Originally published on August 25, 2020 and updated on November 14, 2024

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The legality of Bitcoin remains a matter of intense debate. Governments, scholars, and financial institutions are investigating how to classify and integrate Bitcoin within existing financial systems.

While some countries explicitly promote it, others view it with ambivalence, creating a regulatory gray area. Meanwhile, others have banned it.

So, is Bitcoin Legal? 

The short answer is that this varies depending on the country and specific regulations in place, but what is without question is that there is a growing adoption— outpassing that of the internet and mobile phones— and growing applications in everyday life.

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Key takeaways:

• Bitcoin is legal in countries like the U.S. and Canada but banned in others like China and Algeria. In El Salvador, it’s considered legal tender.
• Countries increasingly regulate exchanges and marketplaces to prevent fraud, enhance compliance, and limit money laundering. The EU’s MiCA law standardized European rules, while U.S. exchanges must meet federal AML standards.
• Bitcoin mining is legal in El Salvador, Iceland, and the U.S. but banned in China and Morocco due to environmental and regulatory concerns.
• Staying Compliant:
  • Understand local laws on Bitcoin and taxes.
  • Keep detailed transaction records.
  • Use regulated platforms like Paxful, which follow KYC and AML requirements.

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Bitcoin legality differs per country.

Countries take different approaches to the legality of Bitcoin as follows:

1. Bitcoin as a commodity or property

Some countries classify Bitcoin as a commodity or property rather than currency for taxation purposes. The United States treats Bitcoin as property for tax purposes. This means capital gains taxes apply when selling or trading Bitcoin as they would for assets like stocks, bonds, or real estate.

In the United Kingdom, through the Property (Digital Assets etc) Bill, Bitcoin will be recognized as personal property, leading to greater protection under the law. Bitcoin is treated as a commodity in Canada under the Income Tax Act; capital gains tax applies when sold or traded.

2. Bitcoin as legal tender

A few countries have taken the bold step of making Bitcoin legal tender. El Salvador became the first nation to do so in 2021, allowing businesses to accept Bitcoin as payment if they have the means. This adoption has drawn global interest as it explores financial inclusion opportunities in a cashless framework and navigates integration challenges.

The Central African Republic followed suit in 2022, recognizing Bitcoin as an official currency alongside its franc. However, this move was rescinded in 2023 following legal challenges backing Bitcoin’s legal status in the country.

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Related: Check this video to see the application of Bitcoin as legal tender in El Salvador by our team.

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3. Regulations on crypto exchanges

Many countries focus their Bitcoin rules on exchanges. These platforms—like Binance and Coinbase— let people buy, sell, and trade cryptocurrencies. Here are some country specifics:

• Japan requires exchanges to register with the Financial Services Agency (FSA) and follow strict customer protection and anti-money laundering rules.
• The EU has introduced MiCA, a comprehensive framework regulating crypto assets across member states. This regulation requires crypto asset service providers (CASPs) to adhere to strict AML/CFT obligations and consumer protection standards.
• In the U.S., regulations vary significantly by state. At the federal level, exchanges must register with the Financial Crimes Enforcement Network (FinCEN) and comply with anti-money laundering (AML) and combating the financing of terrorism (CFT) regulations.

Countries Where Bitcoin is legal and illegal

A handful of countries have made Bitcoin completely illegal. Some of these countries include:

Why Bitcoin’s legal status remains uncertain

Bitcoin’s decentralized nature, changing regulations, taxation concerns, and potential for misuse add layers of uncertainty. Here’s a closer look at the factors that make Bitcoin’s legality a common concern.

1. Governments are still trying to understand Bitcoin

Bitcoin’s decentralized nature challenges the status quo. Governments and regulators have struggled to classify and regulate this virtual currency. The lack of a central authority makes applying existing laws and regulations difficult, making some governments wary. 

As a consequence, some countries have outrightly banned Bitcoin. In contrast, others embrace it with varying decrees, including clear regulatory frameworks such as the Markets in Crypto-Assets Regulation (MiCA) enacted by the European Union (EU) to establish a comprehensive regulatory framework for crypto-assets and related services to achieve legal certainty, consumer protection, and foster innovation.

2. Financial stability concerns

Bitcoin’s volatility worries financial regulators. The European Central Bank CEO, Christine Lagarde, a long-term critic of cryptocurrencies, has expressed concerns about its volatility, adding that “there is no underlying asset to act as an anchor of safety.”—incidentally, much like global fiat currencies, including the US Dollar, a case in point is the depreciation of the Zimbabwean dollar.

Additionally, Central banks are concerned that the widespread adoption of cryptocurrencies could reduce their control over monetary policy. This diminished influence over the money supply can pose risks to economic stability. However, it’s important to recognize that volatility is not exclusive to Bitcoin; commodities and energy sectors have traditionally been volatile, presenting risks and rewards.

