A revolutionary computer protocol intended for a decentralized payment system: Bitcoin. This revolutionary currency has been gaining popularity for years. However, despite its extraordinary properties,
This debate has been going on for over a decade and concerns the legality of Bitcoin. So stay tuned as we take you on a journey around this issue.
Before we get into the legality of Bitcoin, let’s take a quick look at what it really is.
Bitcoin is a digital currency (cryptocurrency) that was originally created in 2008 (excuse the pun) and received the domain name “Bitcoin.org” in the same year. It was created by a group of people or a single person with the false name of Satoshi Nakamoto. It was introduced in January 2009.
Bitcoin is a peer-to-peer digital currency with no third party support, which means that one user can share transactions directly with another user without intermediaries such as banks. On October 31, 2008, Nakamoto released the Bitcoin White Paper, which outlined a vision of how the electronic form of money could revolutionize today’s financial markets and transaction systems.
The document suggested using a ledger distributed in batches known as “blocks”. Blocks refer to files where transaction data is stored permanently. Also, the underlying network that processed the Bitcoin transaction is called the blockchain. The goal was to provide people with secure online transactions; therefore, the transactions were protected by cryptographic algorithms.
Nakamoto initiated the first transaction on January 3, 2009 with something called a “genesis block,” the blockchain’s first 50-Bitcoin block. Then Bitcoin was officially announced as the first cryptocurrency in the world.
Bitcoin’s competitive advantage comes from being the first cryptocurrency to be created. Since then, he has spawned a global community of millions of devoted followers who put their money into Bitcoin by investing, trading and using Bitcoin in their regular day-to-day transactions. The emergence of the cryptocurrency principle is based on a calculated idea that has inspired the advancement of thousands of competing projects. The foundation of the entire cryptocurrency market lies in the creation of Bitcoin.
Thanks to its first-to-market status, Bitcoin (BTC) remains at the top of the very strong cryptocurrency market long after its introduction. Although Bitcoin has lost its undisputed dominance, it is still the largest cryptocurrency with a market capitalization of more than 4 times that of its closest competitor Ethereum as of March 2021. The actual present value of Bitcoin is constantly fluctuating, which is fine. familiar.
Despite its popularity, many countries are still debating whether Bitcoin is legit or not. Especially people who are new to currency think that Bitcoin really isn’t. In some countries it’s actually not legal. In some other countries it is a bit of both (depending on the function). This brings us to our next concern: Why is an invention like this, with such enormous potential to revolutionize transactional systems, in legal trouble?
Why Does Bitcoin Have Legal Concerns?
We all know that every fiat currency is introduced, produced and regulated by one entity: central banks. All over the world, central banks control the flow of currency according to local laws, which means that no ordinary citizen can exchange money without following government regulations. To do otherwise is considered a crime.
When Bitcoin was introduced, it became an exception to the established legal process that governs currencies. Bitcoin was the first currency of its kind in the world, not controlled by any government or central bank. Furthermore, the basic idea behind Bitcoin concludes that anyone with sufficient computing power and good financial sense can earn their own coins simply by being an active part of the network.
However, the growing popularity and acceptance of BTC has led law enforcement and tax authorities around the world to understand the concept of Bitcoin and its use within the existing law. So Bitcoin’s legitimacy depends on a few measures, like what you do with it, where you are, or how old you are.
Despite numerous conspiracy theories questioning the use of Bitcoin, its decentralized nature means that no one can stop you from using it. As a result, many legal experts are urged to understand the nature of Bitcoin in order to regulate it, which in turn would facilitate the characterization of legal Bitcoin from a legislative and regulatory point of view.
Concerns about cryptocurrencies
Many jurisdictions find it difficult to legalize Bitcoin due to its unique, decentralized and immaterial nature. But something that’s gaining popularity, like the bonfire, is harder to master.
While US traders are monitored and monitored by regulators, many offshore traders still don’t, leading regulators to classify Bitcoin as illegal. For example, the history of cryptocurrencies is full of scams. Unfortunately, incidents of traders being robbed and victims of digital currency scammers are not uncommon.
It is natural for regulators to be concerned about a monetary system that cannot be fully controlled given its historical scams. At most, authorities can try to stop people from using Bitcoin through threats or by shutting down access to the World Wide Web, which is actually impractical given the current reliance of people and businesses on the internet.
Here are some concerns preventing regulators from legalizing Bitcoin:
- Thefts and scams: one of the most discussed cases was the famous Mount Gox case. In early 2014, when one of the most important Bitcoin exchanges of the time filed for bankruptcy due to technological problems and a theft that demanded 744,000 Bitcoins from users. It was about six percent of the 12.4 million Bitcoins available at the time.
- Anonymous Use: Another problem with Bitcoin is that users can use it anonymously, which means that the user’s identity is not known. While every trade is recorded on the blockchain, it’s easy for customers to remain anonymous as the records only contain public keys and the amount transferred. The anonymous nature of the network increased fraudulent activity as the network grew in popularity around the world.
Where is Bitcoin legal?
Let’s look at the United States first. What is the legal status there?
Despite all these concerns about its use in illicit commodity trading, the US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has classified Bitcoin as a decentralized virtual currency. They have issued guidelines that those who buy virtual currency and use it to purchase legitimate goods are not breaking the law. Several websites like OkCupid, Overstock, and Shopify accept cryptocurrency as a means of payment. In addition to these websites, there are a growing number of merchants in the US that accept Bitcoin as a means of payment.
Additionally, authorities classify Bitcoin as legit in several cases, the list goes on, when nothing seems to be stopping Bitcoin’s popularity. Some of these things are:
- Investing: Investing in Bitcoin is also considered legal. US-based exchanges are regulated and must comply with various laws, so if you want to buy Bitcoin it is important to verify your identity and contact a US bank.
- Mining: However, users who create Bitcoin units with the intention of exchanging them for currency are considered money brokers and can be reported to regulators.
- Business Payments with Bitcoin: According to FinCEN, a business that accepts Bitcoin in exchange for legal, benign and harmless goods is legitimate. However, any business that accepts Bitcoin as a payment method is subject to taxation. In this case, it’s like receiving money, gold, or any other gift.
Bitcoins are treated as property and not as cash or liquid assets. For example, when you make a purchase with your Bitcoin, you are actually exchanging an asset for a required good or service. The value of Bitcoin depends on the market rate at the time of buying or selling. All profits or losses are therefore subject to tax and on the pulse of the market.
In January 2020, a bill was introduced in the US House of Representatives to exempt Bitcoin transactions from tax if profits exceed $200. The bill has not yet passed.
- Use on the dark web: Most of these concerns came to light when a dark web market called the Silk Road came to light and attracted media attention. Since Bitcoin was one of the few payment sources accepted through the dark web, it also came to the attention of the FBI. The market was then immediately shut down and the authorities thereafter very quickly stopped trying to reincarnate the market.
However, law enforcement remains concerned about Bitcoin’s popularity among illicit traders. The secrecy, anonymous transactions, and decentralized nature of Bitcoin are suspected of being abused in tax evasion and black money (money laundering) schemes.