Cryptocurrencies like Bitcoin are an amazing technology that allow users to transact with anyone else over the internet without the need for a third party to process the transaction. Due to the permission-less nature of these systems, there are some questions whether they could ever be legal. After all, two of the earliest use cases of Bitcoin were buying drugs via Silk Road and getting around the financial blockade placed on Wikileaks. Surely governments could not allow technology like this to exist?
Bitcoin Can't Be Controlled
While many governments are against anonymous forms of online transactions for obvious reasons, one of the main purposes of Bitcoin’s creation in the first place was to get around these restrictions on online financial privacy. While previous systems, such as Liberty Reserve and e-gold, were useful to those who desired privacy in their online transactions, they were eventually shut down – and doing so was easy due to the centralized nature of those platforms.
However, the key idea with Bitcoin is to enable a new, uncontrolled financial system that cannot be controlled or regulated by any government around the world.
A General Overview of Cryptocurrency Legality
In most countries around the world, it is completely legal to use various forms of cryptocurrency. While there has been a lot of noise around claims of stringent regulations or outright bans over the year, the reality is most people around the world can send some Bitcoin from one phone to another without having to worry about law enforcement coming to their front door.
This is not to say there aren’t some restrictions on the use of cryptocurrency. Obviously, governments will still desire to clamp down on the use of Bitcoin and other cryptocurrencies in various crimes such as money laundering or terrorism. Additionally, the entry and exit points between traditional fiat currencies and cryptocurrencies are heavily regulated. It has become increasingly difficult for people to trade large amounts of cryptocurrency for fiat currency without having to report a large amount of information to the local regulators.
For now, it is more correct to say that cryptocurrency is becoming increasingly regulated rather than illegal. This article details an informative map of the landscape of countries legal position on cryptocurrency.
Is it Even Possible to Make Cryptocurrency Illegal?
At this point, it would be rather difficult or a government or collection of governments to make cryptocurrency illegal in any meaningful way. Sure, laws could be passed against the use or transfer of Bitcoin; however, this would be extremely difficult to enforce. If someone’s smartphone is encrypted and cannot be accessed by law enforcement, then how could it even be proven that someone has a Bitcoin wallet on their phone? This is why former U.S. President Barack Obama claimed that encryption can basically enable anyone in the world to have a Swiss bank account in their pocket.
Instead of making Bitcoin illegal, it may make more sense for governments to attack the network at a technical or social level. Having said that, it would have been much easier to attack Bitcoin in the earlier days. There is now a much larger amount of computing power pointed at the network, making a 51% attack much more costly, and quite frankly, impractical to any nefarious parties.
Why Do Some Countries Try to Restrict Cryptocurrency?
Restrictions on the use of technologies like Bitcoin and encryption come down to a question of freedom. In countries where the populace is generally free to do what they want, the restrictions on the use of Bitcoin tend to be limited. However, in countries where the government is much more authoritarian in nature, there tends to be more laws surrounding the use of Bitcoin due to the government’s desire to have as much control over the local financial and monetary system as possible.
For example, a government may not want people to turn to Bitcoin in a situation where it has been decided that inflation must be increased to cover unsustainable government spending. Bitcoin is unfavorable to countries that wish to have a hand in the pockets of their citizens. In China, you may be fined automatically through SMS by intelligent security cameras. It’s not unreasonable to suggest the next iteration of this technology is to take the fine amount directly from your bank balance. Bitcoin is the sort of technology that is built to resist automated unauthenticated withdrawals from your bank account.
Which Major Countries are Open to Cryptocurrency?
Most major countries around the world are open to cryptocurrency at this time. Many of these countries are even looking at ways they can create regulatory sandboxes for startups to come in and try out new ideas without having to worry about being thrown in jail for not following the letter of the law. Some of the largest countries that are open to cryptocurrency include:
It should be noted that these countries’ stances on Bitcoin and other forms of cryptocurrency could change rather quickly. If there were some sort of terrorist attack or another event that turned out to be funded by a cryptocurrency, then it’s possible that an anti-encryption political atmosphere could gain steam pretty suddenly.
Which Major Countries Restrict or Outright Ban Crypto?
While the number of countries placing restrictions on Bitcoin is currently low (and outright bans are even more rare), these places do exist. However, many of the countries that are trying to limit the use of Bitcoin within their borders are also working on their own blockchain-related projects, with the most notable example being China’s upcoming digital currency.
These countries take a “blockchain not Bitcoin” approach because it allows them to continue, and likely enhance, their complete control over the local financial system. Although the original idea with Bitcoin was to create a system that was outside of the control of any government, this technology can be turned on its head to create a financial surveillance state that past tyrants only saw in their dreams.
Some of the major countries taking a more restrictive approach to Bitcoin include:
Does Bitcoin Count as Property or Currency?
Whether Bitcoin counts as property or currency depends on the jurisdiction. For example, Bitcoin has been classified as property in the United States, but other jurisdictions exist where the asset has been deemed to be a currency.
While the classification of Bitcoin as property or currency may seem like a meaningless issue at first, the reality is this matter has huge implications in terms of how the cryptocurrency is taxed. In general, it’s much more difficult to use assets classified as property as a medium of exchange because many transactions will have tax implications associated with them.
Is Cryptocurrency Considered Legal Tender?
No, cryptocurrency is not considered legal tender. Legal tender is a form of money that must be accepted for the payment of debts. Usually, the local fiat currency will be the only form of legal tender in the country. It is unlikely that a government would adopt Bitcoin as legal tender, as Bitcoin competes directly with each individual government’s control over the local monetary system. Furthermore, Bitcoin is never directly owed, it is only owned, furthering the case that Bitcoin is property, and not money.
Can Businesses Accept Cryptocurrency?
In countries where Bitcoin is not outright banned, businesses can accept cryptocurrency. Most of the restrictions and regulations come into play when someone is exchanging cryptocurrencies for fiat currencies rather than goods or services. If a business decides that they would like to accept Bitcoin for their product or services, then they are then subject to the laws regarding the taxation of Bitcoin and cryptocurrencies. Merchants and business must be aware of the additional reporting requirements of accepting Bitcoin as a form of payment.
Are Cryptocurrencies Regulated?
Cryptocurrencies are heavily regulated around the world, and this trend towards increased regulation is likely to continue. As of 2020, most of the activity related to cryptocurrency still happens on exchanges, which is the point where regulation is most impactful. Anyone who wants to buy and sell cryptocurrencies via an online exchange will have to hand over a large amount of personal information so the company behind the exchange can verify the user’s identity.
In terms of the protocol level, there are no regulations on Bitcoin. Again, the point of the creation of this new financial technology was to avoid regulation in the first place. There may be attempts to regulate the Bitcoin network at the protocol level in the future, but these regulatory interferences are unlikely to succeed, as they would need to be made on an opt-in basis and would destroy what makes the crypto asset valuable in the first place.