What would happen if you, all of a sudden, decided to start printing your own money? Well, probably the authorities wouldn’t be too excited about it. Dealing with fiat currencies is rather simple — you can only store and exchange them, and you’ve got a central bank to take care of all the rest. But things with crypto are a little more complex. The fact that anyone can mine it changes the rules of the game completely. The fact that it has already become huge and cannot be ignored, has got authorities thinking. There is no universal law that defines what you can and cannot do with Bitcoin or its alternatives, although governments all over the world are dedicated to establishing a certain set of rules and regulations for controlling the crypto industry.
Problems to Solve
One of the problems with making crypto universally legit is the uncertainty of how to define legal terms. Because the whole industry is rather new and complex, you have to go through a significant amount of information and put in a lot of effort in order to reach a verdict and cover all the bases.
Another major task is to regulate the work of exchanges. Currently, they are all over the place and operate globally anywhere from the US to Singapore, and each country has their own set of rules and regulations on how to manage (or not manage) them. The situation gets more intense because of multiple hacking attacks on these exchanges and there have already been way too many sad examples of people losing their precious funds. Protecting the customers of these exchanges is quite a challenging task.
And there is one more tricky thing about cryptocurrency transactions. Although they are recorded on the blockchain, they can still be made anonymously and some coins, like Dash, are even based on the idea of anonymity. This, unfortunately, is ideal for conducting illegal activities such as drug sales, money laundering, and other shady schemes that crypto has always been criticized for.
Where Crypto is Not Welcomed
Before we start reviewing what’s legal and what’s not, we need to mention that there are places worldwide that made the decision to just say no to crypto. Unfortunately, some countries chose to solve the problem by banning cryptocurrencies. However, this practice shows that governments all over the world change their minds quite often and that this might just be some temporary measure while they figure out a better way to regulate the industry.
For example, the Bolivian government was pretty clear with their anti-crypto statement saying that the use of currency not issued by the monetary authority is not allowed in the country. Vietnam might win the title of “the least crypto-friendly country” when it comes to dealing with crypto as the government issues fines for using cryptocurrencies as payment methods. But does that really stop its citizens from dealing with crypto?
The majority of the Middle East and African countries have issued warnings against cryptocurrencies, advising their citizens to stay away from crypto trading and some of the governments even prohibited use of them.
It’s worth mentioning that Bitcoin has been confirmed to be ‘permissionable’under Sharia law last year, however, other cryptos will have to go through expert review before they can be called ‘Halal’.
And there are also countries that remain neutral, not completely suppressing anything but not embracing it either. For example, China and Thailand did not actually prohibit their citizens from investing in crypto, but imposed “indirect restrictions by barring financial institutions within their borders from facilitating transactions involving cryptocurrencies”.
If you are interested in learning more about local regulations on crypto worldwide, we recommend reading this in-depth report from the Library of Congress with detailed info on each country.
What’s Legal and Regulated?
The US, Canada, Australia, Japan, as well as the majority of European countries legalized Bitcoin and other currencies. In some areas in Switzerland, cryptocurrencies are fully accepted as a means of payment not just by local businesses, but also by government agencies. The Isle of Man and Mexico consider cryptocurrencies as legit means of payment together with their national currency.
Because of the wide array of different approaches to crypto all over the world, we will take the US as an example and will try to understand the current situation and what’s legit.
Buying stuff with crypto is perfectly ok. In March 2013, FinCEN issued a guidance on administering, exchanging, or using virtual currencies that basically says you are allowed to make purchases using crypto. If you need some ideas, take a look at one of our previous articles.
Crypto trading and investing is not a crime either. However, in order to do it, exchanges have to follow strict AML laws and take the KYC procedures seriously. That means that their customers have to provide their ID and other sensitive information that people don’t usually want to share.
Mining is currently a rather uncertain subject. Although the report from FinCEN suggests that such activities might be subjected to specific laws, in reality, no restrictive actions against miners have been taken so far.
Accepting crypto for goods and services is completely legal, considering the merchant operates inside the financial law and pays taxes.
Taxation of crypto is another complex subject. In 2014, the IRS stated that crypto should be taxed as property, not as currency. However, due to the high volatility of crypto, it is sometimes hard to say whether you’ve made a profit or actually lost your money and the situation can change daily. There are still very few people who actually pay taxes on their crypto gains. Perhaps, a new law that offers a tax exemption for smaller transactions could be a reasonable approach.
There are quite a few authorities that are trying to develop practical guidelines for the crypto industry. We’ve already mentioned FinCEN and the IRS. FinCEN has already taken some actions against exchanges and imposed penalties, however, they do not have issues with regular crypto users. The Securities and Exchange Commission (SEC) is focused mainly on examining ICO related activities. The Federal Reserve has also made a point by saying that they are keeping very ‘close attention’ to the blockchain industry.
The cryptocurrency space can be quite different, depending on where are you located and what actions you plan on taking. Some countries are eager to open the doors to the new financial opportunities that crypto promises, while others remain neutral. Regulation strategy is still under development as well as the appropriate tax scheme. If you live in the US, you don’t have to worry about buying or trading bitcoins and alternatives, and if you’re a merchant who accepts crypto payments or an exchange, you should always act legally, pay taxes, and keep an eye on your KYC procedures and AML policy.
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