As cryptocurrencies grab more attention from the media and ordinary investors, and the market capitalization has climbed into the hundreds of billions of dollars, global regulators have had an increased interest in the growing sector.
This interest has affected the entire cryptocurrency market, but it has seen Bitcoin facing the most scrutiny as the oldest and most valuable cryptocurrency.
It has also led to many debates on the usage of Bitcoin and other cryptocurrencies, and in some cases in the legality of Bitcoin.
As of late 2018, there are very few countries who have come out and made Bitcoin illegal. By the same token, there aren’t many countries that have legitimized Bitcoin by declaring it “legal tender” as a currency. In fact, just one country – Japan – has done so thus far.
Fortunately for those of us who believe in the cryptocurrency revolution, just because something isn’t deemed “legal tender” it doesn’t mean you can’t exchange it for goods and services. Rather it only means that those accepting cryptocurrency as payment has no protections and that its use is on a completely discretionary basis.
How are Cryptocurrencies Perceived Globally?
Most countries are still in the discussion stage when it comes to cryptocurrencies.
This can mean very different opinions.
For example, Zimbabwe, which itself has often been used as an example of hyperinflation and how not to run an economy, has been quite outspoken in its doubts regarding the legality of Bitcoin. Not surprising given that most of its population prefers Bitcoin the national currency.
The European Union has been far more liberal, recognizing the need to deliberate and discuss the implications of cryptocurrencies on economies and fiat currencies. The European Central Bank has said cryptocurrencies lack the proper maturity for regulation, but with Bitcoin approaching its 10th birthday, one wonders when cryptocurrencies will be sufficiently mature to consider regulation.
The United States faces a more difficult picture due to the scattered regulatory map. It’s uncertain if cryptocurrencies in the U.S. would be regulated by a federal government agency, by state-level agencies, or by an independent agency such as the Securities and Exchange Commission.
Others wonder if cryptocurrencies should come under the umbrella of central bankers. Thus far there is no clear answer.
And some countries, such as France, believe that cryptocurrencies should be regulated at an international level. They have pushed for the G20 to come up with guidelines and parameters for cryptocurrencies.
One further distinction lies in the regulation of actual cryptocurrencies and of the businesses involved in the cryptocurrency industry (exchanges, payment processors, the blockchain foundations themselves).
Some countries have tied these considerations together, but many are considering them separately.
Below is a listing and brief review of the countries that have made pronouncements, and of where they stand as of the fourth quarter of 2018.
Australia’s Senate began debating a bill in October 2017 that would have put the country’s cryptocurrency exchanges under anti-money laundering statutes, as well as mandating exchanges obtain a license to operate or be liable for criminal charges.
At the same time the Australian tax authorities changed the classification of Bitcoin from that of a bartered good to one of an asset or currency. This removed a double taxation penalty that Bitcoin had been struggling under since 2014 in Australia.
As a result of the Senate debates, Australian cryptocurrency exchanges must register with Austrac, the financial intelligence agency, and have been mandated to comply with record preservation regulations and customer verification requirements.
More recently the Reserve Bank of Australia said that cryptocurrency regulation is not needed in the area of using cryptocurrencies as payment, making it unlikely that any new moves will be made in Australia anytime soon.
Despite strong usage by citizens and a developed Bitcoin ecosystem in Argentina, the government hasn’t created any regulations for cryptocurrencies, although the central bank has issued a warning regarding the risks involved in trading cryptocurrencies.
Bangladesh is one of the few countries that has come out against cryptocurrencies. In 2015 the government made it expressly clear that the use of cryptocurrencies was a “punishable offense” in Bangladesh.
Bolivia has also come out against cryptocurrencies, with the central bank declaring in 2014 that any currency or token not issued by the Bolivian government is banned.
Canada became one of the first countries in the world to formally create Bitcoin legislation when they passed Bill C-31 in 2014, which legally made virtual currency businesses the same as money service businesses and subject to the same laws and regulations. This compelled these virtual currency businesses to adhere to Know-Your-Customer and Anti-Money Laundering regulations.
