitcoin as a currency in July 2014 but did declare that options or futures contracts based on a specific underlying index of the Bitcoin price should be declared as financial instruments and subject to those regulations.

Latvia – The Government issued a warning about Bitcoins and other digital currencies a day after the national carrier announced that it would accept Bitcoin as an alternative payment method for flights.

Estonia – The central bank of Estonia warned that central virtual currencies could be a ponzi scheme but two months later the tax authority declared that Bitcoins and digital currencies could be declared as an alternative payment means subjecting them to capital gains liabilities and VAT.

Finland – Te Finnish regulatory body has declared that Bitcoin should be treated as an asset and be subject to VAT and Capital Gains although the capital gains losses would not be deductible.

Lithuania – The Lithuanian government has declared a wait and see policy as the regulatory landscape evolves across Europe.

France – The French Government has placed onerous regulation and a form of Green listing on the industry. This came after the French police raided and exchange and seized over 200 thousand Euro’s worth of Bitcoin. There idea is that any exchange or wallet should hold data linking the specific person to the addresses and therefore removing the anonymity that Bitcoin can provide. The French Government has otherwise declared its intention to recognise Bitcoin as a currency but also impose transactions on various transaction types.

Switzerland – The Swiss moves towards regulation are positive but their actions have been little if not hostile. The Government declared that Bitcoin should be treated as a foreign currency as it could help to catalyse innovation in the financial sector. This general message having been conveyed oin late 2013 the Government then forced a Bitcoin broker and ATM provider to suspend activities across the country in mid 2014. The Company was later able to apply for a money transmitter license, but the nature of Swiss virtual currency regulations stands on a knife edge.

Turkey – The Turkish authorities have issued guidance saying that Bitcoin does not meet the standards of electronic money and that the volatility leaves users with a high level of risk. The usual taxation regime is expected to apply.

Singapore – The Singapore government, in early 2014, declared Bitcoin as a good purchased to purchase goods and therefore subject to a specific tax. The Monetary Authority of Singapore then required exchanges and ATM providers to Green-list, or de-anonymise their users to allow whilst simultaneously declaring that virtual currencies such as Bitcoin are not securities and not subject to regulation.

Thailand – Thailand has probably made one of the harshest reactions to Bitcoin by declaring the use of Bitcoin as illegal in 2013. In 2014 they modified their position by declaring Bitcoin as not illegal but a risky form of electronic data that has no self worth.

Indonesia – Indonesia is another mixed bag with respect to Bitcoin regulation – a rather confused deputy Governor of the central bank said the currency broke rules but that they had no plans to regulate it.

Vietnam – The Vietnamese have issued a warning that Bitcoin could have consequences due to its volatility and prominent collapses of various industry players.

Philippines – The Central Bank of the Philippines has issued a warning regarding virtual currencies but also stated that they are not subject to any regulation.

South Korea – The South Korean Government has not recognised virtual currencies as legal tender, but have been looking into green-listing various types of involved businesses to ensure compliance with anti money laundering laws.

Hong Kong – Having taken the mantle from China in volume of trading Yuan to Bitcoin – the Hong Kong authorities have said they are in a state of monitoring and fear that digital currencies could form speculative bubbles and manies – whilst also providing a means for money laundering and other illicit activities.

India – India is also in a state of wait and see, again trying to measure the benefits against the risks.

Japan – Japan is another of the more friendly regimes towards Bitcoin despite being the Nation hot to one of the worst Bitcoin exchange disasters with Mt Gox. In March 2014 they declared that Bitcoin should be treated as a commodity and subject to no specific laws. The Japanese Financial Services Agency declared in June 2014 that Bitcoin should be self regulated at present and that Japan should become the world’s safest place to run a Bitcoin business, and that the industry should not be bogged down by excessive compliance and red tape. They also pushed for a reversal on the commodity taxation treatment of Bitcoin and just impose a set of taxes on certain forms of transactions. The JADA, or Japanese Authority of Digital Assets was formed to provide a principle based or code of conduct format for Bitcoin only platforms.

Australia – The Australian Government is positive towards Bitcoin. This is despite numerous Australian banks pulling their support and commercial banking facilities for Bitcoin related businesses. The use, trading and mining of Bitcoins is considered legal and the Australian Taxation office has announced its intention to incorporate guidelines on capital gains tax and VAT taxes.

New Zealand – The Kiwi stance to Bitcoin can be gleamed from the Governor of the Central Banks belief that digital currencies have the potential to supplant cash.

Colombia – The Colombian government has taken a hands off approach to Bitcoin and said the risks are for the individual partaking in the industry.

Bolivia – The Bolivian Government has banned the use of Bitcoin in the belief that it will allow tax evasion and monetary instability.

Argentina – The Argentinian anti money laundering agency has declared that all business using digital currency must declare all transactions related to the industry.

Ecuador – The Ecuadorian Government has banned all Bitcoin use in the hope of promulgating their own digital currency based on the principles of Bitcoin.

Mexico – The Mexican Government has taken a similar stance to Ecuador, however they have not outright banned the use of alternative digital currencies but instead are in talks with Government regulators to try and introduce their own form of Bitcoin and their own block chain specific to Mexico.

Brazil – The Brazilian Government has declared that Bitcoin is not a currency but an asset and therefore subject to 15% capital gains taxes above a threshold.

China – In late 2103 the China Central Bank barred financial institutions from partaking in digital currency and Bitcoin transactions. They do however allow individuals to trade as they wish – Chinese Yuan to Bitcoin is the most traded daily fiat to Bitcoin pair.

Canada – In November 2013 the Canadian Revenue Agency declared that Bitcoin payments should be treated as barter transactions. The Canadian Federal Government also announced its intention to regulate Bitcoin through its anti money laundering and counter-terrorist financing legislation.

Denmark – The Danish Government and Financial Services Authority have announced that Bitcoin businesses will be taxed in a normal manner and individuals will not be subject to taxation from trading. The FSA has suggested amending the present legislation so that virtual currencies and regulation come under their remit.

Iceland – After the fallout of the financial crisis and collapse of Icelandic banking strict financial foreign exchange controls were imposed on the Icelandic Krona. As such Bitcoin trading in Iceland is illegal although there are some grey areas with respect to this conclusion.

Israel – The Israeli Government is considering a tax on Bitcoin – with its history of financial and technological innovation all bets are on a soft landing for the digital landscape in Israel.

Kyrgyzstan – The Kyrgyzstan Government has completely banned the use of Bitcoin within its national borders.

Lebanon – The Lebanese Government has issued a warning the public regarding volatility and other risks involved with digital currencies – they also pointed out that e-money was illegal under an act issued in the year 2000 suggesting their stance is potentially hostile.

Malaysia – The Malaysian authorities have issued a statement declaring a hand’s off attitude towards digital currencies and Bitcoin. They have warned their citizens of the risks involved.

Russia – The Russian approach to Bitcoin is negative. They do not allow individuals or legal entities to use Bitcoin or any digital currency. The Deputy Finance Minister announced in September 2014 that a law would be introduced in early 2015 banning their exchange to real money. This is a consequence of the present economic malaise in Russia and the weak Rouble due to Western economic sanctions.

Taiwan – The Taiwanese Financial Supervisory Commission have stated that they have banned Bitcoin ATM installations as Bitcoin is not a currency and therefore should not be accepted by banking institutions or individuals.

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