The Legal Lowdown on Cryptocurrency

6 min read

Bitcoin has been around for ten years now, and while it was slow to gain mainstream recognition, the meteoric price rises in the crypto space made Bitcoin and other blockchain based currencies very hard to ignore.

Embrace, Accept or Reject

When people are introduced to cryptocurrency, you can usually put them in one of three camps. They either embrace the idea with open arms, tentatively accept that crypto could have an application, or outright reject bitcoin and cryptocurrency as a whole.

And when it comes to government regulation, you get countries that fall into those same three schools of thought.

As most counties have a hand in influencing the economies of their sovereign states, it’s almost expected that the introduction of bitcoin as a viable currency would be dismissed initially, just because the governmental institutions want to remain in economic control. After all, what country would willingly give up power?

And that’s the reason we’ve seen very few countries full on adopt a digital currency as their national currency. However, that has NOT led every country to an outright ban. In fact, most countries, so far, have declined to regulate bitcoin.

Will Governments Regulate Cryptocurrency?

That includes the world’s largest economy, the United States. I’ve gotten to watch the legislative battles go down, and while there has been a lot of back and forth considering the sentiment of bitcoin, there has never really been any non-criminal crackdown or confiscation of cryptocurrency. And since in the US cryptocurrency is legal, that can give the government their cut in the form of a tax, whether it be for the transfer of cryptocurrency or capital gains.

Many countries are following the United States’ lead when it comes to a hands-off approach concerning cryptocurrency. Most of the world has taken that exact approach. They are monitoring this quickly developing ecosystem, being careful not to stifle an emerging industry that may bring their country more wealth.

And the rest of the world has followed. The majority of the top economies all, at the very least, tolerate bitcoin. Some who recognize deficiencies in the current banking system have embraced the ideas of digital currencies with open arms. Most major geographic areas are comprised of countries that have friendly attitudes towards cryptocurrency. North America, the European Union, Eastern, and Central Europe, and most of East Asia.

When are Crypto Transactions Taxable?

The biggest issue surrounding governments that are cool with cryptocurrency is taxation. Of course, they want their cut. Even in countries where crypto is openly mined and exchanged, there is still a lot unclear around what transactions are taxed as well as the rate at which cryptocurrency will be taxed.

Even in America, the IRS is expecting crypto holders to keep a record and report all of their transactions, no matter how small.

That’s actually how a lot of countries ended up recognizing bitcoin and other cryptocurrencies. The legislative bodies were slow to understand this technology, but the tax collectors were ready. They see income, and they want their cut. Not all revenue collections work like this, but the IRS doesn’t care where you got your money from, they just care that you’re reporting it and your books are correct.

Restricting Banking Services

There are several States that do not outlaw the possession or use of cryptocurrency, but they have restricted essential banking services for any digital currency, which kind of puts crypto in a limbo. It is tolerated, but the financial systems that crypto is looking to improve or replace, simply aren’t eager to provide their services to users of cryptocurrency.

This really is a form of protectionism. Fiat currencies can be controlled or influenced. This isn’t an inherently bad thing (according to many people) as it can provide temporary economic relief through changes in monetary policy. The government controls their fiat currency, and their attitude is, why contribute to an asset that might harm fiat currency, thus lessening their control on their own economy. This is the kind of economic globalization that scares leaders who have been able to control, or even manipulate, their national economies. So they are taking a halfway measure, a kind of wait and see approach.

Countries Have Even Banned Crypto

Some countries have already done that waiting and seeing process, and they don’t like what they have found. They have decided to outright ban bitcoin and other cryptocurrencies. These countries are a small minority and cluster in a few geographic regions. South America, the Middle East, and South Asia.

When you look at a list of these States, there are a few commonalities between them. They usually have leaders that have unilateral decision making power and very restrictive financial laws. Some even restrict expression on the internet, cracking down on access to exchanges and cryptocurrency resources.

China, oddly enough, was a country that had outright banned cryptocurrency, however many of the largest mining farms still operate within the country. There might be a change coming, as China just recently allowed contentions over ownership of cryptocurrency to be decided by a court, essentially recognizing cryptocurrency and providing recourse for those who have had their cryptocurrency taken from them.

Legal Landscape Still Uncertain

We see a lot of unclear legalities as well, as some countries are trying to apply old laws to these new technologies. Other governments have acted in a contradictory manner, with one action indicating acceptance or rejection of cryptocurrency followed by the opposite happening.

There’s a lot of uncertainty around these laws, and that makes sense considering the technology is so young, it hasn’t had the opportunity to be impactful.

Honestly, we’ve talked about all of the attempted regulation around cryptocurrencies, but one thing that we didn’t really ask is if cryptocurrencies are able to be regulated.

One question that we have yet to ask is if cryptocurrency is even regulatable. Well, we have news for you. Blockchains don’t care about laws; they care about code. Regulation of cryptocurrency may turn out to be a fool’s errand.