Additionally, the Canadian government has declared that Bitcoin is not a legal tender currency, while the Canadian tax authorities have said that Bitcoin transactions are taxable, in some instances and circumstances.
China has been in the media many times over cryptocurrencies, since so much activity in the space occurs in China. The Chinese government has stated many times that they have no plans to ban Bitcoin and other cryptocurrencies, but they have cracked down on Initial Coin Offerings (ICOs) and the major Bitcoin exchanges located in China. In 2017 the Chinese government banned ICOs, while also suspending order book trading of digital assets against the Yuan.
It has also been slowly removing preferential treatments such as tax breaks and cheap electricity, that had previously made Bitcoin mining such a profitable business activity in China.
The National Assembly of Ecuador moved early against Bitcoin, banning it and other decentralized digital currencies back in 2014. At the same time they began establishing guidelines for the creation of a state-run digital currency.
Egypt has not banned Bitcoin and other cryptocurrencies legally, but in January 2018 the Grand Mufti of Egypt declared trading in cryptocurrencies forbidden under Islamic religious law. The justification for the religious ban was due to the risks associated with trading cryptocurrencies.
The European Union has taken a very cautious approach to cryptocurrencies, and it has begun several initiatives to begin drafting regulations with the input of those already involved in the industry. It seems apparent that the EU is focused on taking a learning approach before instituting regulations. They also seem determined to maintain innovation in the sector, while also considering the needs of the broader ecosystem.
The European Central Bank isn’t being as kind, and has been seeking tougher rules regarding cryptocurrency movements as a part of their broader initiative to eradicate money laundering. Fortuantely they haven’t been draconian in their stance, and are taking into account the unique complexities that come with border-less assets.
A ECB official has been quoted in late 2017 as saying Bitcoin was not a threat to the central bank, and ECB president Mario Draghi confirmed recently that the ECB does not consider Bitcoin to be mature enough for regulation.
As recently as April 2018, the European Union parliament voted to support the agreement drafted by the European Council in December 2017 that was meant to limit the use of cryptocurrencies in terrorism financing and as a money laundering tool.
The G20 has only recently turned its attention to cryptocurrencies. It was supposed to have a draft of recommendation for the first steps toward regulation as early as July 2018, but we’re still awaiting such recommendations.
India’s Finance Minister has stated late in 2017 that Bitcoin is not legal tender, and the Indian central bank has issued warnings regarding cryptocurrencies several times over the past several years. That said, there are no regulations regarding cryptocurrencies in India, although the government has been looking at recommendations. The central bank has also moved to bar the country’s financial institutions from doing business with organizations with connections to the cryptocurrency industry (primarily exchanges). That ban was questioned, but the Supreme Court of India upheld the ban recently.
Iran’s central bank stated in April 2018 that businesses in Iran should not deal with Bitcoin or other cryptocurrencies, a position that was echoed by one of the principle market regulators in Iran. Confirming the stance were reports from CoinDesk of government censorship of cryptocurrency exchange websites within Iran.
Japan became the first country to declare Bitcoin legal tender when it passed a law in early 2017 that also put cryptocurrency exchanges under Know-Your-Customer and Anti-Money Laundering regulations. It also included regulations for cryptocurrency exchange licensure, but has subsequently suspended license applications as regulators investigate the Coincheck hack from early 2018.
Japan may have the best oversight of the industry so far, with Japan’s Financial Services Agency (FSA) recently cracking down on cryptocurrency exchanges. They suspended two exchanges, mandated better security measures from five more, and issued improvement orders to several others. The FSA has also created an industry study group for the cryptocurrency exchange industry that will be looking at the institutional issues being faced by Bitcoin and other cryptocurrencies.
While there haven’t been any formal proclamations from Kazakhstan, there have been rumors that the National Bank of Kazakhstan is planning on issuing a ban on cryptocurrency mining and trading.
