Cryptocurrency has seen a spectacular rise since its invention and regulators have been caught by surprise. All over the world, every government is striving to create regulatory systems or some sort of legislation to control the use of Bitcoin or any sort of digital or virtual currency.
By now, countries and governments in the world have at least announced that they are paying attention to the rise of cryptocurrencies and their risks.
Cryptocurrencies, like Bitcoin or Etherum, are crypto exchanges happening on the internet without the need of a central third party to process transactions. The existence of a decentralized form of payment (currency) scares governments because it can be used without regulations or legislation, which is why countries are creating or trying to create, laws to minimize the risks these crypto exchanges pose.
If you've been learning about cryptocurrency you're probably wondering whether they are legal or not. In this article, you will learn about the legality of cryptocurrencies, like Bitcoin, how and why it is regulated by some countries, where it is legal, where it is banned, and more.
You can continue reading and learning about the assets of cryptocurrency, including how many there are, on A guide to Cryptocurrency.
Cryptocurrency regulations around the world
Every government around the world is striving to regulate cryptocurrencies and this trend towards regulation is predicted to continue in the finance world.
Right now, Bitcoin and other cryptocurrency transactions happen through online exchanges, and these exchanges make any state's accessibility to regulation easier. If you wish to do a crypto exchange (buy or sell) you will be asked to provide a large amount of personal information, which means that any business behind the exchange can verify your identity.
However, countries have a hard time regulating Bitcoin at a "protocol level". To understand this, you have to understand that this new financial technology was invented to avoid these sort of protocol regulations in the first place and its succeeding at it.
According to CryptoVantage, "there may be attempts to regulate the Bitcoin network at the protocol level in the future, but these regulatory interferences are unlikely to succeed, as they would need to be made on an opt-in basis and would destroy what makes the crypto asset valuable in the first place."
Some countries are open and welcoming towards cryptocurrency, but others are more strict and restrictive. Here is a list of five categories that define a country's position regarding cryptocurrencies:
- Banned: it's illegal in these countries.
- Hostile: these countries haven't banned it but they've introduced some sort of regulation that limits the use and growth of digital currencies or money.
- On the fence: these countries are neutral. The state hasn't made a public stance on the matter or they haven't recognized it legally.
- Improving: These countries are in a legal recognition process as they are also implementing regulations.
- Global leader: These countries are welcoming and have taken steps to recognize cryptocurrencies in their financial services.
You can check every country's position regarding cryptocurrency right here.
If you're still a little confused or lost on this subject, you can learn more about crypto on What is Cryptocurrency?
Legal issues with cryptocurrency or digital currency
There aren't many legal issues when it comes to cryptocurrency but it all depends on the country you're in. By now, it would be difficult for any government to make cryptocurrency illegal in any meaningful way.
Even if governments pass laws that restrict Bitcoin trading, this would be extremely difficult to enforce. For example, if the accused's phone is encrypted, no law enforcement authority will be able to access its information and consequently, there is no way to prove that they have a Bitcoin wallet on their phone.
If you can encrypt your phone, you can literally have a bank account anywhere in the world right in your pocket.
Which countries are open to cryptocurrency?
Many governments in the world have welcomed cryptocurrency into their system and see digital currency as beneficial financial services. Some of these are:
- South Korea
- United Kingdom
- United States
If you're in a country where cryptocurrency and virtual currency are not banned, you can learn what to do with it on the Best way to use cryptocurrency.
Which countries restrict or ban cryptocurrency?
However, other states have completely banned Bitcoin for numerous reasons. China, for example, is working to develop its own blockchain technology, which is why they issued a law to ban any threat or virtual currencies from their country.
Here is what CryptoVantage has to say about it, "these countries take a “blockchain not Bitcoin” approach because it allows them to continue, and likely enhance, their complete control over the local financial system. Although the original idea with Bitcoin was to create a system that was outside of the control of any government, this technology can be turned on its head to create a financial surveillance state that past tyrants only saw in their dreams."
Some of these are:
Now that you know more about the legality of cryptocurrency and this subject, you can read about investing in our article Is cryptocurrency a good investment?
Why Do Some Countries Try to Restrict Cryptocurrency?
The invention and expansion of virtual money are inevitable and legal, and everyone knows it. Even though it is legal, some governments are afraid of the financial freedom it can create, especially since it can enable money laundering or other types of organized crime.
Introducing any sort of Bitcoin regulation to a country's system depends on said country's freedom. In places where people are free to do what they want (from a financial point of view), blockchain technology, crypto exchanges, or digital money are hardly regulated.
However, there are other governments with higher authority over the population's finances. These governments tend to be more authoritarian because they wish to control the local financial services and systems, therefore, they put more regulations and even create laws to ban Bitcoin and other digital currencies.
In other words, Bitcoin presents a threat to governments that wish to have a hand in their citizen's wallets. For instance, the tactics of a state or government that decides to increase inflation won't work if people can turn to Bitcoin instead of turning to the bank for money.
Finally, some banks, companies, and of course governments, are scared of cryptocurrency because this type of technology is built to resist automated unauthenticated withdrawals from your bank account.
To continue learning about this subject check out this article: How many cryptocurrencies are there and which are the best ones?
Trading our virtual money
Virtual and digital services are here to stay, soon money and currencies could join the list of things that transformed into technology.
The bank as we know it can disappear or the banking system can transform into a digital service for trading our virtual money. Whatever happens, one thing is clear, cryptocurrency and blockchain technology won't go anywhere.
Governments can tax, regulate, control, build securities around it or implement new legislation by passing laws that ban it. All these efforts are minimal compared to the fast-growing nature of this new currency.
Although there are some dangerous things cryptocurrency and virtual currency can enable, like money laundering in any business, there is no authority or law that can prevent it from growing.
The creation of laws will only make this form of payment slow down, but it won't stop it. Even though it has some negative and scary things, the virtual currency can also have some positive assets.
If done responsibly, it can help solve some people's financial issues, it can end banking problems, and it can help any small business grow by providing buyers with fast and easy payment.