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A revolutionary computer protocol purposed towards a decentralized payments system -Bitcoin. This revolutionary currency has been gaining popularity for years now. Still, despite its amazing features, there is a burning issue that has brought constraints to its true blossoming.
This debate has been raging for over a decade now, and it’s the issue of the legality of Bitcoin.
So stay tuned as we will be taking you on a journey around this very issue.
Before we dig deep on the legality of Bitcoin, let’s take a quick peek at what it really is.
Bitcoin is a digital currency (cryptocurrency) initially coined (excuse the pun) in 2008 and given a domain name, “Bitcoin.org,” in the same year. It was created by a group of people or just one person who used the assumed false name, Satoshi Nakamoto. It was launched in January 2009.
Bitcoin is a peer-to-peer online digital currency with no third-party facilitation, which means a user can directly share transactions with another user without needing any intermediary such as banks. On October 31, 2008, Nakamoto released a Bitcoin whitepaper, which depicted a vision of how an electronic form of money could revolutionize the current financial markets and transaction systems.
The paper proposed utilizing a decentralized ledger of transactions in batches, known as “blocks.” The blocks refer to files where transaction data is permanently stored. Furthermore, the underlying network that processed the Bitcoin transaction is called the blockchain. The purpose was to offer people secured online transactions; hence the transactions were secured by cryptographic algorithms.
Nakamoto initiated the first transaction on January 3, 2009, on something called the “genesis block” – the first block on the blockchain, which contained 50 Bitcoins. That was when Bitcoin was officially launched as the world’s first cryptocurrency.
Bitcoin’s competitive advantage comes from being the first cryptocurrency created. It has since spawned a worldwide community of millions of devoted followers who put their money into Bitcoin through investing, trading and using Bitcoin in their regular daily transactions. The rise of the principle of cryptographic money is based on a calculated idea that has inspired the advancement of thousands of competing projects. The entire cryptocurrency market has its foundation in the creation of Bitcoin.
Because of its first-to-market status, Bitcoin (BTC) remains at the peak of a very strong cryptocurrency market long after its introduction. Even though Bitcoin has lost its undisputed total dominance, it is still the biggest cryptocurrency with a market capitalization of over 4 times its nearest competitor, Ethereum, as of March 2021.
The actual current value of Bitcoin is constantly fluctuating – something it is well-known for.
Nevertheless, despite its popularity, many countries are still debating if Bitcoin is legal or not. Especially to those new to the currency, many think that Bitcoin actually isn’t. Indeed, in some countries, it isn’t legal. In some other countries, it’s completely legal. While in some other countries, it’s a bit of both (depending on the function). This brings us down to our next concern: why does such an invention with such a huge potential to revolutionize transaction systems have legal concerns?
We all know that every fiat currency is introduced, generated, and regulated by a single entity – central banks. All over the world, central banks control the flow of currencies according to local laws, which means that no ordinary citizen can trade money without abiding by government regulations. It’s considered a crime to act otherwise.
When Bitcoin was introduced, it became an exception to the established legal process that regulates currency. Bitcoin was a currency the first of its kind in the world – not controlled by the government or central banks. Additionally, the fundamental idea of Bitcoin infers that anybody with enough computing force and sound financial acumen can make their coins by just being an active part of the network.
However, the increasing popularity and acceptance of the BTC has led law enforcement and tax authorities worldwide to understand the concept of Bitcoin and how to use it within the existing legal framework. Consequently, the legality of Bitcoin depends upon a few measures – like what you do with it, where are you located, or how old you are.
Regardless of numerous conspiracy theories doubting the utilization of Bitcoin, its decentralized nature guarantees that no one can hold you back from utilizing it. Consequently, many legal experts are being urged to understand the very nature of Bitcoin to be able to regulate it, which would, in turn, make it easier to characterize Bitcoin legally from a legislative and regulatory standpoint.
Several jurisdictions have a hard time legalizing Bitcoin due to its unique, decentralized, and intangible nature. But something that is gaining popularity like a wildfire is harder to control.
While US-based traders are controlled and monitored by regulators, many offshore traders still don’t, which provides regulating bodies with an edge to classifying Bitcoin as illegal. For instance, the history of cryptographic money is filled with scams. Instances where traders were robbed and fell prey to digital currency scammers are unfortunately not uncommon occurrences.
It’s quite normal for regulators to be concerned over a monetary system that cannot be completely controlled, considering historical scams. At most, the authorities can attempt to discourage individuals from using Bitcoin through threats or cutting off access to the world World Wide Web, which isn’t practical in all reality, considering the current dependency of people and businesses on the internet.
Here are a few concerns that hold back regulating authorities to legalize Bitcoin;
Still, law enforcement authorities remain concerned over Bitcoin’s popularity among the traders of illegal products. It is suspected that Bitcoin’s secrecy, anonymous transactions, and decentralized nature can be misused in tax evasion structures and black money markets (money laundering).
Let’s look at the United States first. What is its legal status there?
Despite all these concerns about its use in the illegal trading of goods, the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has categorized Bitcoin as a decentralized virtual currency. They issued a guideline that stated that those who obtain virtual currency and use it to purchase legal goods are not breaking the law. Several websites, such as OkCupid, Overstock, and Shopify, accept cryptocurrency as a form of payment. Besides these websites, there is an increasing number of merchants across the United States where Bitcoins are accepted as a form of currency.
Besides, the authorities categorizing Bitcoin legal at several instances, the list goes on where nothing seems to be stopping Bitcoin from gaining popularity. Some of these things are:
Bitcoins are treated as property rather than cash or liquid money. For instance, if you make a purchase using your Bitcoin, you actually traded an asset vs. the commodity or service required. The value of Bitcoin depends upon the market rate at the time of buying or selling. So any profit, or loss is subject to taxation and the pulse of the market.
In January 2020, a US House of Representatives bill was proposed to exempt taxing Bitcoin transactions, if the gain is up to $200. The bill has not been voted into law yet.
Here is a pick of some other countries where Bitcoin is recognized as being legal.
However, there are several countries around the world where Bitcoin is illegal to some extent. Some in more aspects than others.
There are only a few countries where Bitcoin is illegal in every shape and form. They include Algeria, Bolivia, Egypt, Morocco, and Nepal.
There is much speculation about the future of Bitcoin.
Some limitations that keep cryptographic forms of currency from gaining widespread popularity are the chances that a person’s digital currency fortune could easily be destroyed by a PC crash or that a virtual vault might be unprotected by a programmer. These issues may resolve with time as technology advances. What will be harder to overcome is the essential oddity that besets digital forms of money – the more well-known they become, the more guideline and government investigations they are probably going to attract, which happens to erode the basic reason for their existence.
The cryptocurrency may be rising in use as a part of the world’s financial system, but it still has to gain the legal authorities’ confidence. It has to provide security and safeguard and preserve user anonymity. If all these areas are satisfied, we may see new avenues open for the world’s biggest cryptocurrency. However, looking at Bitcoin’s current situation, there is little doubt about Bitcoin’s future success. But how successful it can get, may well depend on its legal status in different countries around the world.
The seemingly exponential rise of Bitcoin has created a buzz and triggered many debates globally about the future of cryptocurrency. No matter which way you look at it, however, on a global scale, the popularity of Bitcoin is rising. In the coming years, as it is adopted more into the mainstream, then it isn’t a realistic expectation that more and more countries will fully embrace it legally.
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