Are Cryptocurrencies Legal?
While Bitcoin and other cryptocurrencies are not illegal in most countries, some governments have opted to outright ban them or cut off the financial system support necessary to trade them. This is most often a result of volatility or fear that they will be used to finance illegal activities like drug trafficking, money laundering, and terrorism.
Despite this, some jurisdictions have welcomed crypto in the hopes of promoting a more secure monetary system. For example, Lithuania became one of the first jurisdictions to introduce a framework for regulating cryptocurrencies.
The United States has a patchwork of crypto regulation, with legislators at the state and federal level taking turns tackling specific areas. Currently, the federal government oversees a number of centralized cryptocurrency exchanges, as well as developers, by requiring them to register with FinCEN, the Financial Crimes Enforcement Network, and verify their users’ identities.
Some states, like New York, have taken a more aggressive approach to crypto regulation by creating their own framework and imposing licensing requirements on exchanges. These laws have been controversial and some businesses that were once based in the state left because of them.
In other jurisdictions, a less-dramatic response has been to simply advise citizens not to use cryptocurrencies. For instance, in Mexico, the government has placed an emphasis on financial institutions relaying to citizens that cryptocurrencies are not legal currency, and cautioning against using them for investment purposes.
Other countries, such as Argentina and Brazil, have emphasized that cryptocurrencies are not backed by the Central Bank and do not constitute legal tender. They have also warned citizens that they could be a source of fraud and money laundering.
There are some repercussions to this stance. In Argentina, the Argentine Central Bank has ruled that the value of a crypto transaction cannot be reversed and that transactions must be recorded in the blockchain.
Belize, on the other hand, hasn’t issued any governmental regulations on crypto yet, but the government has a positive attitude towards it and is encouraging the development of its own currency backed by blockchain technology.
Canada has a fairly relaxed approach to cryptocurrencies, although they do enforce anti-money laundering legislation and prevent fraud. The country has also endorsed the idea of a national digital currency, which would be backed by its central bank and be used to pay for goods and services.
China has a long history of harsh crypto regulation and has banned ICOs and domestic cryptocurrency exchanges. It also requires banks to be regulated and maintain strict cash management policies.
India hasn’t officially banned cryptocurrencies but it is looking to tax them under the Income Tax Act and Goods and Services Tax. In the recent Union Budget 2022, the Finance Minister has proposed a 30% tax on gains made from cryptocurrency and a 1% tax deducted at source.
It’s unclear how any of these laws will impact the use of cryptocurrencies. The fact that these systems are encrypted means that it’s nearly impossible for governments to track user balances and accounts. In addition, the servers that maintain the crypto networks are spread across the globe and it’s very unlikely that a government could take down one of them.