Bitcoin Startup Cleared of Breaching Securities Law

The Financial and Consumer Affairs Authority (FCAA) of Saskatchewan, Canada, has cleared a bitcoin startup of breaching securities law.

A decision from the FCAA panel, announced on 22nd October, found that Dominion Bitcoin Mining Company Ltd did not solicit investors, nor offer shares illegally.

Its statement reads:

"It is the determination of that Panel that, notwithstanding the initially apparent validity of the allegations of the FCAA staff, an offering of shares did not at material times exist, and the parties did not engage ... in any breach of the provisions of the Act [The Securities Act, 1988]."

The decision follows a 17-month dispute over claims Dominion's founders – Jason Dearborn, Peter Voldeng and Ronald Gibbonthe – had offered securities from their website, dominionbitcoin.com.

During a FCAA hearing, investigator Harvey White presented screenshots from the site, including a page that read: "By taking part in our offering, you own a share in one of ten provincial companies that own Dominion. That share allows you an equal part in EVERY SINGLE BITCOIN WE EVER MINE."

Another section of the website stated Dominion was accepting "sophisticated" investors from the 10 provinces that make up Canada.

However, the respondents argued that their website was under construction at the time (they allege encrypted data was exposed following a hack) and did not accurately reflect the project's status. In fact, the corporations mentioned on the site did not yet exist – and there were no Dominion securities to sell.

As a result, the founders were cleared. "The Respondents had no clear picture of what an investor might be investing in," the FCAA's document reads.

Future plans

At this point, little is known about Dominion beyond its name. "We're expecting to actually develop the largest bitcoin mine in Canada," President Voldeng told CBC News last September, while plans to trade the currency are reportedly in the works.

The company – whose domain is now disconnected – said it is unlikely to operate in Saskatchewan. Voldeng said it is also planning to sue the FCAA for libel.

While Dominion has been cleared of all allegations, other bitcoin schemes have been revealed to be highly profitable scams.

Last month, US resident Trendon Shavers plead guilty to securities fraud, having received approximately $4.5m while operating the Bitcoin Savings & Trust (BS&T).

The organisation, which was investigated by the US Securities and Exchange Commission (SEC) in 2013, promised investors 7% returns on bitcoin arbitrage in 2011 and 2012.

Hat Tip: The Globe and Mail

Saskatchewan River image via Shutterstock

Poll: 48% Believe Bitcoin Will Be Worth Over $500 by 2016

Bitcoin enthusiasts are once again bullish on the digital currency's price potential.

A new CoinDesk poll has found that 48% of respondents believe that bitcoin will end the
year valued at more than $500.

That's not to say that others weren't more bearish.

Some 38.7% of bitcoin enthusiasts think the digital currency's price will end 2015 at or near its current levels, with 4,370 of the 11,293 respondents predicting that bitcoin would be valued at between $351–$500 by this time.

Thirty-three percent of those surveyed think that the digital currency's price would rise to $501–$1,000 by 31st December, 2015. This was followed by the the $201–$350 category, which received 10.6% of the votes.

All price predictions can be seen in the pie chart below:

Bitcoin Price Poll Results
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The poll further sought clarity as to how the market had perceived the recent increase in the price of bitcoin.

Most respondents (27.4%) said they did not know what had caused the price movemenet, however, 26.3% of readers attributed the digital currency's surge last week to capital controls in China.

Roughly 20% of those surveyed believed the increase was due to recent positive news coverage on the industry, which has highlighted the rising number of major global financial institutions interested in the technology.

Ten percent of survey takers thought the price increase was linked to the European Court of Justice's ruling that bitcoin was exempt from value-added tax (VAT), which has been widely seen as a recognition of its use case as a currency.

Elsewhere, notable percentages of respondents linked the value rise to investment announcements in industry companies and the launch of New York-based bitcoin exchange Gemini, which is backed by founders Tyler and Cameron Winklevoss.

