Those who are unfamiliar with Bitcoin and how it works often ask, “Is Bitcoin legal?” The short answer to the question is yes. There are no global laws which prevent and individual from buying, selling, or holding Bitcoin. While it is a simple question to answer, the landscape of cryptocurrency is always changing. Some governments have taken a more aggressive approach in their efforts to establish some kind of regulation of cryptocurrencies like Bitcoin.
The Current Regulation Around Bitcoin
Bitcoin remains a decentralized digital currency. This means that it has no ties to traditional banking, financial, or government structures. Bitcoin is a currency without borders. It can be used by someone in the UK as easy as it can be used in the US. Individuals in those two countries can even trade the token back and forth without the interference of a third-party.
Yet, as good as this sounds there are efforts being made by governments to establish some control over digital currencies. When Bitcoin experienced a tremendous rise in value during late 2017, the US government and others started to pay attention. This has led to discussions among financial regulators about how the rise of Bitcoin can be managed. In other words, governments are looking for ways to siphon off what they perceive is their fair share of an unregulated financial market.
Why Are Countries Concerned About Bitcoin?
Some would argue that governments have a right to be concerned about Bitcoin. This attitude largely comes from the token’s association with the Dark Web and its nefarious marketplace The Silk Road. The Silk Road was an underground marketplace where individuals could purchase drugs, guns, illegal porn, and other items with Bitcoin. It was eventually seized by the government and its US founder arrested, but other similar markets have risen up to take its place on the Dark Web.
The controversy surrounding The Silk Road was so great that it attracted the attention of US Senators like Charles Schumer. Schumer went so far as to label Bitcoin a surrogate currency that was specifically created to fund illegal activities. This, of course, is not true. There is no indication that the creators of Bitcoin ever intended for their currencies to be used for illegal purposes.
Nevertheless, this perspective helps to amplify and answer to “Is Bitcoin legal?” A more appropriate answer might be that the token is not illegal, but that some of the things you can use it for are indeed against the law. But couldn’t the same be said for all types of money? There has never been a form of money created that hasn’t been used for the illegal purposes that Charles Schumer referenced. Why is he not taking aim at the US dollar? It has been used to pay for drugs, guns, and even murder for hire.
The bottom line is that countries seem to be concerned about the rise of Bitcoin because it is a wild card that they cannot control. Bitcoin is decentralized and deregulated, and it will likely remain so for the time being. There is no money to be made for governments in such an unregulated asset, and that makes governments unhappy.
There are also concerns over some regulators over a bubble. The value of a single Bitcoin skyrocketed to near $20,000 in late 2017 before coming back to earth in 2018 and settling somewhere near $6,000. This has encouraged more people to buy and hold the coin. Some believe that this has rendered the token less suitable for everyday use and as a medium of exchange. Some regulators claim they are acting in the interests of investors who stand to lose a lot of value if Bitcoin crashes.
How Some Countries are Approaching Regulation of Bitcoin
China seems to have been one of the countries to take the hardest line where Bitcoin is concerned. The country moved to severely limit Bitcoin trading in 2017. While it has not stopped individual citizens from buying or possessing Bitcoin, China has essentially made it illegal to trade the token on exchanges within the country. The government claims that Bitcoin needs oversight and licensing by the People’s Bank of China.
In Europe there is a more progressive stance. The EU had already begun to prepare for an age of digital currency before Bitcoin was invented, so things have been more smooth. Bitcoin has been recognized by the European Central Bank as a decentralized digital currency, but the European Banking Authority has encouraged financial institutions to avoid trading in the asset until some type of regulatory structure can be implemented. It seems that the main concerns in Europe are that the token could be used for money laundering and for funding terrorism.
The US seems confused about how to address Bitcoin. The Federal Reserve and other financial entities have conceded that learning how to regulate the currency poses a problem. It may be in Bitcoin’s favor that prominent US investors like Warren Buffet have predicted the currency will fail, and that the current US president, Donald Trump, is himself a billionaire that only seems to conceive of money as something tangible.
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In all countries there have been efforts to bring Bitcoin exchanges into compliance with existing anti-laundering money laws and KYC, or know your customer principles. This is why individuals must submit to a rigid identity verification process when creating an account at an exchange. They must provide things like a copy of an identity card, a valid utility bill, and in some cases a Social Security number before they are allowed to make trading transactions.
ICOs, or Initial Coin Offerings, have been given greater scrutiny in recent months after a large number of scams. An ICO is when a new digital token attempts to raise funds for its launch by selling its tokens at a reduced price before they are made available to the general public. This method of crowdfunding has made it easy for some individuals to create scam ICOs that are intended to defraud investors.
The crisis with ICOs has become so great that it has led to companies like Facebook and Google banning advertising for ICOs from their platforms. It is not unrealistic to expect that the Securities and Exchange Commission in the US and similar regulating agencies around the world will look to take measures to classify Bitcoin as an asset that they can regulate.
Bitcoin is Legal
Bitcoin investors probably shouldn’t be too worried about the possibility that Bitcoin will be made illegal. A far more reasonable worry would be that the governments of the world will seek to get involved with the token. When that happens, the value of the coin could suffer. Governments don’t have the greatest track record where money is concerned.
Hopefully, more institutions will realize the positive potential of Bitcoin and blockchain technology. Those individuals would help to fight to keep Bitcoin as a borderless, decentralized digital currency as it was always intended to be.