Is Bitcoin Legal?

by | 24 July 2014

A question that is frequently asked especially by outsiders to the Bitcoin community is whether Bitcoin is legal. There has been a lot of flip-flopping among countries and governments on issues relating to their views on Bitcoin, what it is and how to regulate it, but over time this has settled down even more. More information about different countries and their standpoints follows.

United States

The United States originally had a hard time deciding on 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 the financial analysis of Bitcoin, things changed. At present, Bitcoin is classified as 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:

  • These are to be reported as FIFO (first in, first out). If a coin was bought at $100 (£70) and is now worth $1000 (£700), the first coin sold would have a reported profit of $900 (£635) rather than the value of your most recent trade.
  • All transactions should be recorded. If multiple trades are done in a day, reports on every single trade are to be logged as a way of keeping up with the exact amount of profit that arose from it and determining 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 introducing these regulations. As a result, there are numerous transactions that are not fully documented because there was no reason to keep such information in the past.


Canada has decided that Bitcoin is a currency and should be treated just like the Canadian Dollar. It is being viewed as no different to any other currency – much like the United States’ initial perception of the cryptocurrency. In other words, the profit from either trading bitcoins or holding them as their value increases is as simple and straightforward as when holding cash.

In terms of business, Canada requires any company that allows the 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 regard to the legality of Bitcoin since, at one point, views were changing back and forth every week. More recently, however, China has officially proceeded 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 wide-ranging views on what Bitcoin should actually be classified as. But for the most part, they are in agreement that it should be allowed. Iceland is an example of a country that has flat out forbidden it, claiming that it is a foreign currency and having made it illegal in line with its Foreign Exchange Act.

Vietnam has an interesting stance on Bitcoin. Most claim it is illegal in the country, but this is simply a misreporting of facts. The Vietnamese government has stated that the use of Bitcoin is very risky and that there is no recognition or protection relating to the currency. It is hard to decipher whether this means that it is flat out disallowed here, as many claim it is. However, it seems more a case of Bitcoin simply not being an official currency for the government of Vietnam.

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 in view of 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 – which implies 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 other. Without regulation (or with regulation banning the currency altogether), it is possible to disallow banks from dealing with people who accept or utilise Bitcoin. This ends up causing complications and a rift in the system, because someone will need to use it and won’t be able to – a rift which would then trickle down the ladder, affecting other individuals involved.

Rather than being against Bitcoin’s regulation, the goal should be more about embracing it and pushing for an understanding of what it is and what it brings to the table. In theory, it’s not the regulation per se that’s bad, but rather that 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 end up following suit, in this way increasing the number of locations in which bitcoins can be used. This creates a sort of ripple effect, whereby each new country that views Bitcoin positively helps promote more social acceptance from the other countries that are still looking into whether to accept it or not.