Is Bitcoin Legal?

Since Bitcoin reached the $3,000 mark this year, it has gained a good amount of attention. And since

then, a lot of people are looking into the possibility of investing in one. In fact, even businesses are

taking a closer look at the possibility of accepting Bitcoin in exchange for goods and services.

But if you are one of those still hesitating to jump into the cryptocurrency bandwagon, you might be

asking if Bitcoin is legal?

Bitcoin is an interesting discussion for a lot of law makers and law enforcement agencies all over the

world. In fact, a lot of them are looking at its nature how it could actually fit in the current legal


So far, the legality of the bitcoin will depend on different factors. It includes:

  •  Who you are?
  •  Where you live?
  •  What you are actually doing with your Bitcoin?

The reality is that Bitcoin and cryptocurrency is still in its infancy. However, the question still stands if it

is actually legal? By definition, yes, Bitcoin IS LEGAL. However, it is not far from possibility that you could

still get into legal trouble using Bitcoin.

Seems confusing? Before we discuss what makes it legal, and what could get you into trouble, let’s take

a closer look at what it really is.

How Bitcoin and Cryptocurrencies work?

Bitcoin is a virtual currency. Transactions made on Bitcoin are then recorded on a public ledger that is

called a block chain. In order to verify the transactions made using Bitcoin, blockchain technology makes

use of miners. Unlike other traditional currencies such as the US dollar and Euros, it is not bound by a

country or an institution.

Bitcoin was conceptualized based from the idea that people can transact freely and instantly without

the intermediary bodies. If you will look at the essence of what Bitcoin and blockchain technology is, it is

a reversion towards a much purer form of trade. And for this reason, it has gained the interest of both

speculators and investors that are looking to benefit from Bitcoin in the long haul.

It also seeks solution towards a more stable form of currency especially in an event of recession such as

the 2008 financial crisis.

Why is the government looking into Bitcoin and Virtual Currencies?

Because of the decentralized nature of Bitcoin and its cryptography, what it also offers is anonymity to

its users. And for the same reasons, Governments are worried of its implications given the possibility of

Bitcoin’s application in money laundering and other illegal activities.

As early as 2012, FBI already released a document that summarizes its fears when it comes to Bitcoin.

FBI made a distinction between Bitcoin and centralized digital currencies. According to FBI, though

exchanges in the US are regulated, it is a totally different story off-shore which makes Bitcoin a potential

haven for transactions from illicit activities.


And it isn’t just the FBI that showed concerns over Bitcoin. In August 2013, US senate wrote to different

law enforcement agencies regarding the risks of using virtual currency. It has sent a letter including the

Department of Homeland Security, more particularly concerns regarding the lack of paper trail to follow

the transactions made using the virtual currency. US Senate also requested policies and guidelines

regarding the treatment of crytptocurrencies.

The Department of Homeland replied to the US senate by November2013 and is most worried about the

possible illicit use of Bitcoin.

Bitcoin and Silk Road

One of the things that gave Bitcoin a negative reputation was its use in the Silk Road. Ross Ulbricht was

allegedly the founder and owner of Silk Road. He was believed to be the person behind the pseudonym

Dread Pirate Roberts. By the time of his arrest in 2013, he was indicted on charges of money laundering,

computer hacking, and conspiracy to traffic narcotics in addition to charges of attempting to kill six


The Silk Road was an online black market where transactions of illegal drugs and other illegal activities

are made. The FBI initially seized 26,000 bitcoins from accounts on Silk Road. Its worth during that time

was at $3.6 million. According to the FBI spokesperson, the agency would hold on to the bitcoins until

the trial was finished. After which, the bitcoins would be liquidated. It later followed that FBI seized

144,000 bitcoins worth $28.5 million that belonged to Ulbricht.

Regulating Bitcoin

Because of Bitcoin’s popularity and how it can be used in trade, regulators from different countries

reacted differently. For instance, you have the Financial Crimes Enforcement Network (FinCEN) which is

the agency in the US treasury department. FinCEN released guidelines not only for Bitcoin but also for

other virtual currencies that could be categorized as money services business or more popularly known

as money transmitting business or MTBs. MTBs enforce Anti-Money Laundering and Know Your Client

laws in order to identify people that they are doing business with. Using this measure, it reduces the

anonymity of using virtual currencies.

Like what we mentioned earlier, the legality of Bitcoin may greatly depend on who you are. Based on

the FinCEN guidelines, users that are using the Bitcoin for goods and services are using it legally. As for

the miners, they fall in a grey area. According to FinCEN, Miners are considered a Money Transmitter

Business (MTB) the same as exchanges. This means that they are going to be governed by special laws.

However, those laws have not been used to crackdown the use of Bitcoin.

State laws and Bitcoin

US state laws are allowed to have their own financial regulators. Both New York and California have

been aggressive when it comes to having a bitcoin-related organization. In 2013, California’s state

financial regulator even issued a letter to the Bitcoin Foundation, which is an organization designed to

promote Bitcoin. California’s state financial regulator warned the organization that it might be a money

transmission business and even threatened them with jail time.

