Currencies are typically issued by central banks, with a country maintain strict control over the monetary supply.
Only the government can produce the money. Anyone else trying to is guilty of counterfeiting.
Cryptocurrencies like Bitcoin are the complete opposite. The currency is decentralized, anyone can create it through mining, and nobody is in charge.
The drastic differences between Bitcoin and traditional currencies have led to many legal ambiguities and misunderstandings.
Earlier in Bitcoin’s lifetime, governments and regulators could afford to simply ignore the digital currency. There wasn’t much of it around, it wasn’t worth much, and nobody was using it.
Today the Bitcoin market cap is 600 million US dollars, and nobody is ignoring it anymore. The scramble to develop effective Bitcoin regulation has caused a lot of confusion and introduced a host of new challenges.
Many people take for granted the complexity of the system surrounding traditional currencies.
It isn’t a simple question of “is it legal?” There are numerous angles that the problem must be approached from, regulations, taxes, and law enforcement.
Because of the decentralized nature of Bitcoin, traditional approaches are often impossible to implement or inappropriate. The legal framework that has sprung up around cryptocurrencies can seem unintelligible to the average person.
A variety of responses from around the world
The situation is more straightforward for some than it is for most.
In Bolivia, Ecuador, and Vietnam, Bitcoin is simply illegal. These three jurisdictions have complete bans against any and all uses of Bitcoin and, by extension, other cryptocurrencies.
Although their policies are seen as too restrictive, they’re certainly easy to understand.
The remaining countries of the world occupy more of a grey area.
Many nations try to regulate Bitcoin and incorporate the asset into their existing financial regulatory framework. Some define it merely as an asset, like any other stock or financial instrument.
This makes the buying and selling of the currency through exchanges easy enough to regulate, and taxes are treated the same as for any other capital gain.
However, more and more businesses are starting to treat Bitcoin as a currency instead of an asset. The asset basis of regulating Bitcoin is not prepared for these developments and will have to adapt.
There is also much apprehension, which is evident due to the growing trend of fake trading robots like the BitQT system and similar products.
Is it legal to pay with Bitcoin?
There are many different things you can do with Bitcoin, and they are regulated in different ways.
In the United States, Bitcoin is in the class of convertible decentralized virtual currencies. This designation acknowledges the role of Bitcoin as a currency, rather than just an asset.
Therefore, they are suitable for the purchase of goods and services, like any other currency.
Furthermore, the US Treasury Department has stated that those accepting Bitcoin for payment are not money transmitters like a Bitcoin exchange would be.
This greatly simplifies the ramifications of accepting Bitcoin for payment and clearly establishes its legality. This has led to many retailers starting to accept digital currency, including Home Depot and Whole Foods.
Is investing in Bitcoin legal?
US cryptocurrency exchanges must follow the same regulations as any other kind of exchange.
This means that investors must verify their ID and use an established bank account, which removes the anonymity that many Bitcoin users enjoy.
Thus, some investors choose less reputable offshore exchanges, and many become the victims of scams.
The situation is a bit more complicated for taxes. According to the IRS, Bitcoin is property, not a currency.
Like any other property, you can buy it and then sell it. If you make a profit, you pay taxes on the gain.
The situation is complicated in instances where Bitcoin is used as a currency. Despite the lack of clear guidelines, the IRS is actively tracking down Bitcoin investors who have not paid their taxes.
An uncertain future for Bitcoin regulation
Most countries roughly follow the United States’ lead, with legal Bitcoin, but a lack of clarity.
Australia and Canada both have similar regulations. The UK has yet to establish a real guideline for Bitcoin regulation, while Japan is more progressive than most, with explicit acceptance as a legal form of payment.
The decentralized nature of Bitcoin makes it difficult for countries to form a cohesive regulatory framework.
The rush to implement effective legislation has caused significant discord between different countries regarding how to handle the rise of digital currencies.
In most countries, the use of Bitcoin is ambiguously legal, but that could change in the future, for better or for worse.