The peer-to-peer digital currency Bitcoin debuted in 2009, introducing the concept of decentralized finance to the world.While tax authorities, enforcement agencies, and regulators globally are still debating how to control it, many consumers wonder if they can use Bitcoin legally.
Whether or not you can use Bitcoin depends on which country you're in. Learn more about Bitcoin's legal status and how it is—or isn't—regulated by authorities worldwide.
Key Takeaways
- The cryptocurrency Bitcoin has raised financial concerns for governments worldwide.
- Despite its use for buying goods and services, there are still no uniform international laws that regulate Bitcoin.
- Many developed countries allow Bitcoin to be used, such as the U.S., Canada, and the U.K.
- Several countries, including China and Saudi Arabia, have made it illegal to use Bitcoin.
Countries Where Bitcoin Is Legal
Bitcoin can be used anonymously to conduct transactions between any account holders worldwide. This has introduced some currency concerns for governments. While some legislators and officials may not support its use because of the lack of control and illicit ties, many have introduced regulations under their country's anti-money laundering and counter-financing of terrorism laws (AML/CFT) in attempts to reduce its use for these purposes.
Price Waterhouse Coopers (PwC) created a report on global cryptocurrency regulation. The report identified select countries whose governments directed their financial regulatory agencies to develop regulations and priorities for financial institutions regarding cryptocurrencies and their use in AML/CFT.
PwC also identified many countries that do not allow cryptocurrencies to be used. Here are a few of the countries where crypto is legal and illegal.
The United States
The U.S. Department of Treasury's Financial Crimes Enforcement Network (FinCEN) has issued guidance on Bitcoin since 2013. The Treasury has defined Bitcoin as a convertible currency with an equivalent value in real currency or one that can act as a substitute for it.
The Internal Revenue Service has categorized Bitcoin as property for taxation purposes.
Under current U.S. laws, any entity that administers or exchanges Bitcoin, such as cryptocurrency exchanges and payment processors, falls under the definition of a money services business (MSB). As such, an MSB is subject to the Bank Secrecy Act and must register with the U.S. Treasury and file reports on transactions over $10,000.
Additionally, the U.S. Treasury and FinCEN have created strategies and are assisting in legislative processes to develop regulations, along with establishing national priorities for cryptocurrency tracking and reporting.
The European Union
The European Union recognizes Bitcoin and other cryptocurrencies as crypto-assets. It is not illegal to use Bitcoin within the EU; however, the European Banking Authority, the currency regulatory authority in the union, has stated that crypto-asset activities are outside of its control and continues to warn the public and businesses of the risks of cryptocurrency.
In 2020, the European Commission finalized a proposal for legislation to regulate crypto-assets, which many agencies have endorsed within the union. It was amended over the following two years, and in October 2022, a final compromised edition was sent to the EC for a vote. On April 20, 2023 the European Parliament passed the Markets in Cryptoassets (MiCA) Regulation. MiCA regulates services related to cryptoassets and stablecoins, and it will be enacted by early 2025.
The legislation does not govern security tokens or non-fungible tokens. It is intended to keep financial regulatory frameworks from fragmenting and level the financial playing field across the EU. The commission also wants to ensure the public has access to and can safely use cryptocurrency.
Canada
Canada maintains a generally bitcoin-friendly stance like its southern neighbor, the U.S. Bitcoin is viewed as a commodity by the Canada Revenue Agency (CRA) for income tax purposes. Any income from a transaction using Bitcoin is considered business income or a capital gain and must be reported as such.
Canada considers cryptocurrency exchanges to be money service businesses. This brings them under the purview of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada's version of AML/CFT laws). As a result, cryptocurrency exchanges must register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), report suspicious transactions, abide by compliance plans, and even keep certain records.
Australia
Like Canada, the Australian Taxation Office considers Bitcoin a financial asset with value that can be taxed when specific events occur. For example, if you trade, exchange, sell, gift, convert it to fiat currency, or use Bitcoin for purchases, you trigger a capital gains tax. You're also required to keep records of any transactions you make using Bitcoin for tax purposes.
In Australia, if you hold your Bitcoins strictly for personal use and make gains on them, you may not owe any taxes in certain situations.
France
France has implemented regulations for cryptocurrencies and crypto assets as identified by the Monetary and Financial Code (MFC). The government has defined digital assets as utility tokens, payment tokens, and security tokens. The MFC does not regulate non-fungible tokens.
Digital asset services are also regulated under the code, which encompasses businesses that purchase or sell digital assets, provide exchange services, act on behalf of others, or offer advice.
Other Countries Where Bitcoin Is Legal
Several other countries allow Bitcoin to be used in transactions and have developed forms of regulation. Some examples are:
- Denmark
- Germany
- Japan
- Switzerland
- Spain
- United Kingdom
Countries Where Bitcoin Is Illegal
While Bitcoin is welcomed in many parts of the world, several countries are wary of its volatility and decentralized nature. Some also perceive it as a threat to their current monetary systems while being concerned about its use to support illicit activities like drug trafficking, money laundering, and terrorism. Several nations have outright banned digital currency, while others have tried to cut off any banking and financial system support essential for its trading and use.
Countries With Implicit Bans
Many other countries have implicit bans for specific cryptocurrency uses. Some of these countries are:
- Cameroon
- Central African Republic
- Gabon
- Guyana
- Lesotho
- Libya
- Zimbabwe
Countries With Absolute Bans
Several countries have absolute bans on cryptocurrency. A few of them are:
- Qatar
- Saudi Arabia
- China
Why Is Cryptocurrency Illegal?
In many countries, it isn't illegal; however, the countries that have made it illegal do so for many reasons. Volatility is one of the most often cited reasons, as is energy use, concerns over destabilization, or the ease with which criminal activities can be financed and conducted using them.
Can the U.S. Make Bitcoin Illegal?
In theory, it is possible. However, it is unlikely that it will happen as it would require legislation to be passed that would make it illegal.
Can You Go to Jail for Using Crypto?
If you're using crypto for legal personal and business uses, there should be no reason to be incarcerated for using crypto. However, illegal activities using crypto can land you in trouble, as many have found out since crypto was introduced.
The Bottom Line
Cryptocurrency regulations are still evolving worldwide as it continues to gain in use and acceptance. Many countries are expected to introduce legislation after (or when and if) the EU passes its MiCA proposal. The legislative landscape will likely continue changing as crypto matures into whatever it will be—an asset, legal tender, currency, a payment method, or all of the above.
Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein.