Kyrgyzstan’s central bank made a declaration in 2014 that it was illegal to use cryptocurrencies as transactional currency.
Malaysia is developing a regulatory framework for Bitcoin and other cryptocurrencies, with the regulations being developed by the Malaysian central bank in conjunction with the Malaysian Securities Commission.
This European island nation is well known as being free and easy for financial companies, and they seem to be taking the same tack with cryptocurrencies. They recently passed several laws considered friendly to cryptocurrencies and the blockchain industry, including one that gives details of registration requirements for cryptocurrency exchanges.
Mexico initially took a negative stance on Bitcoin when in 2014 they prohibited banks from dealing in virtual currencies. The following year they backtracked somewhat, with the Mexican finance ministry declaring Bitcoin not legal tender, but that it could be used as a means of payment. That put it under the same restrictions on anti-money laundering as were already in place for precious metals and cash.
By the end of 2017 the Mexican legislature had drafted and passed a bill which will put Mexican cryptocurrency exchanges under the oversight of the Mexican central bank.
Morocco’s foreign exchange authority dealt a blow to cryptocurrencies late in 2017 when they stated that the use of cryptocurrencies was a violation of Moroccan foreign exchange regulations, and that any use of cryptocurrencies would be met with criminal penalties. The country’s proposed finance bill for 2018, currently being considered by the National People’s Congress, would outlaw possession of virtual currencies like bitcoin and their use in transactions.
This small African nation has expressly declared that any purchases with Bitcoin are illegal and subject to penalties.
Nigerian banks are already prohibited from handling virtual currencies, but the Nigerian central bank is also working on a white paper to clarify its official stance regarding cryptocurrencies and their uses as a method of payment and in trading or other transactions.
Pakistan had no stance on cryptocurrencies until recently, with the central bank issuing a statement in April 2018 that bars Pakistani financial companies from working with firms that deal in cryptocurrencies.
Russia spent several months issuing conflicting statements regarding cryptocurrencies in early 2017, but by October 2017 President Putin had issued a mandate to develop a “single payment space” within the Eurasian Economic Union (which is a federation of countries that had been part of the USSR prior to the dissolution of that nation). He also called for increased scrutiny over token sales and a means to license Bitcoin mining operations.
Most recently, the State Duma’s financial regulator is working on cryptocurrency legislation, and was initially expected to present drafts of such by mid-2018. While the drafts have been delayed, the focus of the legislation appears to be on protecting individuals from cryptocurrency scams, while allowing businesses and individuals to work legally with cryptocurrencies.
There are already reports that the Monetary Authority of Singapore is looking at the possibility of implementing new rules to protect cryptocurrency investors, but considering the large presence that blockchain already has in Singapore it isn’t likely that rules would ban cryptocurrency trading, or even be extremely tough. The most likely change is one that is focused most on halting money laundering and the financing of global terrorism.
While the central bank has issued warnings regarding Bitcoin investments in the past, they still have a positive outlook in general regarding cryptocurrencies, and have been actively working on a regulatory framework for Bitcoin payments.
South Africa has been testing draft Bitcoin legislation with a selected handful of startup companies since 2017.
South Korea has one of the largest cryptocurrency trading environments in Asia, with several large exchanges making South Korea their home. And the growth wasn’t slowed when in early 2018 the country banned anonymous trading accounts in an effort to combat money laundering. Authorities have also been increasing their oversight on exchanges, and there is a possibility that a licensing scheme could be in the future for South Korean exchanges. The head of South Korea’s Financial Supervisory Service has said that the government is in support of normal cryptocurrency trading.
Interestingly, recent reports indicate that South Korean agencies are in talks with their counter-parts in Japan and China to create joint oversight of cryptocurrency investments.
The latest big move came in April 2018, when the Fair Trade Commission issued an order for 12 cryptocurrency exchanges to revise their user agreements to provide increased protections to users.