Dollar image via Shutterstock

Diebold: Bitcoin ATM Attempts Have Been Flawed

The Bitcoin ATM industry is unlikely to last in its current form, according to Devon Watson, VP of global software and strategy at ATM and financial services giant Diebold.

In a new interview, Watson discussed what he suggested was the uncertain future for the bitcoin ATM market, which since late 2013 has manufactured speciality machines for the conversion of physical fiat funds into digital currency. Today, more than 400 bitcoin ATMs are in operation globally, with the number of units doubling in the last year, according to CoinDesk’s Q3 State of Bitcoin report.

Watson, however, believes that bitcoin ATMs have so far relied on a "flawed distribution model", one that while offering benefits to a small market of consumers, is unlikely to develop into a competitive business when compared to more versatile, traditional offerings such as those offered by Diebold.

"[Bitcoin ATMs] provide only one benefit to the customer, whereas the majority of ATMs have a number of different possible transactions and meet a number of needs," Watson told CoinDesk atMoney20/20 in Las Vegas last week, adding:

"I think it is fair [to say] that it is probably pretty difficult to be a one-trick pony."

Watson, who heads strategy and R&D for the $3bn company, went on to say that he believes the business experiment was successful at demonstrating that physical kiosk offerings are still a necessary part of increasingly digital financial services.

Watson said that Diebold has studied how it could use the blockchain for “transactional purposes”, including offering digital currency withdrawals and transfers.

Still, he called investigating such capabilities an "area of interest" for the company, though one that would be determined by the needs of its customers.

“We’re at the stage where banks aren’t adopting [bitcoin] for those use cases, but you have reasonable line of sight to see these things coming together,” he continued.

Should the need arise, however, Watson called implementing the technology "the easy part" for the firm. He was less clear about any internal testing that has gone on at Diebold, but stated that the company had not yet released “any consumer-facing product” using bitcoin or the the blockchain.

“For us it’s about when it might make sense and how,” he said.

Blockchain interest

Like many at the Money20/20 conference, Watson was quick to indicate that Diebold was now more interested in blockchain technology, specifically permissioned blockchains or distributed ledgers where a select number of financial institutions or entities share a transaction network.

Watson suggests he sees such applications as holding the potential to help curb issues surrounding data privacy laws and data security related to payments.

“There’s a lot of interesting opportunity for permissioned systems in general, but there are other technologies, such as coding languages. We think that is interesting to pull into the banking sector,” he continued.

Watson said he believes that the blockchain could fuel use cases related to upgrading legacy financial infrastructures, though he cautioned that advancements on such problems were perhaps unlikely to be easily gained.

“It’s still early, the tech is nascent and these are big complex projects where [those involved] will be risk averse,” he said.

Watson said he has been impressed by the new applications for blockchain-based assets, noting that he was “most excited” when introduced to how property titles could be transferred via these systems during a visit to MIT.

Digital cash

Despite the short-term roadblocks to the technology’s proliferation, Watson said he is more broadly optimistic that new solutions will create alternatives to physical cash.

Such a transition has been top of mind for some time for Diebold, which in July 2013, introduced its cardless Mobile Cash Access solution, which allows consumers to transact with a mobile device at the ATM.

“There’s around $5tn in cash circulating the world, and that cash circulation is inaccessible to payments companies,” Watson said.

Watson predicts such a transition is likely to happen first in the developed world, as he believes these markets have a "better appetite" for new financial tools, citing developments in nations such as Kenya and India, which had to adapt to local challenges.

Diebold’s latest annual report indicates it sees a “significant percentage of revenue” from operations outside the US, earning more than 50% of its revenue in 2013 and 2014 from initiatives in international markets.

“I think it will be highly dependant on region and highly dependant on the customer base that that the financial institution is targeting, financial infrastructure benefits from tapping into bitcoin and the regulatory environment being open to it,” he explained.

