Is mining bitcoin illegal

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 mining illegal?

The short answer: In most cases, bitcoin mining is perfectly legal. In a few countries, however, bitcoin mining, as well as the possession and use of bitcoin is illegal. If you live in North America and most of Western Europe, bitcoin mining, as well as possession, is not only legal, but local regulatory frameworks actually provide certain protections and basic oversight.

In many cases, bitcoin is not treated as a currency by governments, but instead as an asset or property. As such, bitcoin is afforded some legal protection, just like any other type of property. In most cases, national governments that have not outlawed bitcoin, have not passed laws regarding bitcoin mining. Globally, with only a few exceptions, bitcoin mining is generally considered to be legal.

Before digging into the legal issues, I’m going to offer a brief overview of bitcoin mining. If you’re already familiar with the mining process, feel free to skip ahead.

The Short Story: What is bitcoin mining

Bitcoin mining refers to the process of adding transaction records to the public ledger. Basically, every bitcoin transaction ever conducted is recorded in the public ledger, although actual users can remain hidden behind anonymous names. This ledger is called the blockchain, and transactions are organized into blocks.

The mining process refers to the creation of new blocks of transactions. Once a new block is created, it is added to the blockchain, AKA public ledger. This block is created through solving algorithms with computer processors.

Over time, the algorithms have grown progressively more difficult, meaning more computing power and time is now needed to create a block. Further, approximately every four years, the number of bitcoins rewarded for creating a new block is cut in half. Originally 50 bitcoins were rewarded for mining a block, then 25, and now 12.5. This makes mining more difficult and restricts the bitcoin money supply, and over time should lead to bitcoin gradually gaining value.

Essentially, any processor can be used to mine bitcoins, but without a powerful processor, you won’t have much success. Now-a-days, there are bitcoin-specific machines called bitcoin “mining rigs.” Bitcoin mining rigs are machines that are designed specifically to mine new bitcoins, or in other words, solve the algorithms needed to create a new block. In order for mining to be economically feasible, it’s important for the rigs to run on as little energy as possible, and to solve the algorithms as quickly as possible.

So Why Would Bitcoin Mining Ever Be Considered Illegal?

This is a complex subject, and the reasoning can vary from jurisdiction to jurisdiction. Sometimes, people falsely believe that bitcoin mining is like counterfeiting money, but this simply isn’t true. You’re not creating fake duplicates of a national currency, but instead creating an entirely new currency.

This last bit is also why some governments oppose bitcoin, and thus bitcoin mining. Some governments view bitcoin as a threat because it competes with national currencies. Some governments believe that bitcoin actually undermines the government itself by offering a non-state currency.

Bitcoin can also be mined illegally. Perhaps the most common example has been the use of malicious viruses to hijack people’s computers and to then use their processors to mine bitcoins. This can slow down computers, and also run up energy bills. This is illegal in essentially every jurisdiction.

Where is Bitcoin Mining Illegal?

Bitcoin mining, as well as the possession and use of bitcoin, is illegal in a few countries. In other countries, bitcoin use and mining is more ambiguous with the government sending mixed messages.

Bitcoin is currently banned in Russia, although the most recent legislation to ban bitcoin use and mining was actually withdrawn. The reason for the withdrawal seems less about outlawing bitcoin, and more over the extent of punishment. Some Russian authorities want people who use bitcoin to face multi-year sentences in jail. Others are advocating for a softer touch. The legal status around bitcoin mining is a bit ambiguous since no formal laws have been passed, but for now mining in Russia is a high risk proposition, at the very least.

No other country is as anti-bitcoin as Russia. Of course, Russia is known for being a relatively authoritarian country. On top of that, Russia has been struggling through an economic crisis caused by low oil prices, and sanctions instituted because of Russian activities in Ukraine. Part of the strong anti-bitcoin sentiments in the country may be due to efforts to protect the ruble, which has suffered massive inflation over the past few years.

