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Is Bitcoin Legal and Safe?

In partnership with CCP.

2022-03-01

Pictures: Pixabay

Bitcoin has increasingly faced criticisms over its legality and safety for transactions. Some critics claim Bitcoin is an unregulated currency with numerous risks that could quickly destabilize global economies. They also say its decentralization is a loophole, facilitating financial crimes such as money laundering and fraud.

Others also argue Bitcoin is a speculative asset, unsafe to operate as a transaction currency or an investment. The regulations apply to individual crypto users and crypto businesses like bitcoin profit.

Meanwhile, Bitcoin enthusiasts maintain it is a legitimate means of payment and asset, recognized and accepted worldwide. Bitcoin's global adoption has continued to grow despite the criticisms about its legality and safety. So, is Bitcoin legal and safe? Here, we explore the intricacies of Bitcoin's legality and safety. 

Bitcoin's Legality 

Satoshi Nakamoto invented Bitcoin to operate as a decentralized currency, without ties to any government or central authority. The goal was to provide an alternative financial instrument, not subjected to political or institutional influences. While that has impacted blowback from some governments, several states, regions, and countries accept and recognize Bitcoin. 

As of 2021, Bitcoin was legal in many developed countries worldwide, including the USA, UK, and Japan. Bitcoin is currently a legal tender in El Salvador. However, its legal status still varies significantly across developing economies. China heavily restricts Bitcoin, but it does not criminalize holding it. India has banned its banks from transacting crypto, but their legal status remains unclear. 

The disparity in the laws across countries means you should look into the specific rules that apply to crypto in particular countries. Several governments describe Bitcoin as property, meaning it could also be subject to other laws that apply to ordinary assets in countries where it is legal. Taxation is one of the areas where most people are likely to run into problems.

Most countries treat Bitcoin as an investment rather than a transaction currency. That means you will have to report all your Bitcoin investments and pay tax on the earned profits, subject to the prevailing tax laws. For instance, the United States tax agency, IRS, has issued new guidelines requiring taxpayers to declare all their cryptocurrency engagements.

Bitcoin exists in an unregulated market, without any central authority to regulate its supply and usage. Instead, it runs on a peer-to-peer blockchain network. Thus, users do not need banks or money processors to transact. Besides, Bitcoin users' public addresses do not contain too much personal information to reveal their real-world identities. 

Bitcoin's perceived anonymity has impacted concerns from some governments and regulators, saying it could facilitate illegal activities, including fraud, money laundering, drug trafficking, and terrorism funding. However, there is no direct link between Bitcoin and any criminal activity. Besides, various ways now exist for law enforcement authorities to track illicit Bitcoin transactions and the entities or individuals involved. 

Bitcoin's Safety 

Crypto is a lucrative market, attracting both investors and criminals. Crypto-related crimes such as hacking and fraud have undoubtedly increased over the recent years, raising concerns over Bitcoin's safety. Others have also questioned its safety as an investment, citing its frequent and significant value fluctuations. 

Nevertheless, many experts applaud Bitcoin as a safe investment. That's because of Bitcoin's underlying blockchain technology. Bitcoin runs on a distributed network of random nodes in different parts of the globe. Besides, its blockchain verifies and validates all the users' public addresses and transaction histories on an irreversible public ledger.

And this makes manipulating Bitcoin transactions extremely difficult for anyone, ensuring more excellent safety. 

Overall, Bitcoin faces several legality and safety concerns. However, it remains a legitimate and safe transaction currency and store of value, recognized worldwide.