Mass consumer mindset

When asked about the possible paths forward for startups in the bitcoin ATM market, Watson cautioned that despite his pessimism about industry prospects, "the jury is still out" in regards to their long-term success.

Watson said that while no companies serving the bitcoin ATM space had "failed completely", neither had any achieved "resounding success".

As for how he would advise those serving the market going forward, he was general in his remarks, encouraging product managers and company founders to consider everyday consumers when building products.

"It's really difficult as a founder or whoever has the idea to take a concept and really use a lot of empathy to apply the mass consumer’s mindset to what you’re trying to build," he said.

However, he acknowledged the difficulty that comes with attempting to think big given the long expected curve of digital currency adoption, concluding:

"It's going to take a while."

Bitcoin in the Headlines: Press Eyes Skyrocketing Price

Bitcoin in the Headlines is a weekly analysis of industry media coverage and its impact.

Bitcoin is back in the spotlight.

The digital currency's recent price surge caught the attention of journalists across the globe this week, with major publications noting as bitcoin surged past the $450 mark on CoinDesk's USD Bitcoin Price Index for the first time this year, even passing $500 on select exchanges.

You would have thought that the coverage of bitcoin's rally would have ensured that the focus remained on the technology's use as a digital currency, but this was not entirely the case.

As incumbents and pundits looked for reasons behind the market's upward trend, talk of blockchain technology soon resurfaced, with skeptics like JPMorgan CEO Jamie Dimon and IMF chief Christine Lagarde attempting to steer the course of conversation.

Still, it was perhaps investor Tim Draper who best captured the awe and relief prevalent in the industry throughout the week, telling CoinDesk:

"How about that BITCOIN?"

US Justice Department Holds Blockchain Summit in San Francisco

The US Department of Justice (DOJ) convened a first-of-its-kind conference on digital currency and the blockchain in San Francisco today.

According to the agency, the goal of the event was to unite the private and public sector in discussions centered on strategies for limiting cybercrime perpetrated with the emerging technologies.

The unpublicized event, organized by the DOJ’s Digital Currency Task Force and held at the Federal Reserve Bank in San Francisco, saw 175 industry participants engage in panel discussions that sought to emphasize its core theme from the point of view of entrepreneurs, law enforcement officials and regulators.

Though no participants were named in formal release, Twitter images from the event show speakers included Xapo CEO Wences Casares, Coinbase founder Fred Ehrsam and Ripple CEO Chris Larsen, among others.

In remarks, US Attorney Brian J Stretch positioned the event as one that sought to forge a common ground between representatives of the government and the distributed financial technology sector:

“As emerging technologies such as digital currency and blockchains expand into new and legitimate applications, it becomes all the more critical for industry leaders and government agencies to share insights and perspectives in order to combat the illicit use of these technologies.”

Further addressing the need for dialogue was FinCEN Director Jennifer Shasky Calvery, who noted that despite her department’s early efforts to understand the industry, continued discussions are needed due to the evolving nature of the technology.

“We only opened the door for the hundreds of other questions beyond our anti-money laundering perspective,” Calvery said.

The event was previously hinted at by DOJ Digital Currency Crimes Coordinator Kathryn Haun in aninterview with CoinDesk in September in which she spoke at length about the multi-agency task force and its goals.

At the time, Haun sought to stress that the US government was broadly seeking to engage the digital currency and blockchain industry in discussions that would provide clarity on key issues for all ecosystem participants.

Image via Coin Center

Coinbase Seeking to Expand Bitcoin Services to Latin America

Coinbase is seeking to expand its bitcoin buying and selling services to new Asian and Latin American markets in 2016.

In interview at Money20/20, product manager Adam White indicated that the startup, which has so far raised more than $106m in venture funding, aims to be operational in 40 countries next year, and that these regions would be primary areas of focus.

In September, Coinbase announced its first launch in Asia with an expansion to Singapore, though it has yet to make its services available in Latin America.

