Is Bitcoin legal? And can Bitcoin be banned?
Now that Bitcoin is becoming bigger, more and more governments are dealing with crypto. In the Netherlands, for example, the CPB director wants Bitcoin to be banned, as reported in this article, while within the European Union they are working on clearer regulations. But can Bitcoin actually be banned, and in which countries is Bitcoin officially illegal?
Can Bitcoin be banned?
Bitcoin can be banned and is already illegal in some countries. When Bitcoin is banned, financial institutions in the country cannot offer cryptocurrency.
However, they cannot simply turn off Bitcoin or the blockchain. Even with a total ban, people can still buy and sell Bitcoins by applying smart tricks. For example, you can buy Bitcoins peer-to-peer (so by trading with other people) or use a foreign crypto exchange.
Bangladesh is trying to discourage users from buying cryptocurrencies by imposing strict penalties: you can easily end up in prison for multiple years! However, no high penalties have been imposed in the country so far. It is difficult to prove that someone owns crypto given its anonymous nature.
Why do some governments want to ban Bitcoin?
Lack of control
Governments like to be able to control all residents. Cryptocurrencies within decentralized networks are very difficult to control. For example, how can a government keep track of taxes paid?
Governments are also concerned about criminal activities associated with Bitcoin. Criminals use the currency, for example, to launder money or trade illegal products. Due to its anonymous nature, governments can hardly take action against this.
The government cannot conduct monetary policy with a cryptocurrency either. In difficult economic times, the government regularly prints money, but this is not possible with Bitcoin due to its decentralized nature.
In which countries is Bitcoin illegal?
- Algeria: It has been illegal to buy, sell, or possess crypto there since 2018.
- Bangladesh: Crypto policy in Bangladesh is contradictory. Officially, crypto is illegal, and you can go to jail for 12 years for it. At the same time, the government has introduced a new blockchain strategy that could change this in the future.
- Bolivia: Bitcoin & other crypto have been banned since 2014.
- China: The Chinese government is afraid that Chinese people will use crypto to bring capital out of China. Bitcoin is currently illegal in China.
- Colombia: Financial companies have been banned from offering crypto since 2014.
- Egypt: Crypto has been seen as haram there since 2018, and restrictions have been imposed by the government since 2020.
- Indonesia: Since 2018, crypto cannot be used for making payments.
- Ghana: Crypto is illegal, but the government is interested in blockchain.
- Iran: Iran encourages Bitcoin mining as a way to bypass sanctions. However, the government prohibits people from selling crypto to foreign countries and wants crypto to be sold only to the government. Mining crypto also caused problems with the country’s energy supply.
- India: The government has become increasingly negative towards crypto and plans to ban all crypto.
- Iraq: Crypto is officially illegal in the country, but this has little effect.
- Mexico: Since 2021, crypto is no longer considered a currency. However, this does not stop its popularity: Bitsos has over a million registered users.
- Nepal: Bitcoin has been illegal in Nepal since 2017.
- Russia: Russia has mixed feelings about crypto. Bitcoin mining is becoming more popular, but Bitcoins from illegal sources can be seized by the government.
- Turkey: It is no longer allowed to use Bitcoin for buying and selling products in Turkey.
- Vietnam: Residents are allowed to possess Bitcoins, but not use them to pay for goods.
Prohibition on Bitcoin in Europe or the US?
However, don’t be afraid of countries that make Bitcoin illegal. A complete ban on Bitcoin is highly unlikely in the United States and Europe. This is mainly due to the efforts of various cryptocurrency lobbying groups.
We are also seeing a positive shift in sentiment among policymakers towards digital currencies. This means that we are not likely to face a ban here in the West. Despite this, it is theoretically possible for governments to make it difficult to obtain and use Bitcoin without officially banning it.
The risk remains that countries such as the US or even the Netherlands may crack down hard on cryptocurrencies like Bitcoin by forcing companies to comply with strict regulations.
A BTC ban is difficult to enforce
Although it is possible for a government to try to ban Bitcoin, it will be almost impossible to enforce this ban. Without strict supervision of the internet, users can still buy Bitcoins through alternative sources.
In our country, there is a lot of freedom on the internet. The government cannot (fortunately) just watch what you do. This means that our government is not likely to ban Bitcoin quickly.
Even with a ban…
Even when a government bans cryptocurrencies like Bitcoin, it can be difficult to stop them. Remember that a crypto coin is completely decentralized and therefore very difficult to ban.
According to a 2019 report by We Are Social, about 4% of internet users in Egypt currently own cryptocurrencies, despite it being officially banned.
In countries with strict internet control, people can still find ways to access cryptocurrencies. Therefore, it is incredibly difficult to enforce a ban on Bitcoin when practically anyone can access the Bitcoin blockchain via the internet.
Is Bitcoin illegal?
Bitcoin is not illegal in the Netherlands, and fortunately, this is the case in most countries. Bitcoin is ultimately just another way to make payments, similar to fiat currency.
However, Bitcoin is often used for illegal purposes. If you use Bitcoins for money laundering or tax evasion, this is still a crime.
Unlikely to be banned, but more regulation expected
It is my expectation that Bitcoin will not be banned in most countries. However, regulations will become stricter: financial regulators are imposing increasingly stringent rules to ensure that Bitcoin is traded responsibly.
For example, in the Netherlands, an exchange must apply for a license from the Dutch Central Bank. This is how the government tries to prevent people from being scammed by malicious parties. Furthermore, you must pay taxes on your Bitcoin holdings, just like any other assets.