Is Bitcoin Legal?

Is Bitcoin Legal?

Is Bitcoin Legal?

After almost 9 years since bitcoin started his journey, and together with ups and downs of all cryptocurrency prices, it still sits on the throne and is gaining more and more followers every day. But countries and governments, with their own financial apparatus, laws, markets, etc. were here first. Are they looking at this currency as a joke, a threat, or maybe they want a slice of that pie? And while the pie is getting bigger and bigger, the question is not will governments lay their fingers on blockchain technology, but when.

Is bitcoin legal? | Bitcoin legal status around the globe

In general, there are three main viewpoints on cryptocurrencies in terms of regulation that countries choose between – they either embrace it, regulate it through laws or completely ban it. By definition, all cryptocurrencies are decentralized in nature, as well as countries with their decentralized governments and individual decisions on the subject. There is not just one cryptocurrency market – there are many of them and they are not tied to any country.

If we look closer at a country level, things get even more complex. For instance,  Iceland has some of the biggest bitcoin mines worldwide, and while this country’s residents can acquire bitcoins through the process of mining, they are not allowed to purchase bitcoins from a foreign exchange. Let’s take one country, for example, India, with one more element into the equation – institutions.   

Is bitcoin legal? | India

The question “Is bitcoin legal in India?” is a very complex one. While the Indian government sees potential in regulating bitcoin and creating the laws to do so, the Reserve Bank of India is also considering using blockchain technology in banking. One special committee of finance ministry officials, NITI Aayog, with the aforementioned Bank, was established. And despite the not so developed regulations when it comes to the digital currency industry in India, a few bitcoin exchanges did start their business by using self-regulated trading platforms and systems designed to prevent money-laundering in place.

Although earlier in April of 2017 Indian authority made a breakthrough in developing cryptocurrency regulations, the finance minister of that big country Arun Jaitley, recently gave a negative answer on the question “is bitcoin legal in India?” – the government does not recognize bitcoin as legal tender. Meantime, trades from India accounted for 10% of the global cryptocurrency trade, while India is ranked fourth on the bitcoin cryptocurrency trading market. So, you can definitely trade this cryptocurrency there.

Is bitcoin legal? | In bitcoin we trust

In United States, bitcoin is either treated as commodity (by the CFTC), or money service business (by FinCEN). And the Internal Revenue Service (I.R.S) describes Virtual Currencies (VC)s as “a digital representation of value that functions as a medium of exchange, a unit of account, and/or a store of value [and] does not have legal tender status in any jurisdiction”. In short, as long as digital currencies are distinguishable from U.S. dollars, but are related to them through value – income earned on cryptocurrency market is taxable.

While obviously things are over-regulated in USA, there is also Japan – the first country in the world that has accepted bitcoin as a legal form of payment.

Is bitcoin legal? | What exactly can be regulated in cryptocurrency world?

Besides bitcoin legal issues, there are many ways how that currency is being used. Infamous black market or money laundering can give bitcoin some negative reputation, but the digital currency itself is not outlawed. Regardless on end-user actions, there are different areas where bitcoin legal status can be debated.   

Possession of bitcoin, or cryptocurrency wallet (a storage for digital currency), is not illegal per se.

Cryptocurrency exchange, on the other hand, is a place where cryptocurrency trading is commonly combined with traditional currencies and falls into definition of „money transmitter“. In other words, some laws may be applied to these currency transfers.

Is bitcoin mining legal? Those who mine cryptocurrency and trade it for traditional currencies also fit into the category above. It’s also important to understand the mining process, as some people falsely believe that mining means counterfeiting digital money. However, there is no explicit answer to the question „is bitcoin mining legal?“ because there is at least one known form of mining that actually can be illegal – through websites that hijacked people’s computer resources to mine bitcoins (for some third parties).

Is bitcoin legal? | Three main directions in government regulation of the bitcoin ecosystem

  1. Regulation under money transmitter laws – if a bussiness (e.g. cryptocurrency exchange) transmits funds between parties, it must obtain a license, and this is regulated by the Patriot act in the US.

In March 2013, FinCEN divided cryptocurrency users into three categories :

  • User — a person obtaining virtual currency to purchase goods and services (not money transmitter)
  • Exchanger — a person engaged as a business in the exchange/transfer of virtual currency for traditional currency, funds, or other virtual currency (money transmitter)
  • Administrator — a person engaged as a business in the process of putting virtual currency into circulation with the authority to withdraw such currency from the system

Bitcoin miners are not administrators since they cannot redeem bitcoins from the system, but may qualify as exchangers if they sell the bitcoins they mine for a traditional currency.

Is bitcoin legal? | Regulation as a Commodity

Regulating bitcoin strictly as a currency is not simple as it sounds. It doesn’t fall under the term “foreign currency” since it’s stateless and has no government. Because commodities are defined as “goods and articles… and all services, rights, and interests… in which contracts for future delivery are presently or in the future dealt with”, we could conclude that bitcoin is both a currency and a commodity.

Is bitcoin legal? | Regulation Under the EFTA

EFTA defines “Electronic Funds Transfer” and assumes the necessity of “financial institutions” and “accounts,” which are not elements of the bitcoin system. We can look at cryptocurrency wallet as a “financial institution” but these services do not initiate electronic funds transfers.

Is bitcoin legal? | Law abiding cryptocurrencies

John F. Kennedy gave some 50 cents advice: “Change is the law of life. And those who look only to the past or present are certain to miss the future.” Cryptocurrency prices has skyrocketed, and with market cap having all time high, bitcoin dominance is still not under question. While cryptocurrency trading attracts more and more people, bitcoin legal issues are still undiscovered parts of uncharted territory among world financial battlefields.

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Author: Ben Prescott

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