White said new announcements could come as soon as December or January, and that news was dependant on Coinbase’s ability to meet local regulatory compliance.

"We continue to look at Coinbase as a infrastructure, providing programmatic access to buying and selling."

Elsewhere, White suggested that Coinbase is not looking to launch a private blockchain product for enterprise businesses, as its US competitor itBit did in August.

White said Coinbase was likely to continue to emphasize strategic partnerships with consumer-facing payments companies, as well as firms that have made public investments in the startup.

Coinbase investors include BBVA Ventures, the New York Stock Exchange (NYSE) and USAA, the latter of which recently launched a pilot program that made select Coinbase services available to customers.

The expansion estimate is the latest for the San Francisco company, which had made international expansion a cornerstone of its goals for 2015.

At the time of Coinbase’s $75m Series C round, announced in January, CEO Brian Armstrong forecasted that the company could be available in as many as 30 countries by the year’s end.

Today, Coinbase is available in 32 countries.

Rio de Janeiro via Shutterstock

Medical Records Project Wins Top Prize at Blockchain Hackathon

MedVault, a proof-of-concept that would allow patients to record medical information on the bitcoin blockchain, won €5,000 in prize money at the Blockchain Hackathon this weekend.

The event – held in Ireland and sponsored by Fidelity Investments, Deloitte and Citi – saw approximately 150 participants pitch ideas, form teams and build on concepts in just 50 hours.

Graham Rhodes, a MedVault developer, indicated that the project was able to separate from the competition because of its use of the blockchain to "anonymize" medical records.

"[We're] giving the patients control over their own medical records and the decision to make certain aspects public or private, while still being stored in a distributed global manner."

The application can be seen as one of a growing number of both formal and informal projects that aim to use the bitcoin blockchain as a secure database for recordkeeping.

How Bitcoin Mining Works

In traditional fiat money systems, governments simply print more money when they need to. But in bitcoin, money isn’t printed at all – it is discovered. Computers around the world ‘mine’ for coins by competing with each other.

How does mining take place?

People are sending bitcoins to each other over the bitcoin network all the time, but unless someone keeps a record of all these transactions, no-one would be able to keep track of who had paid what. The bitcoin network deals with this by collecting all of the transactions made during a set period into a list, called a block. It’s the miners’ job to confirm those transactions, and write them into a general ledger.

Making a hash of it

This general ledger is a long list of blocks, known as the 'blockchain'. It can be used to explore any transaction made between any bitcoin addresses, at any point on the network. Whenever a new block of transactions is created, it is added to the blockchain, creating an increasingly lengthy list of all the transactions that ever took place on the bitcoin network. A constantly updated copy of the block is given to everyone who participates, so that they know what is going on.

But a general ledger has to be trusted, and all of this is held digitally. How can we be sure that the blockchain stays intact, and is never tampered with? This is where the miners come in.

When a block of transactions is created, miners put it through a process. They take the information in the block, and apply a mathematical formula to it, turning it into something else. That something else is a far shorter, seemingly random sequence of letters and numbers known as a hash. This hash is stored along with the block, at the end of the blockchain at that point in time.

Hashes have some interesting properties. It’s easy to produce a hash from a collection of data like a bitcoin block, but it’s practically impossible to work out what the data was just by looking at the hash. And while it is very easy to produce a hash from a large amount of data, each hash is unique. If you change just one character in a bitcoin block, its hash will change completely.

Miners don’t just use the transactions in a block to generate a hash. Some other pieces of data are used too. One of these pieces of data is the hash of the last block stored in the blockchain.

Because each block’s hash is produced using the hash of the block before it, it becomes a digital version of a wax seal. It confirms that this block – and every block after it – is legitimate, because if you tampered with it, everyone would know.

