Bitcoin: in which countries is it legal and where is it not?

In contrast to fiat, Bitcoin is not geographically bound to any state. Thus, anyone can send or receive coins anywhere, as long as they have access to the internet. But when it comes to admitting crypto for payment or the need to declare them as income to the tax authorities, several questions and doubts arise. That’s why BTC is freely used in some jurisdictions while wholly or partially forbidden in others. Let’s discuss the reasons for the ban and where digital assets are welcome. 

Current and proposed cryptocurrency regulations

Some countries believe that the decentralization principle of Bitcoin and other cryptocurrencies could be harmful to them. Therefore, they are introducing special anti-crypto laws and tightening policies for financial institutions and companies that plan to work with digital assets. 

The debate over whether to regulate cryptocurrency has been raging since 2012. For example, many believe it is essential for taxpayers to designate whether a transaction should be taxed, that is, whether it is “income generation” for the recipient. 

The rules for Bitcoin in the U.S. are now limited to a few proposals based on the Bank Secrecy Act (BSA) [requiring banks to help detect and prevent money laundering and financial terrorism] of 1970 and the Patriot Act. 

Such initiatives became especially necessary after the 2001 attacks on the World Trade Center. In their aftermath, U.S. banks were required by amendments to the BDS and Title III of the Patriot Act to find, report, and interdict terrorists who were laundering money. This is monitored by the so-called Financial Crimes Enforcement Network (FinCen). It is responsible for enforcing the Bank Secrecy Act and accumulating and disseminating general information about financial crimes. 

In 2020, FinCen proposed new regulations on cryptocurrency laundering. Under them, amounts over $3K must be identified and monitored using a non-hosted wallet or a wallet in one of the states where cryptocurrencies are not allowed. When transferring transactions over $10K, the sender must give FinCen the names and addresses of everyone involved. 

So far, President Biden’s administration has decided nothing on cryptocurrency regulation. In February 2021, U.S. Treasury Secretary Janet Yellen told CNBC that BTC is ineffective and often used for fraud, so there is a chance that the question of when the coin will be regulated will soon move forward. 

Legal concerns around cryptocurrency use 

There are problems with the regulation of digital assets. Several authorities periodically bring them up for discussion and try to solve them. For example, in 2020, the United States Attorney General’s Task Force on Cyber-Digital Technology voiced the following concerns about cryptocurrencies and their use: 

• digital assets are being used to sponsor terrorists and commit other crimes financially;
• cryptocurrencies are used as a means of tax evasion and money laundering;
• theft of cryptocurrencies by hackers and investment fraud.

However, most legal problems of cryptocurrencies are related to the digital anonymity assets provided. They create an ideal environment for criminals. Moreover, coin creators are starting to release tokens with even deeper anonymity (such cryptocurrencies cannot be tracked in the blockchain and protect the user’s identity). First, such tokens as Zcash, Dash, and Monero should be referred to. We reported about the last one quite recently here.

Silk Road 

The story of a darknet trading platform called Silk Road best illustrates how digital assets can be used in criminal cases. The platform existed from 2011 to 2013 as a site that sold illegal substances, counterfeit documents, and hacking software and offered illicit goods and services. The means of payment was Bitcoin so as not to reveal the identity of customers. Two years after the site was shut down, its creator, Ross Ulbricht, was convicted on several counts, including drug distribution and money laundering. 

Cause for caution with crypto investing 

Even though digital assets are very convenient, users should know their nuances. Due to the anonymity of transfers, cryptocurrency exchanges often fall victim to hacks. The fact is that if funds are stolen, it will then be almost impossible to trace or recover. 

In 2014, the sadly famous cryptocurrency exchange Mt. Gox suffered from such circumstances. During a hacker attack, the platform’s clients lost hundreds of millions of dollars in BTC. Investors had virtually no chance because their money was not adequately protected. 

Digital assets, though legal in the U.S., are not legally recognized as a means of payment and are not backed by the government or the central bank. The price per coin is mainly demand-driven. BTC has brought many users great returns as an investment, but unfortunately, the coin is highly volatile. This may be one of the reasons why many still do not recognize the value of Bitcoin and other cryptocurrencies. 

