As of March 2024, Bitcoin was legal in the U.S., Japan, the U.K., and most other developed countries. But in emerging markets and other areas, its legal status has varied dramatically.
China heavily restricted bitcoin without actually criminalizing holding it in 2019 but has backed off somewhat, licensing certain exchanges to offer bitcoin and ether trading. India banned banks from dealing in bitcoin and left the overall legal status of cryptocurrencies unclear while debating a framework. So, generally speaking, it is necessary to look at cryptocurrency laws in specific countries by checking for updates at the respective regulatory body in the country you're investigating.
Key Takeaways
- As of March 2024, bitcoin was legal in the U.S., Japan, the U.K., and most other developed countries.
- In general, it is necessary to look at laws in specific countries.
- In the U.S., the IRS considers bitcoin and other cryptocurrencies property, issuing appropriate tax treatment guidelines for taxpayers.
- Government and regulator views on cryptocurrency continue to change globally.
Even where bitcoin is legal, most of the laws that apply to other assets also apply. Tax law is where most people are likely to run into trouble. For tax purposes, Bitcoin is usually treated as property rather than currency. However, exceptions exist, such as El Salvador, the first country to recognize Bitcoin as legal tender in June 2021.
IRS Guidance for U.S. Taxpayers
In the U.S., the Internal Revenue Service (IRS) considers bitcoin and cryptocurrency property and has issued guidelines. In 2014, the agency issued IRS Notice 2014-21 to provide information on the tax treatment of virtual currencies. Virtual currency is the term that the IRS uses for cryptocurrency.
In 2020, the IRS added a question on the first page of Form 1040 requiring taxpayers to declare if they engaged in any virtual currency transactions. Since then, it has published additional guidance to clarify taxes and reporting activity in cryptocurrency.
IRS Form 1040 now asks: "At any time during [year], did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?"
Other Legal and Regulatory Issues
Bitcoin exists in a deregulated marketplace, so there is no centralized issuing authority. Bitcoin addresses do not require Social Security Numbers (SSNs) or other personal information like standard bank accounts in the U.S. That initially raised concerns about its uses in illegal activities.
Over the years, Bitcoin's pseudo-anonymity has led to many illicit uses. Drug traffickers were known to use it, with the best-known example being the Silk Road market. It was a section of the so-called dark web where users could buy illicit drugs. All transactions on the Silk Road used bitcoin, but the FBI eventually shut it down.
There are still several issues raging between developers, enthusiasts, and regulators in the U.S. Other countries or unions, like the European Union and Japan, have published and implemented regulations and frameworks.
Defining Bitcoin
The Bitcoin blockchain and its cryptocurrency bitcoin was introduced in 2009 by a person or organization using the alias Satoshi Nakamoto. Bitcoin was intended to be used as an alternative payment method, but there are no physical bitcoins that correspond with dollar bills or euro notes—they exist only digitally.
Blockchains are a type of distributed ledger that is used to keep track of bitcoins. The cryptocurrency can be given directly to or received from anyone with a wallet address via peer-to-peer transactions. Bitcoin also trades on various exchanges around the world, which is how its market value is established.
Bitcoin can generally be transferred anonymously from one country to another on various decentralized exchanges, but some exchanges are not allowed to conduct business in certain countries. Because of this, it is important to be aware of the laws where your Bitcoin transactions take place and understand that even in countries where it is legal, the exchange rate against government-backed currencies can be very volatile.
Is Bitcoin Legal and Legit?
In many countries, Bitcoin is legal. As for it being legitimate, it depends on your understanding and what you think about it. It is used as a payment method in several areas, with one country even declaring it legal tender. In that case, it appears to be legitimate. As far as being an asset class, opinions vary.
Can I Convert Bitcoin to Cash Legally?
In many countries, bitcoin is convertible using recognized exchanges that deal in cryptocurrencies.
Can I Cash Out Bitcoin to My Bank Account?
In most cases, traditional banks do not accept bitcoin. Exchanges generally accept your bitcoin and credit your exchange account, which you can then transfer to your bank account.
The Bottom Line
Bitcoin is legal in many countries, but some, like India, have banned cryptocurrency completely. As time passes, laws and regulations change, so it is possible for a country that has banned them to reverse its stance. With that in mind, it's important to check the current laws of the country where you plan on using bitcoin.
The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimerfor more info. As of the date this article was written, the author does not own cryptocurrency.
FAQs
As decentralized currencies, crypto is not and will likely never become banned in the U.S. Currently, the sale and purchase of cryptocurrency is legal in all 50 states. That being said, the government can – and does – regulate how virtual currencies are taxed and traded.
