With the growing popularity of the Bitcoin system as the leading virtual, de-centralized currency of the world, there has been a subsequent rise in regulatory concerns about its possible impact on real currencies, tax implications, potential for frauds and criminal use.
This has led many countries to issue legal ordinances or guidelines for Bitcoin use in their respective jurisdictions. Let us have a look at the major countries of the world where Bitcoin has run into regulatory issues:-
The hacking of Australian Bitcoin Bank in October 2013 which led to losses of over $1Mn Bitcoins raised security concerns over Bitcoins in Australia. The Reserve Bank of Australia and the Australian Taxation office have indicated that they want to tax the virtual currency in the same way as any commercial transaction.
The Central bank of Bangladesh has banned the use of virtual currencies including Bitcoins in September 2014, making it a punishable offence under Bangladesh’s strict anti-money laundering laws.
It is one of the few countries to have enacted a law pertaining to creation of electronic currencies and payment systems. There have been no prohibitions put on Bitcoins as such.
The Central Bank of Bolivia (BCB) has banned the use of bitcoin citing regulatory concerns. The BCB’s belief is that the cryptocurrency can lead to tax evasion by business entities.
Bitcoins are not considered legal tender implying no legal recognition in Canada. Canada’s revenue agency plans to tax bitcoins as per tax rules pertaining to Barter and Speculative transactions.
China is one of the few countries to outrightly restrict Bitcoin use and prohibit financial institutions and banks from dealing in Bitcoins. In a December 2013 notice by the Central Bank of China, Bitcoin was dubbed as a “Virtual Commodity” and its use as a currency discouraged.
Equador has banned Bitcoin and has instead opted for creation of a new state run currency and an electronic money system which will be backed by the assets of Central Bank of Equador.
There has been considerable debate in the European Union on the classification of Bitcoin. The October 2012 European Central Bank report on virtual currency schemes touches upon the legality of Bitcoins under the existing EU laws. The European Banking Authority has warned against the risks of using Bitcoins stating that is not regulated.
Specific instructions on the use of virtual currencies like Bitcoins are applicable in Finland. These have been laid down by Vero Skatt (The Finnish Taxation Authority). Any gains in the transactions involving Bitcoins is subject to capital gains tax.
There is no law in Hong Kong which directly regulates the use of Bitcoins or any other virtual currencies. However, the government is monitoring the use of Bitcoin closely to prohibit its use in unlawful activities like money laundering and fraud.
There is no explicit framework for regulating or prohibiting Bitcoin use in India. However, the Reserve Bank of India (RBI), India’s central bank has issued a notice citing money laundering and security concerns in the usage of bitcoins following which India’s largest Bitcoin trading platform was forced to shut down.
Israeli Tax authority is considering taxing the gains made through Bitcoin trading. There have even been cases of extortion request for payment of Bitcoins made on Israeli banks.
The central bank of Kyrgyzstan – The National Bank of the Kyrgyz Republic has banned the use of digital currencies and Bitcoins citing lack of centralization, risky nature of the currency and legal issues.
Russia’s central bank – Bank of Russia, considers Bitcoin as money substitute which can be used for money laundering and for funding terrorist activities. Hence the use of bitcoins in the Russian Federation is restricted.
Financial Supervisory Commission, the capital markets regulator of Taiwan has raised its concerns over the volatile, speculative nature of the Bitcoin and as a result it is opposed to installation of Bitcoins ATMs in Taiwan.
Bitcoin is currently unregulated in the United Kingdom. Capital gains tax is applicable on profits or losses made through Bitcoin trading whereas VAT is applicable for any goods sold in exchange for Bitcoins.
The U.S has been perhaps the most welcoming of all nations towards virtual currencies like Bitcoin. No final rules exist yet to regulate Bitcoins. However, there are many new rules being tabled which propose a regulatory framework governing Bitcoins.
The Bottom Line
As can be seen from the Bitcoin regulations across various countries in the world, there exists no clear cut consensus on how to proceed with developing a broad regulatory framework which addresses security concerns without undermining the innovative aspects of the Bitcoin currency. Regulations are bound to increase with the growing interest in bitcoin however, the path which they pave for Bitcoin in the future remains to be seen.