Countries where Bitcoin is Legal

Some countries in the world are against BTC, while others, on the contrary, see a future in it and readily accept it. Here are some states that are friendly to Bitcoin. 

The United States 

The U.S. Department of the Treasury has issued a guide note on BTC since 2013. The department referred to BTC as a convertible digital asset with an equal value to fiat or one that can be used as a replacement for real money. 

Any company that owns and uses BTC in its business is dubbed a money services business (MSB), and: 

• begins to be regulated by the Bank Dance Act;
• is commanded to register with the United States Treasury;
•  must send reports on transfers of more than $10K and purchases with digital assets.

The Treasury Department is also creating rules for financial and non-financial organizations to outline national priorities to track tokens and publish reports. Once the rules are in place, such companies (including financial institutions and crypto exchanges) will have to inform the agency of particular transfers and suspicious activity. 

After analyzing the report, the Ministry of Finance will be able to investigate possible financial crimes and illegal activities with digital assets. 

The European Union 

The E.U. accepts digital assets. The organization considers BTC and altcoins as such. However, there are limits to control of the tokens. For example, the European Banking Authority has said that cryptocurrencies are out of their control, telling the companies and companies about the danger tied to digital assets.

In 2020, the EU Commission suggested creating legislation to control digital assets. Many agencies have adopted it. The goal is to obviate fragmentation and flatten the financial playing field in the European Union. The law’s authors also want to ensure that users can use the coins safely. 

Canada 

Another country that is loyal to digital assets. The government considers Bitcoin a commodity if it is used for income tax purposes. Any income from transfers paid in BTC is considered income from the entrepreneur’s business and a capital increase, so it must be reported. 

As for exchanges, in this country, these are companies that provide money services. Thus, the platforms are subject to the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. Therefore, organizations must: 

• be registered with the Financial Transactions and Reports Analysis Center;
• be alert to all suspicious activity;
• follow a compliance plan;
• maintain a series of reports. 

Australia

The Australian tax authority also classifies cryptocurrencies as taxable financial assets, particularly Bitcoin. Under certain conditions, if a BTC owner trades it, exchanges it, sells it, gives it away, converts it into fiat, and so on, it implies wealth accrual. You have to pay tax for that. Also, owners of digital assets must record information about any transactions to report them for tax purposes. 

However, there are cases where you don’t have to pay tax. For example, if you keep cryptocurrency only for personal purposes and make a profit just from their existence (passive income). 

El Salvador 

The only state in which BTC is considered a legal means of payment. The country’s leader signed the corresponding law in 2021. 

In other countries where BTC is legal 

Here are other states that are loyal to cryptocurrencies and have special conditions for their managing: 

• Denmark;
• France;
• Germany;
• Iceland;
• Japan;
• Mexico;
• Spain;
• the United Kingdom. 

Countries where BTC is implicitly banned 

Looking at the list above, it is clear that many states are loyal to BTC, but some treat Satoshi Nakamoto’s brainchild very cautiously. The main reasons for such wariness are the volatility and decentralized approach of the coin. Also, we should not forget the connections with the criminal world: drug dealing, money laundering, and terrorism. Some states have generally forbidden digital assets, but some are trying to stop any financial organizations that want to work with Bitcoin. Let’s first look at the states with partial BTC bans. 

There are a total of 42 states on this list. Here are some of them. 

• Bahrain;
• Burundi;
• Cameroon;
• Central African Republic;
• Gabon;
• Georgia;
• Guyana;
• Kuwait;
• Lesotho;
• Libya;
• Macao;
• Maldives;
• Vietnam;
• Zimbabwe. 

Countries where BTC is totally banned

There are only nine countries where BTC is completely banned:

• Algeria;
• Bangladesh;
• China;
• Egypt;
• Iraq;
• Morocco;
• Nepal;
• Qatar;
• Tunisia.

You can find a detailed list here.