3. Public perception and misinformation

The public perception of Bitcoin is largely shaped by media narratives highlighting its association with crime and volatility. This skewed coverage can lead to:

• Negative associations: Media reports frequently emphasize Bitcoin’s use in illegal activities, overshadowing its legitimate applications and creating a stigma that influences public opinion and regulatory approaches.
• Lack of understanding and misinformation about Bitcoin and blockchain technology can create fear and mistrust, which hinders broader acceptance. Educate yourself about crypto through Paxful University to overcome these challenges.
• Shifting narratives: Although there is a growing recognition of Bitcoin’s benefits, the positive narrative struggles to gain traction against sensationalized negative stories.

4. International disparities

International disparities in Bitcoin regulation create a fragmented legal landscape with several implications. This has led to:

• Inconsistent frameworks: Countries adopt varying regulatory approaches, from outright bans (like in China) to legal tender recognition (like in El Salvador), creating confusion for users and businesses.
• Operational challenges: Companies in the crypto space face complexities due to differing compliance requirements, increasing costs, and legal risks associated with international operations.

4. Tax implications

Taxing Bitcoin can be pretty complicated. The primary challenge lies in classifying it: should it be treated as currency, property, or something entirely different? 

This ambiguity leads to users’ concerns about unintentionally violating tax laws and facing penalties. In jurisdictions where regulations are still evolving, the risk of misinterpretation increases. As a result, many people feel anxious about their tax obligations and how to properly report their cryptocurrency holdings, creating a barrier to broader adoption and compliance.

Other jurisdictions have used these complications to offer crypto havens to attract businesses and investors seeking favorable tax conditions. 

In jurisdictions like the United States, crypto taxation is clearly defined, with the Internal Revenue Service (IRS) treating it as property rather than currency. This classification means that transactions involving cryptocurrency, whether through sales, exchanges, or even as payment for goods and services, may trigger capital gains taxes.

Learn more about crypto taxation: Bitcoin & Cryptocurrency Tax: The What, How, and Why

Is Bitcoin legal in the US?

Bitcoin is legal in the United States. However, its usage is subject to various regulations at the state and federal levels. At the federal level, enforcement is done by the following bodies:

• The Internal Revenue Service (IRS) on taxation issues
• The Commodity Futures Trading Commission (CFTC) on Bitcoin futures and options.
• The Financial Crimes Enforcement Network (FinCEN): regulation on anti-money laundering (AML) and counter-terrorism financing (CTF) regulations.

Regulation varies widely at the state level. Use this resource to learn more about the States Review of Cryptocurrency and Blockchain Regulation.

Is Bitcoin mining legal?

Bitcoin mining laws vary widely worldwide—some countries see it as an economic opportunity, while others restrict or ban it altogether.

How to stay compliant with Bitcoin regulations

The following are ways of staying compliant with Bitcoin regulations

• Understand your country’s laws: Bitcoin regulations differ widely, so research local laws carefully. Consulting a tax professional can help ensure compliance with complex cryptocurrency regulations.
• Keep detailed records of your transactions: Track all Bitcoin transactions, including dates, types, amounts, fiat values, fees, and parties involved. Cryptocurrency tax software can simplify record-keeping and help calculate tax obligations.
• Use regulated exchanges and marketplaces: Choosing a regulated platform like Paxful helps ensure compliance, as these platforms follow Know Your Customer (KYC) and Anti-Money Laundering (AML) guidelines. 

What’s the future of Bitcoin regulation?

Bitcoin regulation is evolving as governments and financial institutions work to address crypto’s risks and opportunities.

• Government scrutiny: Many countries are tightening rules for crypto businesses, implementing stronger Know-Your-Customer (KYC) and Anti-Money Laundering (AML) standards, and requiring large transaction reports. In the broader context, regulation will make the crypto ecosystem more efficient and accelerate the paths towards widespread adoption.
• International cooperation: With Bitcoin operating globally, countries are moving toward unified rules. For example, the EU’s Markets in Crypto-Assets (MiCA) framework aims to standardize European crypto regulation and may inspire other regions. Global bodies like the Financial Action Task Force (FATF) and the International Organization of Securities Commissions (IOSCO) are developing anti-money laundering and asset management guidelines to reduce regulatory gaps between countries.
• Central Bank Digital Currencies (CBDCs): Central banks are considering digital currencies in response to Bitcoin’s popularity. CBDCs could offer Bitcoin’s transaction speed with government backing, possibly influencing adoption.

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Learn more about CBDCs here: What are Central Bank Digital Currencies (CBDC)?

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