The legal status of cryptocurrencies varies substantially from one jurisdiction to another, and is still undefined or changing in many of them. Whereas, in the majority of countries the usage of cryptocurrency isn’t in itself illegal, its status and usability as a means of payment (or a commodity) varies, with differing regulatory implications.
Bitcoin and other cryptocurrencies are used anonymously to make transactions between any account holders globally. These have presented some currency concerns for governments, while some lawmakers and authorities might not always support the use of it because of the lack of control and illicit ties, many have introduced regulations under their country’s Anti-Money Laundering and Counter-Financing of Terrorism laws (AML/CFT) in attempts to reduce its use for these purposes.
The Library of Congress (LOC) conducts periodic reviews of countries’ stances on Bitcoin and cryptocurrencies. In November 2021, it identified 103 countries whose governments directed their financial regulatory agencies to develop regulations and priorities for financial institutions regarding cryptocurrencies and their use in AML/CFT.
The LOC also identified many countries that allow cryptocurrencies to be used. Here are a few of them.
1. The United States
The U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) has been issuing guidance on Bitcoin since 2013. The Treasury has defined Bitcoin as a convertible currency with an equivalent value in real currency or one that can act as a substitute for real currency.
FACT: The Internal Revenue Service has categorized Bitcoin as property for taxation purposes.
Any entity that administers or exchanges Bitcoin, such as cryptocurrency exchanges and payment processors, falls under the definition of a money services business (MSB). As such, an MSB is subject to the Bank Secrecy Act and is required to register with the U.S. Treasury and file reports on transactions over $10,000, purchases using the cryptocurrency.
2. Canada
Canada maintains a generally bitcoin-friendly stance like its southern neighbor, the U.S. Bitcoin is viewed as a commodity by the Canada Revenue Agency (CRA) for income tax purposes. This means any income from a transaction using Bitcoin is viewed as business income or a capital gain and must be reported as such.
Canada considers cryptocurrency exchanges to be money service businesses. This brings them under the purview of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (Canada’s version of AML/CFT laws). As a result, cryptocurrency exchanges need to register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), report any suspicious transactions, abide by the compliance plans, and even keep certain records.
3. Australia
Like Canada, the Australian Taxation Office considers Bitcoin a financial asset with value that can be taxed when specific events occur. If you trade, exchange, sell, gift, convert it to fiat currency, or use Bitcoin for purchases, you trigger a capital gains tax. You’re also required to keep records of any transactions you make using Bitcoin for tax purposes.
FACT: In Australia, if you hold your Bitcoins strictly for personal use and make gains on them, you may not owe any taxes in certain situations.
4. El Salvador
El Salvador is the only country in the world that has declared bitcoin to be legal tender. In June 2021, the country’s Congress approved President Nayib Bukele to formally adopt bitcoin as a form of payment.
This is the first and only country to declare Bitcoin as a legal tender after President Nayib Bukele received approval from Congress to adopt it as a form of payment. Other countries like France, Denmark, Germany, Iceland, Spain, Mexico, the United Kingdom, and Japan also consider Bitcoin transactions legal and have developed regulations around its use and trade.
