bitcoin legalities

Law enforcement agencies, tax authorities and legal regulators have taken a strong interest in bitcoin and trying to figure out how to fit cryptocurrency into their current framework.

Bitcoin has proven to be a combative issue for regulators and law enforcers, both of which have targeted the digital currency in an effort to control how it’s used. It’s still early on, but a lot of legal authorities are still fighting to understand the cyrptocurrency. Through all the cloudiness, one question still moves to the forefront: Is bitcoin legal?

The answer is, yes, contingent on what you’re doing with it. We have provided a guide below to the extensive legal landscape around bitcoin.
What are the fears surrounding bitcoin?

Tensions rise for government agencies over the implications of bitcoin, as it has people have the ability to use it anonymously, and is in result a potential risk for money laundering. Specifically, law enforcers seem to be worried about the decentralized nature of the currency.

As early as April 2012, the FBI released a document highlighting its fears around bitcoin specifically, creating a distinction between it and centralized digital currencies such as eGold and WebMoney. It voiced worries that while US-based exchanges are regulated, offshore services may not be, and could be a harbor for criminals to use bitcoin for illicit activities without the ability to be tracked.

Bitcoin was the only form of currency accepted on Silk Road, an anonymous marketplace that was only accessible over the TOR anonymous browsing network, and which was monitored tightly by the FBI in October 2013. Silk Road was mainly used to sell goods that are illegal in a lot of countries, including narcotics. This enticed US Senator Charles Schumer to order the site to close, openly connecting it to bitcoin, which he named it as a ”surrogate currency”. The US Drug Enforcement Administration halted bitcoin from a US resident for buying a controlled substance in June 2013.
Who Regulates Bitcoin?

Regulators are different per-country basis, but you can anticipate seeing national financial regulators increase their interest in bitcoin and other cryptocurrencies, potentially.

Regulators will vary on a per-country basis, but you can expect to see national financial regulators interested in bitcoin and other virtual currencies, possibly along with regional regulators at a sub-country level.


In the United States, the Financial Crimes Enforcement Network, which is an agency within the US Treasury Department, took the lead. It published rules about the use of virtual currencies. FinCEN’s March 18, 2013 guidance expressed the circumstances under which virtual currency users could be considered as money services businesses (also commonly known as money transmitting businesses or MTBs). MTBs must enforce Anti-Money Laundering (AML) and Know Your Client (KYC) measures, making it aware the people that they’re doing business with.

The US Commodity Futures Trading Commission, which oversees financial derivatives, hasn’t announced regulation yet, but has made it clear that it could if asked upon to do so.


The US Securities and Exchange Commission (SEC) hasn’t administered clear regulations on virtual currencies, but its Office of Investor Education and Advocacy issued an investor alert to warn people about fraudulent investment schemes involving bitcoin. Specifically, it warned of Ponzi schemes, after charging Texas resident Trendon T Shavers founder and operator of Bitcoin Savings and Trust, with supposedly raising 700,000 bitcoins by promising investors up to 7% weekly interest.

Legislative branch

The SEC case has made the government consider bitcoin’s legal status. Shavers had made arguments that he could not be prosecuted for securities fraud because bitcoin wasn’t classified as money. However, Judge Amos Mazzant released a memorandum debating that bitcoin can be used as money.

In August 2013, the US Senate wrote to various law enforcement agencies, asking about about the threats and risks relating to virtual currency. The letters included one to the Department Of Homeland Security, worrying about the lack of a paper trail for regulators and enforcement agencies to follow for virtual currency transactions. It requested policies and guidance connected to the treatment of virtual currencies, and information about any continous strategic efforts in the area.

November gathered feedback from the agencies. The Department of Homeland Security was the most concerned about the criminal threat from illegal use of bitcoin, while the Department of Justice, the Federal Reserve and the Department of Justice all recognized the legitimate uses of virtual currencies. The SEC debated that “any interests issued by entities owning virtual currencies or providing returns based on assets such as virtual currencies” were classified as securities and thus fell under its remit.

United States Regulator

Every state in the U.S. has their own financial regulators and laws, and each has their own approach to bitcoin, respectively. California and New York have been mainly aggressive in their chase of bitcoin-related organizations, for instance, while others, such as New Mexico, South Carolina, and Montana, don’t regulate money-transmitting businesses. We’ve added a list of states and their approaches to money transmitter laws here.

In May 2013, California’s state financial regulator pubished a letter to the Bitcoin Foundation, a nonprofit organization created to promote bitcoin, forewarning it that it may potentially be a money transmission business, and threatening people there with potential fines and incarcination.

Next, in August 2013, the New York Department of Financial Services handed out subpoenas to 22 bitcoin-related companies, although these letters were more appeasing, asking for a discourse to develop the right regulatory guidelines for the digital currency industry. Since that time, New York has acted more optimistically, with the state’s Superintendent of Financial Services, Benjamin M. Lawsky, announcing that it will now accept applications for digital currency exchanges

Lawsky signaled that these businesses would be regulated under new New York regulation, which he promised to implement by the end of the Q2 of 2014.


A number of banks have seized accounts owned by people operating bitcoin exchanges. This was because the bank was dissatisfied that the company involved did not have money transmitting business (MTB) account.

The US Senate confronted the issue of banking and federal regulation in a set of hearings held in November. The hearings were investigative in nature and may not lead to legislation, though feedback from agencies included responses that there were legitimate uses for the coin.

The legality of bitcoin is based on who you are, and what you’re planning to do with it.


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