In South America, Ecuador explicitly outlaws the production of digital currencies, but interestingly enough, has launched its own digital currency. The electronic currency is linked to the U.S. dollar (which is Ecuador’s official currency), and has been designed to decrease dependence on physical money, and the associated costs, such as wear and tear of the bills themselves. Ecuador apparently doesn’t want other digital currencies, such as bitcoin, competing with their own.

The reasons for outlawing bitcoin aren’t always authoritarian in nature. For example, Iceland currently prohibits trading the local kroner for bitcoins. This is because the Icelandic economy struggled in the years following the Great Recession, and authorities instituted capital controls in order to protect the kroner. Authorities were worried that people would essentially flee the kroner, and that the currency would be adversely affected. Iceland does not, however, prohibit the mining of bitcoin.

Other governments, like the Indian government, have made negative remarks against bitcoin but have not launched any official bans on ownership or mining. For now, mining bitcoin in said countries is generally legal and safe, but the regulatory environment could change quickly.

Legal bitcoin mining

In most countries, bitcoin mining is legal. Of course, there are legal ways to mine bitcoin, which generally means using your own resources, such as electricity and processing power. On the other hand, there are illegal ways to mine bitcoin, such as stealing said resources. In this case, mining bitcoins is legal, but you’re stealing the resources needed to mine them, which is illegal.

Also, prosecutors in various countries, such as the United States and South Korea, have made it clear that they will prosecute people who use bitcoin for illicit purposes. This should come as no surprise, and anyone who mines bitcoin or uses it should know not to conduct illegal activities.

Conclusion

By and large bitcoin mining is a perfectly legal activity. Even in a few countries that do regulate the use of bitcoin, such as Iceland, mining bitcoin is still legal. Many countries, including most African countries, have not passed any legislation for or against bitcoin, and have generally remained silent on the issue. It’s important to keep a close eye on these countries, because the regulatory environment could change at the drop of a hat.

Please keep in mind that this post does not substitute legal advise and you should consult a lawyer for your specific case and jurisdiction.

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Is Bitcoin Mining Legal?

For the most part, yes, bitcoin mining is most likely legal in your jurisdiction. However, there are some places around the world where possession and use of bitcoin are illegal and bitcoin mining is illegal as well.

Through North America and Western Europe, bitcoin is relatively accepted by legal authorities and some laws have been passed to better define its legal status. If you live in a jurisdiction where legal frameworks have been established around bitcoin, then bitcoin mining might be a practice that enjoys some legal protections. In many places around the world, bitcoin and bitcoin mining tend to be legal by default — because no law has been passed to determine its legality one way or another, they are not technically illegal.

Where Is Bitcoin Mining Illegal?

The map of places that have outlawed bitcoin mining is constantly evolving. If you are concerned that bitcoin mining might be illegal in your particular jurisdiction, you should consult a local lawyer or legal advisor to confirm.

In general, bitcoin mining is illegal in places where the government directly opposes bitcoin because of its ability to compete with the national currency, undermine the government’s authority at large or due to general misunderstandings about the technology.

Also, it should be noted that other cryptocurrencies can also be mined through means that are illegal in virtually any part of the world — namely, through the use of malware that hijacks other computers and uses their power to mine (sometimes known as cryptojacking). This practice sees malicious actors take over unsuspecting users’ personal computing devices remotely and instruct those devices to mine other cryptocurrency and send the rewards elsewhere, running up the victims’ energy bills. Though this is not a feasible way to mine bitcoin, other cryptocurrencies can be mined this way and then converted into bitcoin.

It should also be noted that throughout the world, even in places where bitcoin mining appears to be the most legally acceptable, governments will prosecute those who use bitcoin for what they deem as “illicit” purposes. Anyone who mines bitcoin should be aware not only of the legal status of that practice in their jurisdiction, but of the uses for bitcoin that its given government finds acceptable.

Finally, please note that this guide is not meant to constitute legal advice and that any reader who wants to know more about whether or not the use of bitcoin or bitcoin mining is illegal should consult a legal professional.

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