What if a type of currency existed that could be used all over the world, and whose value was the same globally — so that you didn’t have to translate the current exchange rate of dollars to yen, or pounds to francs. And what if that currency was digital so that exchanges were instantaneous?
That’s the premise behind Bitcoin. Yet some potential users worry about the legal status of Bitcoin in the U.S., and around the world. When it first emerged, Bitcoin inspired fears of “dark web” exchanges, along with other shadowy activities. The reality, while certainly complex, points to Bitcoin’s growing legitimacy in the United States and around the world.
What is Bitcoin?
Bitcoin is a “cryptocurrency,” meaning that it exists digitally, rather than in physical paper or coin form. It is also coded to ensure security. A few other types of cryptocurrency have been created since Bitcoin came on the scene in 2009, but Bitcoin remains the most well-known and widely-recognized.
Another key component of Bitcoin that sets it apart from traditional currency is that it has no central, controlling body. Instead, all transactions are directly user-to-user. That sets it apart from electronic bodies that enable buying, selling and paying bills, e-banking institutions, credit cards, and online payment systems like Paypal or Google Wallet.
Users can store their bitcoin credits in online “wallets,” and privacy is enabled because the wallets and transactions are known through their online address, rather than the individual or corporation’s name.
Although Bitcoin itself is decentralized, there are for-fee companies like Coinbase or Bitpay, which can process cryptocurrency payments made by a user, turn it into traditional currency, and send that currency to the user’s preferred bank account.
How Does “Legality” Affect Bitcoin Use?
Because Bitcoin is a decentralized, universal system, you might wonder why individual nations or banking systems matter in terms of whether or not you or a big company can purchase things with Bitcoin, or make deals with it.
The answer, not surprisingly, is somewhat complex. While no national or global power has the authority to disband Bitcoin itself, individual nation-states can ban or heavily regulate its use within their realm of authority, making it less valuable in some places for users and traders.
What is the Legal Status of Bitcoin in the U.S.?
Bitcoin enjoys full legal status in the United States, across many economic planes. Since 2013, the U.S. Treasury has designated Bitcoin as virtual currency, which can be converted into other currency. The Internal Revenue Service announced in 2014 that Bitcoin is considered taxable property.
In 2015, Bitcoin’s legitimacy broadened when it was listed as a commodity with the Commodity Futures Trading Commission. And finally, in 2016, the legal status of Bitcoin was officially deemed as money, or funds, in the “plain meaning” of the term, just as paper and coin money or other digital funds are.
The 2016 decision was prompted by a seemingly minor case, but one which had major national implications. The case (U.S. v Murgio et al, U.S. District Court, Southern District of New York, No. 15-cr-00769) involved an operator of an unauthorized Bitcoin exchange. His defense was that it couldn’t be illegal to do deal in Bitcoin without consent, because Bitcoin itself isn’t legal tender.
In response, the federal court ruled that Bitcoin is, in fact, legal in the U.S. In can be used just we use as other mediums that we consider “money,” in order to purchase services or goods. Bitcoin can also be purchased from exchanges, using other traditional funds. In short, Bitcoin operates as a general medium of exchange in all legal senses, as far as U.S. banking authorities are concerned.
Bitcoin Around the World
Bitcoin is increasingly recognized around the world, although its uses may be regulated more, or less, from one country to the next.
All three nations in North America recognize Bitcoin as legal money, as well as the majority of countries in South America, Europe, Asia, North and South Africa, and Australia/New Zealand.
Countries where Bitcoin is explicitly illegal, at least for now, include Morocco, Bolivia, Iceland, Vietnam, Ecuador, Bangladesh and Nepal.
Keep in mind, however, that in the sometimes strange world of currency regulation, a country like Russia may decline to make Bitcoin itself illegal, while at the same time banning its use for a great number of exchanges. China is another example of tricky regulations, because average citizens may purchase or sell things with Bitcoin, but businesses and agencies may not.
The legal status of Bitcoin is ever-changing around the world. Overall, the cryptocurrency seems to be increasingly recognized as a legal medium of exchange. But it always “pays” to check out how a country’s current Bitcoin regulations might affect a purchase, sale or investment involving Bitcoin.