If you tried to fake a transaction by changing a block that had already been stored in the blockchain, that block’s hash would change. If someone checked the block’s authenticity by running the hashing function on it, they’d find that the hash was different from the one already stored along with that block in the blockchain. The block would be instantly spotted as a fake.

Because each block’s hash is used to help produce the hash of the next block in the chain, tampering with a block would also make the subsequent block’s hash wrong too. That would continue all the way down the chain, throwing everything out of whack.

Competing for coins

So, that’s how miners ‘seal off’ a block. They all compete with each other to do this, using software written specifically to mine blocks. Every time someone successfully creates a hash, they get a reward of 25 bitcoins, the blockchain is updated, and everyone on the network hears about it. That’s the incentive to keep mining, and keep the transactions working.

The problem is that it’s very easy to produce a hash from a collection of data. Computers are really good at this. The bitcoin network has to make it more difficult, otherwise everyone would be hashing hundreds of transaction blocks each second, and all of the bitcoins would be mined in minutes. The bitcoin protocol deliberately makes it more difficult, by introducing something called ‘proof of work’.

The bitcoin protocol won’t just accept any old hash. It demands that a block’s hash has to look a certain way; it must have a certain number of zeroes at the start. There’s no way of telling what a hash is going to look like before you produce it, and as soon as you include a new piece of data in the mix, the hash will be totally different.

Miners aren’t supposed to meddle with the transaction data in a block, but they must change the data they’re using to create a different hash. They do this using another, random piece of data called a ‘nonce’. This is used with the transaction data to create a hash. If the hash doesn’t fit the required format, the nonce is changed, and the whole thing is hashed again. It can take many attempts to find a nonce that works, and all the miners in the network are trying to do it at the same time. That’s how miners earn their bitcoins

Is Bitcoin Legal?

Bitcoin is of interest to law enforcement agencies, tax authorities, and legal regulators, all of which are trying to understand how the cryptocurrency fits into existing frameworks. The legality of your bitcoin activities will depend on who you are, where you live, and what you are doing with it.

Bitcoin has proven to be a contentious issue for regulators and law enforcers, both of which have targeted the digital currency in an attempt to control its use. We are still early on in the game, and many legal authorities are still struggling to understand the cryptocurrency, let alone make laws around it. Amid all this uncertainty, one question stands out: is bitcoin legal?

The answer is, yes, depending on what you’re doing with it.

Read on for our guide to the complex legal landscape surrounding bitcoin. Most of the discussion concerns the US, where many of the legal dramas are currently playing out. Alternatively, you can access our comprehensive Regulation Report for worldwide expert commentary here.

What are the concerns about bitcoin?

Government agencies are increasingly worried about the implications of bitcoin, as it has the ability to be used anonymously, and is therefore a potential instrument for money laundering. In particular, law enforcers seem to be concerned about the decentralized nature of the currency.

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

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 closed by the FBI in October 2013. Silk Road was commonly used to sell goods that are illegal in many countries, including narcotics. This prompted US Senator Charles Schumer to call for the site to be shut down, explicitly linking it to bitcoin, which he called a "surrogate currency".  The US Drug Enforcement Administration seized bitcoins from a US resident for purchasing a controlled substance in June 2013.

Who regulates it?

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

FinCEN

In the US, the Financial Crimes Enforcement Network (FinCEN), which is an agency within the US Treasury Department, took the initiative. It published guidelines about the use of virtual currencies. FinCEN’s March 18, 2013 guidance defined the circumstances under which virtual currency users could be categorized 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, identifying the people that they’re doing business with.

CFTC

The US Commodity Futures Trading Commission (CTFC), which looks after financial derivatives, hasn’t announced regulation yet, but has made it clear that it could if it wanted to.

SEC

The US Securities and Exchange Commission (SEC) hasn’t issued solid regulations on virtual currencies, but its Office of Investor Education and Advocacy published an investor alert to warn people about fraudulent investment schemes involving bitcoin. In particular, it warned of Ponzi schemes, after charging Texas resident Trendon T Shavers (aka ‘pirateat40’), founder and operator of Bitcoin Savings and Trust, with allegedly raising 700,000 bitcoins by promising investors up to 7% weekly interest.