Is it legal to have Bitcoin? ›
Despite its use for buying goods and services, there are still no uniform international laws that regulate Bitcoin. Many developed countries allow Bitcoin to be used, such as the U.S., Canada, and the U.K.
Can you use Bitcoin as real money? ›
A cryptocurrency exchange is an online platform that allows you to trade or sell your Bitcoin for fiat currency, such as U.S. dollars or other traditional currencies. You create an account on the exchange, deposit your Bitcoin, set up a sell order, and once it's filled, you can withdraw the cash to your bank account.
Is Bitcoin legalized in US? ›
Key Takeaways. As of March 2024, bitcoin was legal in the U.S., Japan, the U.K., and most other developed countries. In general, it is necessary to look at laws in specific countries. In the U.S., the IRS considers bitcoin and other cryptocurrencies property, issuing appropriate tax treatment guidelines for taxpayers.
Can you get in trouble for using Bitcoin? ›
Digital Currency Usage Is Not Inherently Illegal
Individuals and businesses are permitted to use Bitcoin and other similar currencies, although some states such as New York do impose licensing requirements on certain parties.
Can I convert Bitcoin to cash legally? ›
A: You can cash out Bitcoin through exchanges like Coinbase, Kraken, or Binance by linking your bank account, or use Bitcoin ATMs for direct conversion to cash.
How legit is Bitcoin? ›
Still, cryptocurrency itself is not a scam. Its profit potential and technological loopholes may attract those with malicious intent, but there are plenty of legit opportunities to be found.
Can I take my money out of Bitcoin? ›
Bitcoin ATMs are a way to get immediate access to cash using your bitcoins. Bitcoin ATMs do not operate like traditional ATMs. In order to make a cash withdrawal and sell your Bitcoin from the ATM, the machine provides a QR code to which you send your Bitcoin. You simply wait a couple of minutes and receive your cash.
Is it safe to use Bitcoin? ›
Is Bitcoin safe? Bitcoin is the most recognized cryptocurrency, so it's generally viewed as one of the safer investments within the crypto world. As with all cryptocurrencies, however, Bitcoin's price can change dramatically within a short time period.
Is Bitcoin actual money? ›
Bitcoin (BTC) is a cryptocurrency (a virtual currency) designed to act as money and a form of payment outside the control of any one person, group, or entity. This removes the need for trusted third-party involvement (e.g., a mint or bank) in financial transactions.
No. Banks do not accept crypto as fiat currency.
Can USA ban Bitcoin? ›
Although there is nothing that can stop a government or central bank from banning Bitcoin (& a few have already done so), most would not go that far for two reasons: The Streisand effect. A ban on Bitcoin is difficult to enforce.
Can I buy a house with Bitcoin in USA? ›
The most low-tech way to buy a home with cryptocurrency is to convert just enough to dollars to pay for the house. However, you'll want to take tax implications into consideration. Depending on how long you owned the crypto, you may pay capital gains taxes, just as you would if you sold stock.
Does bitcoin track you? ›
While bitcoin transactions are traceable, it is not easy for anyone to directly track your personal identity through these transactions. The blockchain records only the wallet addresses involved in each transaction, not the personal information of the individuals behind those wallets.
What are 2 illegal uses of bitcoin? ›
Most Common Illicit Finance Activities
Illicit finance activity continues to grow in value and variation, especially with the use of digital assets and cryptocurrency. Some of the most common illicit activities in this digital space are money laundering, cybercrime, and consumer scams.
Can police seize your bitcoin? ›
Criminal Forfeiture
A warrant is not the only way for a law enforcement agency to seize bitcoin held by another individual or entity. Bitcoin can also be taken by the government through a process called forfeiture. Forfeiture is the permanent loss of that bitcoin by way of court order or judgment.
Can you actually own a Bitcoin? ›
Several companies offer bitcoin trading. But they vary in terms of whether they offer actual ownership or just exposure. If you're looking to buy bitcoin, a good place to start is with a trading app like eToro or through a crypto exchange like Coinbase or Gemini.
Can you legally buy Bitcoin? ›
Fortunately in United States, you can buy Bitcoin on Coinbase's centralized exchange. Coinbase is the most trusted place for people and businesses to buy, sell, and manage Bitcoin. It's quick and easy. Here's a step-by-step guide on how to buy Bitcoin.
What are 2 illegal uses of Bitcoin? ›
Most Common Illicit Finance Activities
Illicit finance activity continues to grow in value and variation, especially with the use of digital assets and cryptocurrency. Some of the most common illicit activities in this digital space are money laundering, cybercrime, and consumer scams.
Can you actually have a Bitcoin? ›
Bitcoin is an entirely digital currency, but there do exist “physical Bitcoin” products that are usually sold as metal coins imprinted with the information necessary to access BTC on the Bitcoin blockchain.
