Is Bitcoin Legal?

A question that is often asked, especially by outsiders to the bitcoin community, is whether or not bitcoin is legal. There has been a lot of flip-flopping among countries and governments as to their view on bitcoin, what it is and how to regulate it, but as time goes on it has been settling down more and more. More information about different countries and their standpoints follow.

United States

The United States originally had a hard time deciding how to classify bitcoin. At one point it was classified as a currency, meaning it was subject to the same laws and regulations as cash: the “know your customer” and anti-money laundering laws were enforced and tax reporting was done as capital gains. However, as more time was spent on financial analysis of bitcoin, things changed. At present, bitcoin is classified as being a property, rather than a tax. In other words, it is taxed in the same way that stocks are. The result of this is that a lot of work is required when it comes to reporting the coins:

    • They are to be reported as FIFO (first in, first out). If a coin was bought at $100 and they are now worth $1000, the first coin sold would have a profit reported of $900 rather than the value of your most recent trade.


    • All transactions are supposed to be recorded. If multiple trades are done in a day, reports on every trade are to be logged in order to keep up with the exact amount of profit that arose from it and what the taxes should be.


These two rules have made things a lot more complicated for bitcoin users within the United States, as many were not keeping records of this data prior to the government making these regulations. As a result, there are a lot of transactions that are not fully documented because there was no reason to keep that information in the past.


Canada has decided that bitcoin is a currency and should be treated just like the Canadian Dollar. They do not see any difference, much like the United States did not at first. In other words, the profit from trading bitcoins or holding them as their value increases is as simple as it would be with holding cash.

In terms of business, Canada requires any company that allows conversion of one currency to another to be a Money Services Business (MSB), especially for businesses that deal with bitcoin ATMs.


China has been one of the hardest countries to follow in regards to the legality of bitcoin, because they were, at one point, changing back and forth every week. More recently however, China has officially moved to restrict bitcoin’s usage. Given the volatility of bitcoin in the Chinese market and the regular policy shifts, it is difficult to comment on the cryptocurrency’s long term future in the country.

Other Countries

In pretty much all other countries, bitcoin is legal. They have different ways of regulating it and different views as to what bitcoin should actually be classified as, but for the most part they are in agreement that it should be allowed. An example of a country that has flat out forbid it would be Iceland, who views bitcoin as being a foreign currency and has made it illegal due to their Foreign Exchange Act.

Vietnam has an interesting stance on it – most claim that it is illegal in the country, however, this is simply misreporting of the facts. The government stated that the use of bitcoin is very risky and that there is no recognition or protection in regards to the currency. It is hard to decipher whether this means that it is flat out disallowed as many claim it is, but it appears more like it is just not an official currency to the Vietnam government.

The Future and Effects of Regulation

There are people on both sides of the fence: some want bitcoin to be regulated and others are completely against the idea. The simple fact is that regulation is a necessity due to how it works. In order to get money into or out of the bitcoin system, it has to go through an exchange of one type or another. If it goes through an individual, that person will need to be able to spend the bitcoin on something. This means a service or product provider. That business will need to source their products or pay for their overhead, which means they have to cash it in. In pretty much every scenario, it ends up having to involve a bank at some point or another. Without regulation (or with regulation banning the currency altogether), it is possible to disallow banks from dealing with people that accept or utilize bitcoin. At some point this ends up causing complications and a rift in the system, because someone will need to utilize it and won’t be able to. This rift would then trickle down the ladder, affecting others that are involved as well.

Rather than being against bitcoin’s regulation, the goal should be more to embrace it and push for the understanding as to what it is and what it brings to the table. Regulation in theory is not what is bad; it is the over-regulation that can lead to issues. The great thing about the past is that most countries appear to be on board with the idea of embracing bitcoin and what it can do. The result is that other countries then end up following suit, which increases the number of locations in which bitcoins can be used. It is sort of like a ripple effect, where each new country that views bitcoin in a positive light helps add more social acceptance to the other countries that are looking into whether or not they should accept it.