Legislative branch

The SEC case has forced the legislative branch of government to consider bitcoin’s legal status. Shavers had claimed that he could not be prosecuted for securities fraud, as bitcoin wasn’t money. However, Judge Amos Mazzant issued a memorandum arguing that bitcoin can be used as money.

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

November saw responses from the various agencies. The Department of Homeland Security was the most worried about the criminal threat from illicit use of bitcoin, while the Department of Justice, the Federal Reserve and the Department of Justice all acknowledged the legitimate uses of virtual currencies. The SEC argued that “any interests issued by entities owning virtual currencies or providing returns based on assets such as virtual currencies” were considered securities and thus fell under its remit.

US states

Each US state has their own financial regulators and laws, and each approaches bitcoin differently. California and New York have been particularly aggressive in their pursuit of bitcoin-related organizations, for example, while others, such as New Mexico, South Carolina, and Montana, don’t regulate money transmitting businesses. A list of state approaches to money transmitter laws can be found here.

In May 2013, California’s state financial regulator issued a letter to the Bitcoin Foundation, a nonprofit organization designed to promote bitcoin, warning it that it may be a money transmission business, and threatening people there with potential fines and jail time.

Then, in August 2013, the New York Department of Financial Services issued subpoenas to 22 bitcoin-related companies, although these letters were more conciliatory, asking for a dialogue to develop appropriate regulatory guidelines for the digital currency industry. Since then, New York has acted more positively, with the state’s Superintendent of Financial Services, Benjamin M. Lawsky, announcing that it will accept applications for digital currency exchanges. Lawsky indicated that these businesses will be regulated under new New York regulation, which he committed to having in place by the end of the second quarter of 2014.

Private sector companies (banks)

Several banks have stopped accounts owned by people operating bitcoin exchanges. Inat least one case, this was because the bank was unhappy that the company involved did not have a money transmitting business (MTB) account.

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

What this means to you

The legality of bitcoin depends on who you are, and what you’re doing with it.

There are three main categories of bitcoin stakeholder. Someone may fall under more than one of these categories, and each category has its own legal considerations.

Users

These are individuals that obtain bitcoins, and either hoard them or spend them. Under the FinCEN guidance, users who simply exchange bitcoins for goods and services are using it legally.

FinCEN: “A person that creates units of this convertible virtual currency and uses it to purchase real or virtual goods and services is a user of the convertible virtual currency and not subject to regulation as a money transmitter.”

Miners

According to the FinCEN guidance, people creating bitcoins and exchanging them for fiat currency are not safe.

FinCEN: “By contrast, a person that creates units of convertible virtual currency and sells those units to another person for real currency or its equivalent is engaged in transmission to another location and is a money transmitter.”

Miners seem to fall into this category, which could theoretically make them liable for MTB classification. This is a bone of contention for bitcoin miners, who have asked for clarification. This issue has not to our knowledge been tested in court.

Exchanges

Exchanges are defined as MTBs.

FinCEN: “In addition, a person is an exchanger and a money transmitter if the person accepts such de-centralized convertible virtual currency from one person and transmits it to another person as part of the acceptance and transfer of currency, funds, or other value that substitutes for currency.”

Taxation

In 2009, the US Internal Revenue Service (IRS) posted information about the tax applications of using virtual currencies inside virtual economies, arguing that taxpayers can receive income from a virtual economy and could be required to report it as taxable income. However, it based this largely on guidance related to bartering, gambling, business, and hobby income.

However, the IRS has not yet posted guidance on ‘open flow’ virtual currencies that can be used outside of virtual economies. In a 27-page report [PDF] published in May 2013, the US General Accounting Office (GAO) called for more guidance from the IRS on this issue.

