Legality of cryptocurrency always seems to bring up lots of doubts. I figured its time we put put some of them to rest.
Out of 251 countries in the world, 110 have declared the use of cryptocurrencies to be legal. Others are still determining their stance, while some allow for restricted use. Very few countries have declared them illegal.
Now, this in itself sounds like a bunch of simple facts. However, the reason why the legality of cryptocurrency is so confusing to people is that different countries classify it differently. To understand how different countries allow the use of cryptocurrencies, let us understand first what those uses mean:
- Legal tender: A legal tender refers to currency that is recognized and used in a country. For instance, in the United States, this would be the dollar.
- Barter trade: The process of trading goods or services for another set of goods or services.
- Commodity: A commodity, in economic terms, is an item with fungibility. It can be sold for money. Traditional investments, such as mutual funds, are considered commodities.
With the growing market capitalization of cryptocurrencies with significant price movements and a surge of new tokens, most world authorities are beginning to take more substantial calls on what their country’s stance on cryptocurrency is. While using cryptocurrencies is legal in many countries, Japan is the only one to use Bitcoin as legal tender.
Does this mean other countries do not use cryptocurrencies for payments?
Not at all! As you can see from the map above, cryptocurrencies are highly accepted forms of payments. Countries like USA, Australia, Europe, and Canada all allow citizens to pay for goods and services with cryptocurrencies.
So what’s the difference between legal tender and a commodity that can be used as payments?
When a commodity is considered legal tender, it means that there are laws in place that can protect the consumer from being taken advantage of. But just because there are no protective laws in place, does not mean that citizens of other countries cannot use cryptocurrencies for payments.
The reason behind not declaring cryptocurrencies as legal tender has little to do with its volatility. Institutions like the European Central Bank state that cryptocurrencies are not mature enough for effective regulations to be put in place – which is pretty fair. Considering the fact that the use cases of cryptocurrencies (though already significant) are growing and being defined, placing restrictions and regulations on the same so early in the game does not make sense.
So, if your country has said that cryptocurrency is not legal tender, do not shy away from investing in the same. You will not be committing a crime by trading and investing in them – unless your country has categorically declared that anything to do with cryptocurrencies is illegal (like Bangladesh).
Different countries allow for the use of trading cryptocurrencies online and investing in them the way one would invest in any other financial product. Their high ROIs have been inspiring people to invest in them for a while now. For instance, India does not recognize crytocurrencies as legal tender, however its citizens are free to invest in them and grow their portfolios. The same is the case in Vietnam.
Why are so many countries averse to legalizing its tender?
Various governments are tackling hard questions regarding the use of cryptocurrency, which is why in spite of its legality, their stance towards the same is ambivalent. Some of these questions include:
- Who will monitor this currency? Central banks or regulation authorities?
- Can the anonymity behind owning cryptocurrencies lead to illegal activities?
- If the current financial systems rely on debt and credit, how will this work with cryptocurrencies?
- Since older laws in the constitution do not allow for such currencies, does that mean laws should change?
To be fair, these questions are all valid. Cryptocurrency and its applications are relatively new and it’s understandable for governments to exercise caution instead of jumping into the deep end of the pool.
Legal Status of Cryptocurrencies in India
A lot of people got confused and misunderstood the Reserve Bank of India ruling dated April 06, 2018 to believe that RBI had banned cryptocurrencies through this ruling which you can read here – Reserve Bank of India . It is important to note that RBI did NOT ban cryptocurrencies in general. In fact, it’s perfectly legal to own, invest and trade in cryptocurrencies in India as we speak today. However, what RBI did was to prohibit any RBI regulated entities like banks, payment gateways etc to provide services to individuals or companies dealing in cryptocurrencies. This should not be misconstrued as banning of cryptocurrencies at all. This step was taken by RBI to restrict the fast growing cryptocurrency trading space to allow them time they to come up with a plan to organise and regulate cryptocurrencies, their trading and ownership in India.
Before this ruling as well, the RBI had repeatedly through its public notices on December 24, 2013, February 01, 2017 and December 05, 2017, cautioned users, holders and traders of cryptocurrencies, including regarding various risks associated in dealing with such cryptos. That is because a lot of ponzi schemes had cropped up in various parts of India in the name of bitcoin investments guaranteeing returns to investors which were obviously a hoax and led to a lot of innocent people losing money.
What does this all mean for an average citizen?
It means that financial structures are being (and will continue to be) disrupted at present. With a host of applications for blockchain technology and cryptocurrency being used and recognized by countries all over the world, it is only a matter of time before cryptocurrencies become more and more mainstream. Think of it this way: in the 1950s, when credit cards were invented, they were just a cool new way for people to pay restaurant bills (they were invented by the Diners Club in America, which is why their application was so focused on the world of restaurants). Visa came out with credit cards as we know them 8 years later in 1958. Even though people initially did not trust this new form of payment (as it was with money they could not physically see or touch – just like cryptocurrencies), it became the norm sooner than people realised.
Do you think twice before swiping your card for any purchase? Or, in a more updated sense, do you think twice before making UPI payments? Consider this widespread acceptation to be the future of cryptocurrencies.
How soon that will come, though, only time can tell!