In the vast majority of nations, bitcoin is not recognized as legal money. El Salvador was the first country to use it as legal cash, although the move was controversial and sparked condemnation from the International Monetary Fund. Because of Bitcoin’s high volatility compared to a stable fiat currency, governments are hesitant to recognize it as cash. Although Bitcoin’s legitimacy as money is generally accepted, it is more often seen as a speculative investment.
Learning About Legal Tender
The term legal tender refers to a kind of currency that is sanctioned by the law of a particular nation or region to pay debts. The term “legal tender” is often used to refer to the country’s official currency. Due to the Dollar’s status as the country’s legal money, all transactions involving the judiciary, taxation, and the public sector must be completed in dollars.
While private companies are free to accept any currency they see fit, all government agencies must take only the US dollar by law. The legal tender may be issued by the national treasury or central bank. Money in circulation in the United States originates from the United States Treasury and the Federal Reserve. Every bill printed has the words “This note is legal tender for all obligations, public and private” in small print at the bottom.
Dollar amounts stored electronically, such as on a credit card, are not equivalent to the physical cash that may be spent. A MasterCard balance denominated in US dollars solely reflects the legal money that the Federal Reserve has issued. Investing in a country is easier if its currency is the lawful money of a larger, more stable economy.
Some Countries Where Bitcoin Is Legal
Since 2013, the Financial Crimes Enforcement Network (FinCEN), part of the U.S. Treasury Department, has released recommendations on Bitcoin. According to the Treasury, Bitcoin is a “convertible currency” since it can be exchanged for actual money. Bitcoin exchanges and payment processors are examples of businesses that meet the legal definition of “money services” under current U.S. law.
Like its southern neighbor, the United States, Canada continues to take a favorable position toward bitcoin. The Canada Revenue Agency (CRA) classifies Bitcoin as a commodity for tax reasons. Earnings from Bitcoin transactions are treated as either company income or capital gains and must be reported as such. Exchanges in virtual currencies are categorized as “money service companies” in Canada.
According to the Australian Taxation Office, Bitcoin is a valuable financial asset subject to taxation under certain circumstances. Capital gains taxes are triggered when Bitcoin is used for transactions like buying things or exchanging for other currencies or gifts. Also, for tax reasons, you should keep track of every Bitcoin purchase or sale you make.