The quick answer regarding the legality of Bitcoin is, yes, it is legal. The longer answer is it’s a bit more complex. This is due to the nature of cryptocurrencies.
The legality of Bitcoin in the context of crypto vs traditional currency
There is no centralised power regulating crypto currencies. Instead, users in the network verify and monitor transactions. Compared to traditional banking the process is virtually anonymous.
Traditional currencies (referred to as fiat money or fiat currency) rely on a legal framework and regulated banking institutions. Those banking institutions are, in turn, monitored to one extent or another by government and central banks.
The legality of Bitcoin and the challenge for governments
Governments across the globe are attempting to get to grips with Bitcoin and other cryptocurrencies and to understand the benefits and the risks. While governments want to promote innovation and the development of new industries and technologies, they also want to minimise risks to consumers.
Governments do not share the same ideas and opinions, so there are a range of views that can change fairly frequently.
The general consensus on the legality of Bitcoin
Few countries have made Bitcoin illegal. However, its status as money varies by country which has its own regulatory implications. Some countries have explicitly allowed its use and trade. A small number of countries have banned or restricted it.
Western economies are taking a ‘soft touch’ approach to regulation to encourage and allow innovation. Established economies on a global basis are taking a similar approach. It tends to be where there are emerging markets and economies where there is a heavy opinion either ‘for’ or ‘against’.
European Union view
The Court of Justice of the European Union considers Bitcoin a currency albeit in a roundabout way. It states: “The exchange of traditional currencies for units of the ‘Bitcoin’ virtual currency is exempt from VAT”. It adds: “Member States must exempt, inter alia, transactions relating to currency, banknotes and coins used as legal tender.”
The European Central Bank (ECB) classifies Bitcoin as a convertible decentralised virtual currency.
Is Bitcoin legal? It is. Mostly
We can conclude that Bitcoin is legal. Being legal doesn’t necessarily mean it is ‘legal tender’ but this doesn’t mean it cannot be used as payment for goods and services.
There are some countries that have expressly made them illegal – Algeria, Bolivia and Bangladesh are three examples. The concerns here are regulation or money laundering.
There are also some countries where they are legal but there is some kind of banking ban or restriction in place. For example, in Canada whilst cryptocurrencies are legal, there is a banking ban and Canadian citizens cannot purchase cryptocurrencies on their credit cards.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.