In New York in August 2013, it has issued subpoenas to 22 bitcon-related firms. However, it is more of

an effort for a dialogue in order to develop guidelines for the digital currencies. Since then, New York’s

state Superintendent of Financial Services, Benjamin M. Lawsky announced accepting applications for

digital currency exchanges. These exchange houses are then regulated under the new New York

regulation installed by 2014.

The very first virtual currency specific licensing regime that addresses virtual currencies was New York’s

BitLicense. It was developed by the New York State Department of Financial Services and was released in

2015. It is different from the decision of Texas and Vermont to apply existing financial law to the use of



Since 2009, the US Internal Revenue Service (IRS) has already posted information about the tax

application of using virtual currencies inside virtual economies. They have mentioned that individuals

that have received cryptocurrencies could be required to report it as a taxable income. However, it is

still in its early stages since the guidelines have only been related to bartering, gambling, business, and

hobby income.

There are only few countries that have explicitly announced an intention to prevent the use of Bitcoin in

their country completely. By the end of 2013, a number of central banks simply released warnings of

different intensities. It has ranged from reminders that Bitcoin is neither regulated nor an official

currency, to raids on Bitcoin related businesses.

What alarmed international central banks is the effect that Bitcoin has to their economy especially since

the prices are volatile. Among the countries that have Bitcoin banned are Iceland, Bolivia, Ecuador,

Vietnam, and Kyrgyzstan.


Russia and Thailand are two countries that have initially banned the use of virtual currencies but

eventually backtracked.

Why governments are not going to ban Bitcoin

For the burning question, why are governments seemingly hesitant to make a move to ban Bitcoin? In

India, leading personalities in their Bitcoin community believe that a ban on the cryptocurrency can be

detrimental to the technologic development that could develop the financial ecosystem of the country.

In addition to this, there is no single organization or person that controls Bitcoin transactions. This

simply means that people can still send each other bitcoins as long as they have Bitcoin wallets. In fact,

there is even a possibility of sending each other Bitcoin via SMS.

Instead of banning Bitcoin, it seems that central banks have taken a hands-off approach to Bitcoin.

According to experts, a ban on Bitcoin is like going to fail miserably like how alcohol prohibition failed in

the 1920s. The demand for virtual currency will not be gone just because there is a law that bans it. You

may argue that a ban by central banks coming from a major country may even strengthen the Bitcoin

hype by making it a renegade currency.

Why is China not moving to ban Bitcoin?

If you will look at China, you might be wondering why one of the world’s biggest economies is not doing

enough to stop Bitcoin. For one, Chinese citizens that buy Bitcoin via Chinese exchange prevent the Yuan

from leaving the country. This means that there is no negative loss of Yuan.

In addition to this, a lot of Chinese citizens actually own Bitcoin. This only means that if Bitcoin succeeds

and continuous to increase in value, they actually succeed by having more rich citizens. And lastly, there

are a lot of Bitcoin miners in China.

The Future of Bitcoin in the next years?

Bitcoin has evolved rapidly since it has been developed in 2008. Because of its advantages, governments

and businesses are taking notice to what it could potentially bring. In a 2014 article published on

Entrepreneur, SecondMarket Holdings founder and CEO invested in 28 Bitcoin-based businesses via

Bitcoin Opportunity Corp. He mentioned that in the next decade, MoneyGram and Western Union could

potentially be decimated if they fail to adapt. He also predicts the possibility of paying for goods and

services online via cryptocurrency will become a standard. Wordpress, Expedia, and Microsoft are now

accepting Bitcoin as a mode of payment and have improved Bitcion’s recognition since.

Microsoft’s co-founder, Bill Gates has also spoken regarding the potential of Bitcoin as early as 2014.

According to his interview, he mentioned that “Bitcoin is better than currency in that you don’t have to

be physically in the same place and, of course, for large transactions, currency can get pretty


The likes of Blyth Masters, who is a former managing director at JP Morgan Chase & Co, also looked into

the application of blockchain technology. Blyth Masters is the current CEO of Digital Asset Holdings that

managed to come up with a $60 million funding and is now testing the application of Blockchain to

settle transactions faster.

Still a risk

Even if Bitcoin becomes legalized, there are still other risks that users will have to look into. For instance,

the biggest perceived threat is to have a parallel cryptocurrency that can be used as a substitute for

Bitcoin. Ethereum and Litecoin are among the top virtual currencies today that are starting to increase in

following. However, for its diehard supporters, they argue that Bitcoin enjoys the first-mover privilege.


There are a lot of potential benefits to what Blockchain technology and Bitcoin can offer to the table.

That is despite the fact that it is a direct challenge to the state’s monetary authority. However, is the

government really smart enough at this point to just regulate Bitcoin? It is of best interest of everyone

especially for regulators to avoid confrontations against Blockchain technology.

What Bitcoin offers is an idea that is outside the paradigm of your usual fiat currency. Though it

operates in a legal grey area in a lot of countries, it looks like it is here to stay.

However, if you have plans to use Bitcoin or if you ever plan to invest on this cryptocurrency, it is always

a wise idea to be aware of legalities. Keep in mind that laws may change across the border and

depending on the decision of law makers. For now, enjoy trading and transacting on Bitcoin since there

are no laws that can stop you from doing so.

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