Since its inception in 2009, Bitcoin has gone from being the first to the largest crypto blockchain on the market. A respected store of value and medium of exchange, Bitcoin has now found its way into the hands of mainstream investors and even some pension funds.
Over time, Bitcoin’s legality is slowly maturing, but this also means that Bitcoin laws are still largely misunderstood and vary from country to country, and occasionally even state to state. If you have any questions about the legality of Bitcoin, read on to better understand the state of Bitcoin in the eyes of the law.
The Legal Status of Bitcoin
In many developed countries, Bitcoin ownership and trading are legal. That being said, the confusion that comes over the legal status of Bitcoins stems largely from the fact that for most of its existence, Bitcoin was in a grey area of finance. Bitcoin was officially legalised in Australia in 2017, which means for many years Bitcoin was neither legal nor illegal.
Although Bitcoin is now legal in Australia, there is still a lot of ambiguity in the space. For example, crypto is recognized as property in the UK since 2020, but the country has no laws or regulations regarding its trading. In the Us, Bitcoin is not illegal, but government agencies have no laws or regulations pinned down to help regulate it.
Currently, most countries tend to lump Bitcoin in with other forms of financial assets and regard it as property for tax reasons. While users tend to think of and use Bitcoin as a currency, only El Salvador recognizes it as a legal tender. Many other countries see Bitcoin as a challenge to stability, with many countries banning it outright.
Here are the countries where Bitcoin is illegal: India (not illegal but highly restricted), Bolivia, Saudi Arabia, Bangladesh, Pakistan, and Vietnam.
Here are the countries where Bitcoin is legal: Japan, Germany, Finland, France, United States, United Kingdom, Canada and Australia.
Regulating Illicit Activity
The reason governments and policymakers want to regulate those who trade Bitcoin and other cryptocurrencies is that the space is used heavily for illicit activities such as money laundering and the like.
With all the ambiguity surrounding Bitcoin’s legal status, government agencies tend to regulate the exchanges where cryptocurrencies are bought and sold, instead of regulating the blockchains themselves.
That being said, regulating blockchains themselves is a very difficult, almost impossible task, so regulators try their best to target crypto exchanges. This means that they target on and off-ramps that allow crypto to be converted, and this has resulted in exchanges keeping records, verifying identities and complying with reporting requirements the local governing body has set up.
For an average customer, undertaking Bitcoin legally simply means filling out a know your customer (KYC) form, which allows your identity to be confirmed for security purposes and filing taxes correctly.
Bitcoin is considered property, rather than currency by many countries, and so is taxed in the same manner as property that can appreciate in value over time. This manner of tax is known as capital gain tax (CGT) and requires owners to pay a percentage of profits made since the coin’s initial purchase.
The rate of CGT differs from country to country, and countries such as the UK have an allowance in place before you need to pay a CGT, and other countries such as the US have different rates depending on the length of time the asset was held. Although Bitcoin laws dictate that CGT should be paid for appreciation in value, people who trade crypto as their profession are required to consider gains as income. This means that traders and businesses that trade crypto commercially should treat profits as a source of income, not a capital gain.
The Bottom Line
As Bitcoin continues to grow in popularity and become adopted by more and more people, laws and regulations are now starting to be developed. In countries such as Australia, US, UK and Japan regulatory framework is being put together to help establish a firmer legal ground for Bitcoin and other cryptocurrencies. Some in the Bitcoin world are being put off by legal interference, and others such as investors and traditional firms are waiting around for clearer laws before getting involved. We have found that as long as you are well educated about the legalities of Bitcoin, you’re less likely to run into any issues. To learn about the types of crypto tokens, check out Swyftx.