There is no single regulation or multilateral agreement that unifies the legal framework for regulating transactions carried out in cryptocurrencies and defining their situation. The legal status of Bitcoin and other digital currencies significantly varies from country to country.
Thus, some legal systems have regulated this type of payment by allowing their use and trade, while other countries have significantly restricted or explicitly prohibited these types of transactions.
Legalization of cryptocurrencies, specifically Bitcoin as the most widespread of them, was done either directly, as Japan did in April 2017 when it declared Bitcoin as a currency and official means of payment, or indirectly by regulating the manner and conditions of transactions and even and restrictive restrictions.
In March 2014, the American Internal Revenue Service of the IRS made a decision by which Bitcoin is treated as a taxable asset. Although this decision is detrimental to the holders of this currency, paradoxically, it defined the status of Bitcoin in the United States and made its possession unequivocally legal. Although it was never actually declared an illegal form of property, until this decision, its status was in a so-called judicial vacuum, without precise determinants about its position. The introduction of Bitcoin into the legal and tax framework has opened the way for a wider circle of investors to invest and generate, at least formally, taxable income from trade.
True, most investors have labeled cryptocurrencies as a risky but extremely profitable form of capital. Others, however, appreciating Bitcoin’s independence from central banks and its limited number, went so far as to compare it to gold in some respects. However, the fact is that digital currencies are a unique economic institution that is not similar to any traditional form of property or means of payment.
The lack of detailed regulations overseeing transactions made in cryptocurrencies is, to some extent, an advantage, giving them the necessary independence from political and economic centers of power.
All transactions in digital currencies are independent of formal banking systems, which makes an insight into profits and the taxation system itself virtually impossible to track.
Cryptos give big headaches to legislatures that are persistent in their intent to bring them under control. Since one of the primary characteristics of these currencies, specifically Bitcoin, is precisely the anonymity of participants in transactions and a decentralized control system, it is clear that the result of this mission is highly uncertain.
On the one hand, some regulations would provide additional stability and a reduced level of hypersensitivity to crypto market movements, but on the other hand, it would deprive them of one of the essential characteristics for which they were formed.
Although most countries have not declared Bitcoin illegal, its status varies from country to country, or union of states.
Countries where Bitcoin is banned:
The Central Bank of Bolivia banned any currency that is not issued or regulated by the government. They specifically mentioned BTC and some other popular virtual money, but in the end, the same rules apply to all cryptos.
Ecuador is another country that banned BTC, along with all other digital currencies, since they established a new electronic money system.
Back in 2014, Vietnam explicitly banned all virtual money in their country, which was a precautionary measure, with further discussion on this topic later, but that still did not happen. Although the initial plan was to recognize cryptos in 2018, at the end of 2017, the Vietnamese government simply banned the use of cryptocurrency.
Other countries that banned cryptos entirely are Pakistan, Algeria, Bangladesh, North Macedonia, Saudi Arabia, Qatar, and Vanuatu.
Also, in many countries, the use of Bitcoin and other cryptos is, in some ways, restricted.
China has allowed the possession and trade of Bitcoin to individuals, but not to legal entities, including financial institutions such as banks.
National Bank of China is intensively regulating the area of digital currencies. The attitude of the new Chinese regulations towards Bitcoin considerably affects its future value and the nature of other legislations towards the new money. The Chinese government’s decision to “temporarily” ban the trade of ICO tokens affected the price of all virtual money, and they lost up to half of their value in a short period because the expectation was that the other countries would follow this example. However, except for South Korea, the chain reaction of bans was absent, and the cryptocurrencies recovered and continued further growth.
In 2017, the Israeli tax authorities decided that Bitcoin, by definition, is not a currency, but a type of property or goods, taxable under the law. There is a 25% tax on each transaction, and mining and trading Bitcoin is considered a business activity and is subject to corporate income tax just like any other. Bitcoin in Israel has not bypassed VAT of 17%.
There are mixed feelings about the new law in Russia, with many companies trying to adapt to it because of its ambiguous language. This new DFA (Digital Financial Assets) law provides legal status to all digital assets, including cryptos, but on the other hand, prohibits using them as a way of payments in the country. But this has not affected all companies, and Binance is still planning the launch of their Binance Card in Russia. The Russian government also prepares new law, which will be solely about cryptos, and it will provide a regulatory framework for their use in this country.
Of course, today, when there is so much fake news, being sure about everything that is going on is tough, and it is the same about this topic. It is particularly challenging to stay in the loop, as so many countries regularly change their laws, and one must be continually well-informed. There are also some great myths about virtual money, how they work and avoiding taxes, how some countries behave, and why do they behave in certain ways, and for that and more, check www.universityherald.com, where you can find everything there is on this topic.