The IRS responded that its guidance could now be taken to cover virtual currencies as used outside of virtual economies. It added that it was also looking at the potential tax compliance risks posed by anonymous electronic payment systems, and was working with other federal agencies on the topic.

In June 2013, the director of an IRS unit that investigates cyber threats also told theFinancial Times that the use of “cyber-based currency and payment systems” to hide unreported income from the IRS is a threat that it was “vigorously responding to”. And at Senate hearings in November, FinCEN director Jennifer Shasky Calvery confirmed that the IRS would be releasing more guidance on virtual currencies. In short, don’t expect to evade taxes by earning bitcoins instead of fiat currency.

What is the industry doing?

The industry has responded to growing regulator concerns in several ways.

• Several companies created a committee to form a self-regulatory body calledDATA, designed to encourage open conversation with regulators.
• The Bitcoin Foundation formed committees to offer legal guidance, steer policy, and liaise with regulators.
• Exchanges have been attempting to secure MTB licenses at the state and federal levels, and some have avoided doing business with US customers until this is resolved.

Other countries

Few governments have announced any explicit intention to prevent bitcoin use completely. However, around the end of 2013 and start of 2014 there were a series of warnings and directives from central banks and regulators to varying degrees of severity. They ranged from the simple “be careful, bitcoin is neither regulated nor officially a currency”, to blocks on financial institutions and even raids on bitcoin businesses.

Many claim to be worried about the effect that large-scale bitcoin adoption might have on the stability of the financial system, especially if prices are volatile.

Currently, Iceland, Bolivia, Ecuador, Kyrgyzstan and Vietnam are the only countries that seem to have some level of bitcoin ban in place – see the list below for more details; while others such as Russia and Thailand seemed to have outlawed digital currencies then backtracked.

North America (non-US)

Canada

Canada has announced that it will tax bitcoins in two ways. Transactions made for goods or services will be treated under its barter transaction rules, while its “Transactions in Securities” document says that profits made on commodity transactions could be income or capital. It confirmed these rules in November 2013.

In late March 2014, the Canada Revenue Agency (CRA) published a new documentoutlining its position on the taxation of digital currencies, which highlighted out the differences between personal and business activities.

In essence, Canada will view the matter subjectively, on a case by case basis. When authorities deem the activities were undertaken for profit, the taxpayer’s income will be taxed with reference to the taxpayer’s inventory at the end of the year. Barter transactions are allowed, but the CRA states that the value of goods or services obtained by bartering digital currencies must be included into the taxpayer’s income, if business related. Losses through theft or embezzlement may be deductible.

South America

Bolivia

El Banco Central de Bolivia, the central bank of the South American nation, has officially banned any currency or coins not issued or regulated by the government, including bitcoin and a list of other cryptocurrencies including namecoin, peercoin, Quark, primecoin and feathercoin.

Issued on 6th May 2014, the new policy states: “It is illegal to use any kind of currency that is not issued and controlled by a government or an authorized entity.” The bank went on to say that citizens are prohibited from denominating prices in any currency that is not previously approved by its national institutions.

Brazil

In April 2014, the Receita Federal, Brazil’s tax authority, established how it would treat the holding and usage of bitcoin and other digital currencies. Taking a stance similar to the one announced by the US Internal Revenue Service in March, Brazil is treating digital currencies as financial assets, with the Receita Federal imposing a 15% capital gains tax at the time of sale, however, there are some key differences that have been generally viewed positively by bitcoin users in the country.

Those who sell less coins with a value of less than 35,000 reals (R$), which is almost $16,000, will not have to pay the tax. This means that bitcoin users in Brazil won’t have to calculate capital gains taxes when making small consumer purchases. The Receita Federal is also requiring annual account declarations from those who possess more than R$1,000 in digital currency holdings.

