We grew up using fiat currencies, but they’re usually controlled by a single entity—central banks, in most cases. Because fiat is centralized, you’d probably end up in jail if you tried to print your own money.
With that in mind, the way you think about Bitcoin (BTC) really changes. It created an entirely new system, a paradigm wherein the currency is decentralized—unlinked to a single entity. Because of Bitcoin’s decentralized nature, people with powerful computers could create coins simply by being active within the community.
It’s a groundbreaking paradigm shift that many people are still trying to wrap their heads around. As it becomes more popular, legal regulators, law enforcement agencies, and tax authorities still struggle to see where Bitcoin fits in the existing regulations and legal frameworks.
So, with that, we have to ask: is bitcoin legal?
Why people are concerned about Bitcoin’s legality
There are a few reasons why authorities have acted rather slowly on the matter. They’re reasonable concerns, so let’s break them down.
The first and most simple reason is that authorities are still trying to understand how Bitcoin works. We can all admit that Bitcoin has a bit of a learning curve, so imagine being tasked to come up with laws and regulations about something you don’t fully understand.
The main concern of authorities here is the worry of creating a financial community that can’t be controlled, which extends all the way to exchanges and the security of people’s funds. Since many US-based exchanges are required to be regulated, many offshore alternatives were made for traders—causing concern for many regulators.
Next, there are two infamous incidents that regulators are concerned about: Mt. Gox and Silk Road. These two incidents opened up the possibilities of bitcoin holders being scammed and people using digital assets for illicit activities.
In 2014, one of the most prominent bitcoin exchanges, Mt. Gox, filed for bankruptcy, due to technical issues and the apparent theft of 744,000 of its users’ bitcoins. On the other hand, Silk Road was a black market platform launched in 2011 known for hosting illegal drug transactions and money laundering activities using bitcoin.
Together, these two platforms gave Bitcoin and other cryptocurrencies a bad name. They created tremendous concern for many authorities out there, graying out the legality of Bitcoin further.
Bitcoin’s legality today (and your role in using them)
As scary as the concerns are, the development and maturation of Bitcoin have addressed all of them. To prevent issues like those from ever happening again, many security protocols have been put in place to ensure the safety of bitcoin holders and the governing authorities that permit the use of these digital assets.
In most cases, bitcoin’s legality will heavily depend on where you are and what you’re using it for.
Although bitcoin is legal in many places around the world, there are still some places where its use isn’t allowed.
Your role in using bitcoin will also determine its legality. As an example, let’s go over how it’s regulated in the US.
Buying goods and services
In 2013, the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) classified Bitcoin as a “convertible decentralized virtual currency.” They also released a guidance stating that “a person that creates units of this convertible virtual currency and uses it to purchase real or virtual goods and services is a user of the convertible virtual currency and not subject to regulation as a money transmitter,” and therefore is operating within the law.
Bitcoin as an investment tool
Are bitcoins legal to buy in the USA? According to the same guidance released by FinCEN, buying bitcoin is also totally okay. Many of the US-based exchanges are regulated and therefore require their users to comply with anti-money laundering and KYC (know your customer) policies.
You can buy as long as you have your account ID-verified.
Accepting BTC as payment for your business
Assuming that you operate a well-natured business, it’s legal for both big and small businesses to accept BTC as payment for your goods and services. Note that you may also have some tax considerations to be mindful of.
There is no automatic answer to the question: “is bitcoin safe and legal?”
While Bitcoin is definitely safe to use, its legality depends on where you are in the world, who you are, and what you’re doing with it. In developed countries, bitcoin is usually legal. However, this widely varies in emerging markets.
The main takeaway from this is that it’s important to look at your own country-specific laws. Before you engage in any kind of bitcoin or cryptocurrency transaction, it’s vital to make sure that your authorities don’t see it as a criminal offense. You may even wish to seek legal advice from your own counsel.
Of course, it’s unfortunate to see that not everyone sees the potential of digital assets like bitcoin, but we have to give each country their own space to accept it when they’re ready. After all, they’re mainly just looking to protect the people from being scammed and illicit activities.
Hopefully, the countries that ban bitcoin and other cryptocurrencies get a chance to see their potential benefits—such as the opportunity to help the unbanked and underbanked. However, until they do, we’ll just have to sit back and give them the space to do it in their own time. It’s just like the expression: “Rome wasn’t built in one day.” There’s plenty of time and we’ll be waiting until the whole world is ready.
Disclaimer: The information provided herein is not, and is not intended to be, legal advice.