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Is Owning Or Trading Bitcoin Legal?
Bitcoin Legal Status Round-Up
Bitcoin made its first appearance in 2009 and immediately begun a new disruptive revolution with an era of cryptocurrency. Today, there are more than 700 different digital currencies, but bitcoin still remains the leader in the industry. While tax authorities, enforcement agencies, and regulators in different countries are still trying to cope with this recent phenomenon, one question arises — is Bitcoin legal? In this article, we will try to answer this question. (I get commissions for purchases made through links in this post.)
Nowadays, consumers have a greater ability to purchase goods and services directly with bitcoins at online retailers or by using bitcoin-purchased gift cards at brick and mortar stores. Digital currencies are being traded on exchanges, and companies have been investing millions of dollars in virtual currency-related ventures.
However, with all this business activity around digital currencies, there is still no uniform international legal law to regulate it.
Digital currency allows users to remain anonymous when executing transactions. In addition to being a decentralized cryptocurrency with no central authority detached from any government, bitcoin is also a peer-to-peer payment system. As such, it offers a convenient way to execute cross-border transactions by having virtually no exchange rate fees or transaction costs.
The Legality of Digital Currency
In the U.S. a Democratic senator from Delaware has become very interested in the digital coin. Representatives from law enforcement and financial agencies told the Senate they didn’t have any concerns with bitcoin.
The U.S. government tasked the Law Library of Congress with surveying over 40 countries for their official stance on bitcoin and whether Bitcoin is actually in use. According to this report, Ireland, Israel, and Slovenia have made gestures that they plan to regulate digital currencies, while Germany, Finland, Singapore, and Canada are among the countries that have issued tax guidance on bitcoin.
Legal Status of bitcoin by country
The fact that bitcoin can be anonymously used to execute transactions between users, anywhere around the globe, makes it extremely attractive to conduct criminal activities such as money laundering. And so, governments accuse digital currencies of being a tool for criminals to buy and sell illegal goods like drugs or weapons. Below you will find a list referring to the legal status of bitcoin by country:
The United States
The United States has taken a positive approach to bitcoin. At the same time, it has several government agencies working on preventing or reducing the use of bitcoin for illegal transactions.
The U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) has been issuing guidance on bitcoin since the beginning of 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).
The BitLicence Proposal
Ben Lawsky, Superintendent of Financial Services at the New York State Department of Financial Services (DFS) announced the BitLicense proposal.
The Bitlicense document contains a regulatory structure for bitcoin which means that businesses in the state of New York can be sure of what they can and cannot do. This has been done to make it easier for businesses to legally accept the cryptocurrency and has been done to encourage small business owners to accept bitcoin. This document is said to be influencing the way other countries are regulating digital currencies.
BitLicence states that “entities chartered under the New York Banking Law that have existing licenses to conduct exchange services are allowed to engage in Virtual Currency Business Activity” … “merchants and consumers that utilize Virtual Currency for the purchase or sale of goods or services are exempt from licensing requirements”.
China continues to be one of the world’s largest bitcoin markets. All banks and other financial institutions like payment processors are prohibited from transacting or dealing with bitcoin. However, Bitcoin culture is thriving in the country and individuals are free to deal in bitcoin between themselves.
The legality of bitcoin in Russia is disputed. Russia’s Ministry of Finance is hoping to pass a law to ban bitcoin sometime this year.
Canada maintains a generally bitcoin-friendly stance while also ensuring the digital currency is not used for money laundering and other criminal activities. The Canada Revenue Agency (CRA) views bitcoin as a commodity b; meaning that bitcoin transactions are seen 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 only has digital currency investments.
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 (FINTRAC), report any suspicious transactions, abide by the compliance plans, and even keep certain records. In addition, the Canadian government has tasked the Senate Banking Committee with drafting guidelines for the legislature of virtual currencies by July of 2015.
Australia allows entities to trade, mine, or buy bitcoin. The Australian Taxation Office (ATO) considers bitcoin transactions barter arrangement subject to appropriate taxes depending upon the use and user.
The European Union
The European Union (EU) has followed developments in cryptocurrency but still hasn’t issued any official decision on legality, acceptance, or regulation. In the absence of central guidance, individual EU countries have developed their own bitcoin stances. A few nations are allowing Bitcoin while others are either undecided or issuing warnings.
- In Finland, the Central Board of Taxes (CBT) has given bitcoin a value-added tax-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 value-added tax (VAT).
- In Cyprus, bitcoins are not controlled or regulated but are not illegal either. The Financial Conduct Authority (FCA)
- In the United Kingdom (UK) 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 UK.
- The National Revenue Agency (NRA) of Bulgaria has also brought bitcoin under its existing 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.
- Germany Considers it to be Legal Tender
Countries unfriendly towards Bitcoin
While bitcoin is widely tolerated in some parts of the world, there are a few countries with an unfriendly attitude towards bitcoin mainly because of its volatility, decentralized nature, perceived threat to the current monetary system, and link to illicit activities like drug dealing and money laundering. Some of these nations have banned Bitcoin while others have been trying to suffocate any support from the banking and financial industry.
The island nation imposed capital controls as a part of its monetary policies adopted after the global economic crisis of 2008. Iceland seeks to protect against the outflow of Icelandic currency from the country. Bitcoin trading is banned in Iceland as the digital currency is not compatible with the country’s Foreign Exchange Act. Contrary to its legal approach, the country has seen a new cryptocurrency called Auroracoin being launched. Its founders wanted to create a viable alternative to the present Icelandic banking system.
The country links the cryptocurrency to criminal activities such as money laundering. Vietnam’s government and its state bank do not recognize Bitcoin as a legitimate payment method. The Vietnamese government made it illegal for both financial institutions and citizens to deal in bitcoin.
The Bolivian government and El Banco Central de Bolivia have banned the use of bitcoin and other cryptocurrencies.
The country’s government and the central bank don’t recognize bitcoin and altcoin as a payment method and have declared it illegal.
Ecuador has plans to create its own cryptocurrency in the future however, bitcoin and other cryptocurrencies are banned in Ecuador by a majority vote in the national assembly.
Countries still do not have explicit systems that restrict, regulate, or ban the digital currency. The decentralized and anonymous nature of bitcoin challenges many governments on how to allow legal use while preventing criminal transactions. Most countries are still analyzing ways to properly regulate the digital currency.