Bitcoin’s legal status greatly varies across countries and continuously changes.
Most countries have not concluded on Bitcoin’s and other cryptocurrencies’ legality nor have they concluded on their status such as money or commodities. This situation has varying regulatory implications across countries.
Specifically, some countries have explicitly stated that Bitcoin’s usage and trading is legal, others have restricted or even banned it, while numerous others have yet to make a statement on the matter. There is an apparent lack of consistency in how governments and other formal institutions have classified cryptocurrencies.
Therefore, this article aims to categorize Bitcoin’s and other cryptocurrencies’ legal and functional statuses by creating five overarching categories. First, the countries where cryptocurrencies are completely illegal will be identified. Second, countries, where crypto is only partially illegal for certain parties, will be brought as examples. Third follows a discussion of the countries and regions where digital assets are treated with considerably more flexibility by formal institutions. Fourth, the article discusses the countries where no legislation exists around cryptocurrencies like Bitcoin and other digital assets. Finally, the article addresses El Salvador’s case in accepting Bitcoin as legal tender and examines the institutions that are likely to closely follow the pioneer nation’s steps.
To begin with, therefore, quite a few countries in Northern Africa such as Algeria, Egypt, and Morocco, have classified Bitcoin and cryptocurrencies as illegal. Other countries include Nepal and Bolivia, which both have an absolute ban on cryptocurrencies. The purchase, sale, use, and holding of such digital assets is prohibited. Anyone who wishes to transact with such virtual currencies will be subject to punishment according to the regulations of each country.
The illegality, however, varies with time. In the case of Venezuela, Bitcoin miners used to be arrested by law enforcement authorities, but in 2018 the government legalized bitcoin mining activities and the Supreme Court dismissed previous arrests.
Following, the next category discusses countries that have partially prohibited the use of Bitcoin and other cryptocurrencies. Specifically, the majority of these countries have imposed a banking ban on cryptocurrencies (Nigeria, Canada, Columbia, Ecuador, Russia, Saudi Arabia, Jordan, Qatar, Iran, Bangladesh, China, Cambodia). The banking ban differs between countries depending on their specific laws and regulations. Generally speaking, it holds that financial institutions are not allowed to facilitate cryptocurrency transactions nor are they allowed to utilize Bitcoin and cryptos in any way. Moreover, in most countries, it is still considered legal for the public (and in some cases for financial institutions) to purchase, own, and sell cryptocurrencies, but they are strongly discouraged to utilize them as a payment method. Furthermore, while governments have warned the public of the risks related to cryptocurrencies, and that they are not legal tender, on some occasions (e.g. Jordan) they may still be accepted as a payment method for some businesses and merchants.
Other countries in this category such as Indonesia and Vietnam have deemed Bitcoin as an illegal payment tool, but it is still legal to trade and hold. Specifically, Vietnam’s State Bank has declared that the issuance, supply, and use of Bitcoin and other similar virtual currency is illegal as a means of payment and subject to punishment, but the government has not banned the trading of cryptocurrencies like Bitcoin as virtual goods or assets.
Meanwhile, on a few occasions, governments have placed a banking ban and have also stated that it is an illegal payment tool. For example, the Turkish government issued a regulation banning the use of cryptocurrencies including Bitcoin and other such digital assets based on distributed ledger technology, directly or indirectly, to pay for goods and services, citing possible ‘irreparable’ damage and transaction risks. However, it is still legal to trade and hold cryptocurrencies in Turkey.
Moving on to the next section, the countries where the use of Bitcoin and other cryptocurrencies is permissive will be discussed. The countries in this category range from those who have not officially banned cryptocurrencies but have strongly advised against their usage, to those who have developed a regulatory framework to support their usage under certain conditions. However, none of these countries have yet deemed it as legal tender.
To begin with, there are numerous countries that have not officially banned Bitcoin but have strongly discouraged its usage, stressing that the national currency is the only acceptable legal tender. Examples are Tanzania, Brazil, North Macedonia, Angola, and Brunei. These countries have not issued any specific regulations around cryptocurrencies and digital assets, which also means that consumers and businesses are not protected under the laws administered by monetary authorities. Therefore, as there is no legislation against Bitcoin and cryptocurrencies in these countries — they remain fully legal.
Bitcoin classification as currency, commodity, or other type of asset greatly varies across countries. For instance, in Israel, it is viewed as a taxable asset, in South Africa as an intangible asset, while in Singapore it is perceived as a digital payment token. Classification also varies across time. For example, in 2013, the United States had classified Bitcoin as a convertible decentralized virtual currency, while in 2015 it was classified as a commodity.
A few other countries, like Kyrgyzstan and Hong Kong (HKSAR), have taken this approach by classifying Bitcoin and other cryptocurrencies as commodities. Specifically, in Kyrgyzstan, Bitcoin is considered a commodity and not a security or currency. It may be legally mined, purchased, sold, and traded on local commodity exchanges. However, its usage as a currency in domestic settlements is somewhat restricted.
Cryptocurrencies like Bitcoin are viewed as currency within the European Union, and subsequently amongst the member countries, though each country is able to regulate cryptocurrency exchanges further. Generally speaking, while there is no specific legislation around the status of Bitcoin as a currency, it remains legal. However, the EU has extensively explored the topic of anti-money laundering and with the Sixth Anti-Money Laundering Directive (6AMLD) coming into effect in December 2020, cryptocurrency-fiat currency exchanges are placed under the scope of this legislation. Specifically, the directive made cryptocurrency compliance more stringent by adding cybercrime to the list of money laundering predicate offences. This is similar to countries like Japan, South Korea, and Thailand where cryptocurrency exchanges are heavily regulated.
Bitcoin and cryptocurrencies are increasingly welcomed in countries around the world. For example, in 2018, Uzbekistan became a crypto-friendly state by legalizing crypto trading and making it tax free, a decision which attracted the attention of the Bitcoin mining industry. Another example is that of Pakistan, where though not officially regulated, recent actions by the Khyber Pakhtunkhwa provincial government are attempting to pass a resolution to legalize cryptocurrency in the country. Similarly, the Bank of Jamaica has publicly declared that it must create opportunities for the exploitation of technologies including cryptocurrencies.
The fourth section will refer to those countries whose regulatory frameworks have not been updated to involve cryptocurrencies or those countries that have made no claims with regards to Bitcoin and digital assets. These countries include Zimbabwe, where financial institutions are skeptical about Bitcoin and cryptocurrencies and have not officially permitted their usage. However, cryptocurrency related-activities have been observed in the country, as digital assets are not considered illegal. In the case of Costa Rica, while formal institutions have claimed that Bitcoin is not considered as a currency and is not backed by the government nor any laws, it is not illegal. In fact there are a few merchants who accept Bitcoin in Costa Rica. Furthermore, the use of Bitcoin is not regulated in countries like Chile and Cyprus, and as such has not been deemed illegal in any manner.
The final section includes none other than the one country where Bitcoin is acknowledged as legal tender: El Salvador. On Wednesday 9th of June 2021, the congress approved the President’s proposal to embrace the cryptocurrency as legal tender, a move that no other country has dared to execute yet.
The use of Bitcoin will be optional for individuals while firms will be required by law to accept Bitcoin when offered as payment for goods or services. Similarly, it will also be possible for tax contributions to be paid in Bitcoin. Read more about this here.
This decision’s impact on countries’ Bitcoin regulation and taxation, as well as adoption as legal tender remains uncertain. Even though there are no signs that any countries are preparing to immediately follow El Salvador’s pioneering strategy, it is definitely the case that in the near future discussions around mass adoption of cryptocurrencies will be encouraged.
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