- >News
- >What Countries Still Consider Bitcoin to Be Illegal?
What Countries Still Consider Bitcoin to Be Illegal?
Bitcoin at its most fundamental level is a transferral of power. It empowers the unbanked by enabling them the ability to safely store value over time, while also redistributing financial sovereignty to the individual away from centralized banking infrastructure. This redistribution of power and sovereignty over one’s finances is a disruptive force by design. It forces governments, who traditionally control the levers of central banks to confront an alternative that directly challenges their influence and control over their citizens.
Governments and countries are forced to decide how they want to respond; Bitcoin is too big to ignore, and is only growing in acceptance by the day. These government responses range on a spectrum. This spectrum can fall anywhere between an absolute acceptance and adoption of Bitcoin as a legal currency to a complete denouncement and the creation of a legal framework to ban Bitcoin outright and anywhere in between.
Countries Where Bitcoin is Legal
Bitcoin’s ability to be used universally makes it an incredibly powerful tool for individuals to move finances from one country to another.
When a second layer network like the Lightning Network is introduced, it can reduce the costs to within a fraction of the cost of legacy banking infrastructure. This fluidity of money may not be as obvious in countries where there is already a strong, accessible, and reliable banking infrastructure, or to individuals who have no need to send finances internationally. However, to the millions of people who send remittance payments, Bitcoin has become a revolutionary tool.
Countries where remittance payments make up a large percentage of their GDP, or in countries that have a strong history of supporting individual liberty with limited censorship laws are typically where we would expect to see Bitcoin be most accepted under law.
El Salvador
On September 7, 2021, El Salvador became the first country to make Bitcoin legal tender. With 70% of the El Salvadoran population being unbanked and 23% of its GDP accounting from remittance payments, El Salvador was the perfect candidate to become the first country to embrace Bitcoin as one of its legal tenders.
President Bukele has estimated that through embracing Bitcoin, his country could reclaim $400 million annually from the associated fees that legacy financial remittance infrastructure was using.
Canada
Canada maintains a relatively healthy regulated relationship with Bitcoin.
Bitcoin is considered a commodity by the Canada Revenue Agency (CRA). They have also stated at any income generated through the sale of Bitcoin will be considered as business income. Cryptocurrency exchanges that deal in Bitcoin are also registered with the Financial Transactions and Reports Analysis of Canada (FINTRAC) and are required to report suspicious behaviour and abide by FINTRAC’s compliance plans.
The European Union
The EU as a whole has a fairly strong pro-Bitcoin stance.
On October 22, 2015, the European Court of Justice ruled that transacting in digital currencies was exempt from value added tax (VAT) in all European Union member states.
Each individual country has then also had the opportunity to introduce additional legislation to strengthen or weaken this position. For example, the National Revenue Agency (NRA) of Bulgaria has brought Bitcoin under its existing tax laws, while in Cyprus, Bitcoin is neither controlled nor regulated. Under Finland’s Central Board of Taxes (CBT), Bitcoin is classified as a financial service.
The USA
Similar to Canada, The U.S. is relatively pro Bitcoin and has defined Bitcoin as a money services business (MSB) which places it under the Bank Secrecy Act.
The Bank Secrecy Act requires exchanges and payment processors to follow certain guidelines in regards to reporting suspicious activity, registering users, and record keeping.
For Taxation purposes, the U.S. has categorized Bitcoin as property by the IRS and is subject to the same tax rate as the capital gains tax. However, Bitcoin and other cryptocurrencies may be caught in the crossfire of the U.S Infrastructure Bill that is scheduled to be voted on September 30, 2021.
Through their current classification and the initial proposal for long-term capital gains, taxes are set to increase in the Infrastructure Bill from 20% to 39.6% (That’s only for the highest income tax bracket, however). This may result in the richest Bitcoin HODLers seeing their Bitcoin taxes almost double.
Countries where Bitcoin is Illegal
Bitcoin is undeniably a threat to countries where there exists tight control by government over its citizens. The countries where we would expect Bitcoin to be deemed illegal are countries where there already exists a strong central banking infrastructure or a history of exercising censorship. The development of a CBDC is highly likely in this scenario, to combat the liking taken to cryptocurrencies.
China
China has taken an aggressive stance against all forms of cryptocurrency as they get ready to launch their own CBDC nationwide. The digital yuan (e-CNY) alongside their digital payment and processing network (DCEP) is run by the Central Bank of China.
In June of 2021, China told banks and payment platforms operating in China to stop facilitating transactions for cryptocurrencies while also making it illegal to mine Bitcoin within the country. China went a step further on September 24, 2021, when they issued a statement indicating that anyone involved in the trade of cryptocurrency will be considered involved in “illegal financial activities”. Any involvement would be categorized as a crime and lead to prosecution.
Russia
In July 2020, Russia introduced legislation to regulate Bitcoin and other cryptocurrencies as property for taxation purposes. However, the prosecutor general announced additional legislation that would allow police to confiscate cryptocurrency that they had deemed to be illegally obtained.
Additionally, civil servants are not allowed to own cryptocurrency assets in Russia. President Vladimir Putin has on numerous occasions expressed his distaste for cryptocurrency, often linking it to criminal activity. It is also illegal to use Bitcoin in Russia as payment for goods or services.
Turkey
On April 16, 2021, Turkey’s central bank (CBRT) announced legislation to ban the use of cryptocurrencies including Bitcoin for use as payment for goods and services that took effect on April 30.
Prior to the introduction of this legislation, there had been an explosion in demand for Bitcoin against the backdrop of the destabilized Turkish Lira.
What Comes Next?
This list of countries is by no means exhaustive, with many other countries signaling support for Bitcoin as they eagerly watch how the role out in El Salvador unfolds. Potential players include Ukraine, Australia, U.K., Panama, Argentina, and Brazil.
Other countries will look at El Salvador and whether their ability to control citizens diminishes. Notable countries that are signalling tougher crackdowns on Bitcoin include Bolivia, Colombia, Ecuador, Vietnam, and North Macedonia.
The decentralized nature of Bitcoin is its greatest strength. It will continue to grow in influence around the globe and offer millions of people their first opportunity to store wealth across generations.
Early adopters will have the greatest success, and while many countries are still taking a wait and see approach to how they want to legalize Bitcoin, it is clear that the longer they wait, the less success they will have.
By: Iain Taylor
