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 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.
Is it legal to use Bitcoin? ›
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.
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.
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.
Can Bitcoin be sold for real money? ›
With an online peer-to-peer trade, you can sell cryptocurrency online in exchange for dollars. These transactions are often facilitated by an exchange, and Binance runs a well-known online peer-to-peer platform called Binance P2P.
Is it safe to accept Bitcoin? ›
Despite the higher level of security, more than half of business owners (59%) are still wary of cryptocurrency payments and feel that they are not as safe as credit cards. However, merchants that are already offering crypto transactions generally feel it is a much safer option than other payment methods.
Does Bitcoin require SSN? ›
Yes, you can purchase bitcoin without turning over your Social Security Number in the process. When you buy or sell bitcoin at an ATM, it will not be necessary to produce your SSN.
Is it hard to cash out Bitcoin? ›
One of the easiest ways to cash out your cryptocurrency or Bitcoin is to use a centralized exchange such as Coinbase. Coinbase has an easy-to-use “buy/sell” button and you can choose which cryptocurrency you want to sell and the amount.
Can I cash my Bitcoin for US dollars? ›
Cryptocurrency Exchange: This is the most popular option. You can sign up for a reputable crypto exchange like Coinbase or Binance. Then, transfer your Bitcoin to the exchange and sell it for fiat currency (regular money like USD or EUR). Finally, withdraw the fiat currency to your linked bank account.
Do I pay taxes on Bitcoin? ›
The IRS treats cryptocurrencies as property for tax purposes, which means: You pay taxes on cryptocurrency if you sell or use your crypto in a transaction, and it is worth more than it was when you purchased it. This is because you trigger capital gains or losses if its market value has changed.
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.
Can I transfer Bitcoin to my bank account? ›
Yes, you must find an exchange platform that supports fiat currencies, like USD, EUR, or other currencies of your choice. Buy BTC from the exchange or transfer if you own it in your crypto wallet, then sell BTC for fiat and withdraw the amount to your bank account.
How much does it cost to cash out Bitcoin? ›
Bitcoin ATMs make cash access for your Bitcoin easy, but with a downside: high fees. Here's the fee breakdown: Conversion Fee: Charged by the ATM operator, it's a percentage of your transaction, often 5% to 20%. ATM operator fee: Additional fixed fees, around $2 to $10 per transaction, set by the ATM operator.
Why do people buy Bitcoin? ›
Why do people invest in cryptocurrencies? People invest in cryptocurrencies for the same reason anyone invests in anything. They hope its value will rise, netting them a profit. If demand for Bitcoin grows, for example, the interplay of supply and demand could push up its value.
How is Bitcoin worth money? ›
Like all forms of currency, Bitcoin is given value by its users, supply, and demand. As long as it maintains the attributes associated with money and there is demand for it, it will remain a means of exchange, a store of value, and another way for investors to speculate, regardless of its monetary value.
What is the point of Bitcoin? ›
Bitcoin is a form of digital currency that aims to eliminate the need for central authorities such as banks or governments. Instead, Bitcoin uses blockchain technology to support peer-to-peer transactions between users on a decentralized network.
Is Bitcoin legal or illegal in the 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.
Is it legal to own Bitcoin in the US? ›
Yes, it is legal to use, buy and possess cryptocurrency in the US.
Is Bitcoin trading legal in the US? ›
Bitcoin is not illegal in the U.S. How you can buy it, what services and exchanges you can use and what you can use it for might depend on which state you are in, however.
Can you use Bitcoin for anything? ›
Frequently asked questions about shopping with Bitcoin
You can spend directly with thousands of merchants that accept payments from any crypto wallet, pay for almost anything with the BitPay Card and buy gift cards through the BitPay app or extension.
