Is Bitcoin Legal?
Despite how popular Bitcoin has become over the recent months, it still struggles to separate itself from its dark web use in the early 2010s.
While Bitcoin has proven itself to be more than useful in a number of practical ways, making it easier and more transparent to send and receive money across borders, some people still hear Bitcoin and think of people buying drugs online.
For this reason, it’s not hard to see why one of the most common questions that people new to Bitcoin have is whether it’s legal to buy and sell bitcoins or not.
To answer the question regarding the legality of Bitcoin, whether it’s legal or not depends largely on where you’re located.
Iceland, Vietnam, Bolivia, Kyrgyzstan, and Ecuador have either banned Bitcoin completely or put heavy restrictions in place regulating how it can be used and purchased.
As long as you’re not living in one of these countries, then yes, Bitcoin is legal.
It should also be noted that China and Russia often get lumped in with the other countries have restricted Bitcoin.
While these two countries have cracked down on cryptocurrencies in the past, neither has taken an official hardline stance against Bitcoin and other cryptocurrencies as of January 2018.
In which country is Bitcoin legal?
To quickly view if Bitcoin is legal in your country, visit CoinDance.
Why does Bitcoin concern regulators?
Cryptocurrency is a relatively new concept, so a lot of the fear and mistrust surrounding it has to do with the fact that much of the general public doesn’t have an idea of how it works.
Naturally, it also doesn’t help that Bitcoin was the currency of choice for buying and selling narcotics on the Silk Road marketplace in 2011 and 2012.
Aside from that, governments and financial institutions aren’t thrilled about Bitcoin’s increase in popularity due to the fact that it’s hard to monitor and control.
It also doesn’t help that cryptocurrencies like Bitcoin, Ethereum, and others cut out a lot of financial institutions when storing, sending, and receiving money – especially when money goes in and out of the country.
Because of this, the government has taken a keen interest in the success of Bitcoin, and have even been monitoring it and trying to come up with ways to regulate the cryptocurrency since the beginning of 2015.
And three years prior to that report, the FBI conducted their own investigation into Bitcoin and warned about how it can be used for money laundering and other illegal activities.
Who regulates Bitcoin and cryptocurrencies?
While there have been moves to regulate cryptocurrency exchanges in New York, as well as in South Korea and Japan, there hasn’t been a whole lot done in terms of regulating Bitcoin itself.
American organizations like the Financial Crimes Enforcement Network (FinCEN), the US Commodity Futures Trading Commission (CTFC), and the Securities and Exchange Commission (SEC) have all expressed interest in Bitcoin, but none have taken a major stance against the cryptocurrency at the moment.
To further complicate matters, Americans also have to consider state laws when buying, selling, and trading cryptocurrencies.
And some states are stricter than others. Hawaii, for example, took a hardline approach against cryptocurrency that resulted in Coinbase refusing to serve residents of the Aloha State.
There’s also been a push towards regulating Bitcoin in Canada. In a report written by two Bank of Canada employees, the government was encouraged to intervene in the cryptocurrency market to ensure that buying and selling Bitcoin was safe.
And even more recently, Stephen Poloz, the governor of the Bank of Canada, compared Bitcoin to gambling and urged that cryptocurrencies become regulated. Despite all of the warnings and calls for regulation, Bitcoin has remained untouched by many governments around the world.
However, just because agencies haven’t taken decisive action against Bitcoin yet doesn’t mean that there won’t be a push towards regulation in the near future. In fact, the US Government has already been exploring ways to regulate Bitcoin in hopes of clamping down on illegal activities.
What else should I know about Bitcoin?
The most important things to keep in mind as you buy, sell, and trade cryptocurrencies are your country’s tax laws. In both the United States and Canada, proceeds made from selling bitcoins are taxed as capital gains.
For Americans specifically, it’s important that you claim your Bitcoin earnings – especially after Coinbase was ordered to share financial information of all its users who did more than $20,000 of Bitcoin transactions with the IRS.
To make things even more complicated, the IRS recently clarified that bitcoin to fiat conversions aren’t the only taxable cryptocurrency transactions; proceeds earned from exchanging one cryptocurrency to another (eg. selling Bitcoin for Litecoin and making a profit) is also to be taxed.
The Bottom Line
For most people in the world, it’s completely legal to buy and sell bitcoins, as well as use them to purchase goods and services.
What isn’t legal, however, is using Bitcoin and other cryptocurrencies to launder money or hide earnings from the government.
So make sure that you report your Bitcoin earnings, otherwise, you might get slapped with an audit from your revenue service, and then you’ll likely have to pay penalties and additional taxes .
And if you don’t know how to correctly report your Bitcoin earnings, find an accountant who’s knowledgeable of cryptocurrency and can help you correctly file your returns.