Thailand initially declared Bitcoin illegal, but soon after the Bank of Thailand issued a retracting statement in 2014 which made it clear that Bitcoin was not considered legal tender, but that it was also not illegal. In addition, the central bank at that time warned of the risks in investing in Bitcoin.
Subsequently, in March 2018 the executive branch of the government passed two drafts of Royal Decrees which will put formal rules in place to meet KYC requirements as well as protecting investors. The drafts also went on to set a tax rate on capital gains from cryptocurrencies, but these two drafts have not yet received final approval from the Thai cabinet.
United States of America
The fragmented regulatory environment in the U.S. has created additional issues in the regulation of Bitcoin. Besides the separation of powers seen at the Federal level, the U.S. also has to deal with legislators at both the Federal and state levels meddling in oversight.
As of 2018 some states have been more forward in their oversight of cryptocurrencies. For example, 2015 saw New York unveil its controversial BitLicense program, which gave Bitcoin businesses the legal right to operate in the state. However, the expensive requirements only served to chase many startup blockchain companies away from NewYork. In Washingtom state in mid-2017 there was a bill passed that applied money transmitter laws to cryptocurrency exchanges.
In New Hampshire, sellers of Bitcoin are required to obtain a money transmitter license, as well as posting a $100,000 bond. The Texas Securities Commission has been very active in monitoring, and in some cases shutting down, Bitcoin related investments.
Finally, California has seen its progress frozen along with Bill 1326, which was criticized for having definitions that were too broad, but which was also far less oppressive than the comparable New York BitLicense.
The Federal level in the U.S. has seen different focus applied to cryptocurrencies. The Securities and Exchange Commission (SEC) has been clear in defining cryptocurrencies as securities, but remains on the fence regarding whether or not Bitcoin investment funds should be allowed, and whether some cryptocurrency offerings might constitute fraud.
The Commodities Futures Trading Commission (CFTC) has taken a different tack, defining Bitcoin as a commodity and implementing futures trading. That said, it has yet to release any comprehensive regulations and its greatest focus has been on nurturing the infant Bitcoin futures industry. It has also put itself forward as the jurisdictional authority over cryptocurrencies by filing charges in several Bitcoin related schemes that it claims may have committed fraud.
Finally, the Uniform Law Commission, which is a non-profit dedicated to cohesion and clarity in state legislation, has drafted its own Uniform Regulation of Virtual Currency Business Act. This Act has attempted to spell out which cryptocurrency business could be considered money transmission businesses, and has furthermore attempted to define the types of licenses that would be needed by various businesses. There are several states considering introducing the Act in upcoming legislative sessions.
Like the CFTC in the U.S., the Financial Conduct Authority (FCA) in the U.K. sees Bitcoin and related cryptocurrencies as commodities. The FCA has said it has plans to regulate the new asset type and that it will also step in to oversee Bitcoin related derivatives. Because the industry currently lacks any consumer protection the FCA has been quite vocal in warning about the risks involved in cryptocurrencies.
The Ukraine government has been forward-thinking where cryptocurrencies are concerned and is ahead of many other countries as it has already formed a working group composed of regulators from a number of branches who are expected to draft a cryptocurrency regulation proposal. This proposal is expected to include a determination of which agencies will have oversight and access. Additionally, there is a bill being debated that would bring cryptocurrency exchanges under the jurisdiction of the Ukraine central bank.
The current Bitcoin situation in Zimbabwe is a bit confused after a senior central bank official in 2017 said that Bitcoin is not actually legal. It has not been determined yet to what extent Bitcoin can or cannot be used, and reports are that the central bank is currently conduction research into cryptocurrencies and their markets to determine the full scope of any risks.
I sincerely hope that you’ve found this to be a comprehensive and useful list of how Bitcoin’s legal status is perceived in countries around the world. If you know of any specific legislation in any country that I’ve missed, please feel free to leave a comment and I’ll put in the effort to update the above when required.
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