The legal status of the most popular virtual currency, Bitcoin, has been a subject of heated debate around the globe in the past few years. The legal controversies the cryptocurrency raises in various jurisdictions continue to change over time. For instance, while some countries consider Bitcoin as a legal currency in all respects, others have banned it completely while others have limited the virtual currency’s legal standing within their boundaries.
Regulation creates Legal Restrictions
The legal framework on which the Bitcoin is founded may offer some answers as to why some countries take the extreme measure of banning the currency altogether. The laws governing the use and production of Bitcoin are exceedingly liberal as far as typical monetary regulation mechanisms are concerned. For instance, virtually no oversight exists as to its supply. In fact, the currency is created on basis of an algorithm designed by the cryptocurrency’s inventor.
Quite literally, Bitcoins can be created out of thin air. Aspects such as economic health and government policies do not directly affect the supply of Bitcoins. Computers create more Bitcoins by solving complex mathematical problems whose solutions are rewarded through Bitcoins. However, the production of Bitcoins increases at a decreasing rate and will eventually stop altogether.
Moreover, Bitcoin regulations allow the currency to be used without the legal restrictions that apply to traditional currencies in the extant financial systems. Unlike other currencies, Bitcoin is not regulated by a central bank. Neither does the currency undergo the rigorous regulation that exists in the global financial system. Consequently, its existence and use is not well monitored, which is a concern for many countries due to increased susceptibility for users engaging in illegal activities.
Banning of Bitcoin
Many of those opposed to the use of Bitcoin see the questionable legal framework as an indication of its inherent instability and inappropriateness as legal tender. Some countries are suspicious of the currency’s ability to circumvent oversights that apply to use of other currencies.
Still, some central banks have a problem with the fact that the currency is not based on traditional laws regarding regulation, creation, and use of currency, which they fear could result in untold problems to the global financial systems. All these factors have contributed to some countries taking cautionary measures regarding the currency while others have wholesomely banned the use of the currency.
Countries that Ban Bitcoin
Iceland is among the short list of countries that have banned the use of Bitcoin. Capital controls were established in 2008 to protect the krona. The same controls resulted in buying and selling of Bitcoin within Iceland to be illegal, a statement that has been confirmed by the Icelandic Central Bank.
In Asia, China and Thailand have effectively banned the currency. Thailand’s central bank refused to offer Bitcoin a license, which resulted in Thai Bitcoin exchange being shut down. Additionally, a ban was imposed on buying and selling of Bitcoin in Thailand.
In India, the popularity of the currency is on a downward spiral due to financial regulations and a decreasing number of operators willing to transact in the currency. After warning the public of the potential dangers of the currency, the country had also raided and shut down Bitcoin exchanges within the country. In Korea, the Bitcoin was rejected as a genuine currency, with the authorities arguing that the currency’s instability does not make it worth recognition as money.
In the past few months, Russia has been attempting to ban Bitcoin. Citing a law passed in 2002, the country declared the use of virtual currencies illegal as the law prohibited introduction of other monetary units and money substitutes. Furthermore, the government has declared that the use of Bitcoin will be considered potentially suspicious due to its association to unlawful activities.
Germany does not currently recognize the currency as legal tender. Elsewhere, in Taiwan, a move to install Bitcoin ATMs was faced with strong opposition by the Financial Supervisory Commission, which has vowed to stop any such attempts in future.
The laws that govern the creation and use of Bitcoins are very different from those that apply to traditional currencies. The generation of the virtual currency is based on cryptography rather than economic policies while its transactions allow the users to circumvent regulations that govern use of normal currencies. In addition to these regulatory factors, the inherent risks that apply to the Bitcoin use have resulted in some countries banning the currency’s use.
For instance, the currency has been linked to illicit activities and glaring security issues resulting in loss of billions of dollars. Some countries do not believe that the risks permit the recognition of Bitcoin as a virtual currency, let alone its use within their financial systems. Some countries that have banned the currency include China, Thailand, and Iceland.