The Legality of Bitcoin In the USA
October 22, 2020
Cryptocurrencies have become quite popular in the past couple of years. Being a crypto enthusiast and living in America, you might have wondered, is Bitcoin legal in the USA?
In the earlier days, with increasing illicit transactions in the Silk Road market in 2013, the FBI had to shut down its operations. But in 2014, Bitcoin was declared taxable by the Internal Revenue Service (IRS) in the USA.
Bitcoin is one of the most popular cryptocurrencies in the market. It was launched in 2009, by a mysterious entity, Satoshi Nakamoto. On the crypto exchange, 1 BTC is worth around $10,365 (at the time of writing this article).
With Bitcoin being legal in America, there’s a lot you can do with it. It opens up a new financial dimension that is not prone to market changes, and not under the control of the government or even remotely affected by government regulations. You can pay for goods and services with Bitcoin, purchase Bitcoin from various crypto exchanges, or even participate in crypto trading.
We will talk about Bitcoin being safe for users and its legality in America. We will also have a look at tax regulations on Bitcoin.
Is Bitcoin safe and legal in America?
The Internal Revenue Service (IRS) of the United States showed an interest in Bitcoin and issued various guidelines back in 2014. The IRS issued Notice 2014-21 that provides information about taxation on virtual currencies. Also, in 2020, the IRS issued a new tax form that requires taxpayers to report their engagement in virtual currency transactions in 2019.
The Commodities Futures Trading Commission regulates virtual currencies as commodities. The Securities and Exchange Commission also requires US citizens to register any virtual currency traded in the US.
The IRS treats Bitcoin as property and requires users to track their profit and losses on the virtual currency.
The Consumer Financial Protection Bureau (CFPB) also released a consumer advisory in 2014 to warn the citizens of the risks of virtual currencies. It talked about hackers, scammers, loss of cryptocurrency due to losing private keys, and weak regulations.
Bitcoin is known to have a public ledger with a record of all the transactions. Once you link an address with an individual, you can view their other transactions and crypto balance. This takes away a huge part of user privacy and thus reduces the possibility of illegal activities.
However, people tend to launder money using Bitcoin, and this is so prevalent that there is a website called bitlaunder.com. Although Bitcoin is not entirely anonymous, its pseudo-anonymity makes it difficult for the government to detect financial crimes such as money laundering and more.
There exist algorithmic methods that can make the network anonymous. This way, you won’t know the value of Bitcoins transacted, and you won’t be able to link the public address to an individual. Such software and programs further aid illegal activities involving virtual currencies.
However, Bitcoin‘s decentralisation is both advantageous and disadvantageous. With no government controlling this cryptocurrency, people can easily move assets from one country to another. Due to this concern, some nations have already placed a ban on cryptocurrencies.
It is quite different from traditional currency and also safer in many ways. Hackers cannot exploit your bank account or credit card details and gain access to your cryptocurrency.
How can I buy Bitcoin?
If you are looking to purchase or trade Bitcoin, you can head over to Zipmex. Zipmex is the leading crypto exchange in America. Although it is a global exchange, it provides local support and the lowest prices.
Zipmex is also popular for its immediate deposits and fast trading capacity. The exchange provides an easy-to-use interface for all users. All you need to do is register an account on the website, and you can buy and sell bitcoin online.
Do you pay tax on Bitcoin?
Bitcoin is a digital currency that uses a cryptographic encryption system. Any central bank does not print it. Bitcoins are generated by mining, which is a process taken care of by powerful hardware or computers. People can mine bitcoin or purchase it from exchanges.
Although Bitcoin is a decentralised cryptocurrency, it is no less than the leading world currencies such as the US dollar or the Euro. In the beginning, Bitcoin was used for transactions to avoid tax obligations. But the governments caught on, and they realised that Bitcoin could be used for illegal activities.
Many tax authorities around the world have tried to bring Bitcoin under the tax radar. Bitcoin is considered as an asset or intangible property. The US Internal Revenue Service (IRS) and many other countries treat Bitcoin in the same manner.
Governments are forcing regulations where the citizens have to report their virtual currency transactions no matter how small the value. The following bitcoin transactions are taxable:
- Selling bitcoins that you mined personally to a third party.
- Selling bitcoins that you purchased from someone to a third party.
- Making use of bitcoins, mined or bought from someone to purchase goods or services.
Transaction bitcoins that you have mined are taxed as personal or business income whereas bitcoins that were bought from someone are taxed as investments in an asset.
If bitcoins are held for less than a year, then you are subjected to short-term capital gains tax. Whereas holding bitcoins for more than a year makes you applicable for long term capital gains.
Bitcoin hasn’t been illegal in America ever since it was declared taxable by the IRS in 2014. However, the taxation of Bitcoin isn’t as easy as it seems. It is difficult to conclude the fair value of the cryptocurrency on purchases and sales.
Although Bitcoin is one of the most popular cryptocurrencies in the market, it is quite volatile, and there are huge price fluctuations within a single day.
With newer crypto users, there can be concerns regarding the legality of cryptocurrencies. People do not want to lose their money over illegal and fraudulent schemes. There have been cases where people have invested in fraudulent cryptocurrencies and lost all their money.
Investing in Bitcoin is quite similar to investing in an asset, and that is how tax agencies see it. Even though the cryptocurrency is virtual and decentralised, the government has found a way to keep it under some form of regulation. Some countries consider Bitcoin a threat to their financial ecosystem, whereas it is built to make it stronger and more efficient.