Colombia

The Superintendencia Financiera de Colombia (SFC) may be close to outlawing bitcoin transactions in the South American country, a newspaper claimed on 20th March 2014. The report said that the SFC, in conjunction with Banco central de Colombia, Colombia’s central bank, and the Ministerio de Hacienda y Crédito Público, the executive body responsible for budgetary concerns, is preparing to issue a document outlining the government’s stance on bitcoin and bitcoin-related activities.

A source connected to the Colombian Ministry of Finance told El Tiempo that the ban may very well focus on bitcoin handling activities, rather than outright purchase by consumers. CoinDesk is monitoring the situation and will update this guide as the story develops.

Ecuador

In July 2014, the National Assembly of Ecuador effectively banned bitcoin and other decentralized digital currencies while, in a novel move, establishing guidelines for the creation of a new, state-run currency. The law gives the government permission to make payments in ‘electronic money’, but digital currencies like bitcoin will now be prohibited

Mexico

On 12th March 2014, the Bank of Mexico issued its first statement on the issue of cryptocurrencies. The bank warned the public via a statement on its website about the “the inherent risks of acquiring these assets and using them as substitutes for conventional methods of payment”. The warning was generally similar to those issued by many of the world's central banks in recent months.

However, most notable were potential restrictions for domestic financial institutions, that some reports implied might strangle bitcoin businesses. Translations of the statements suggest that financial institutions regulated in Mexico “are not authorized to use or carry out any operations with [digital currencies]". Whether that means banks may not deal directly in cryptocurrencies, or may not have relationships with companies that deal in them, is not yet clear.

Europe

European Union

The EU’s banking regulator, The European Banking Authority (EBA),issued a warning statement on 13th December 2013 warning of investment risk, but focusing mainly on issues of fraud, tax evasion and other crime connected to virtual currency use.

More recently, in July 2014, the EBA published an ‘opinion’ warning financial institutions to stay away from digital currencies until the industry is regulated. In the document, which was addressed to the EU council, European Commission and European Parliament, the EBA set out new requirements for the regulation of digital currencies and also instructed financial institutions not to buy, hold or sell digital currencies until new rules are in place.

Belgium

The National Bank of Belgium has no intention of intervening in bitcoin business or regulating it, says the Belgium Bitcoin Association. On 16th January 2014, however, the central bank issued a joint warning with the Belgian Financial Services and Markets Authority (FSMA) that digital currencies are not issued by any central authority, and as such are at risk of volatility, fraud, and business non-acceptance.

Bulgaria

Bulgaria’s National Revenue Agency (NRA), the government organisation in charge of administering state taxes and social security contributions in the eastern European nation, has issued new taxation guidelines for digital currency. In a post on 2nd April, the NRA indicated that income from the sale of digital currencies such as bitcoin will be treated as income from the sale of financial assets and taxed at a rate of 10%. Effectively, earnings from bitcoin trades will be taxed on the same level as ordinary income and corporate income in Bulgaria.

Cyprus

Long an offshore financial services hub, Cyprus has entered the bitcoin fray with enthusiasm and aims to be a hub for bitcoin business in the EU and surrounding territories. It is also home to the world's first brick and mortar bitcoin savings institution, Neo (and its payment processing partner Bee). Still, the Central Bank of Cyprusissued a statement on 7th February 2014 warning about bitcoin's volatility and reminding citizens it is not recognized as legal tender.

Denmark

So far the Danish authorities have stopped short of regulating digital currencies, although a stern warning was issued in which bitcoin et al. were compared to "glass beads" – a reference presumably to an ancient method of trading baubles of little worth.

More significant is the nation's stance on the taxation of bitcoin for general transactions. Because it is not considered "real", physical money, bitcoin is considered a private asset and any gains are tax exempt; similarly, losses are not deductible. However, for companies whose sole business is related to trading or speculating in digital currencies, gains will be taxed. By how much remains to be seen.

Estonia

Estonia's central bank has not issued a formal statement on bitcoin but one of its managers wrote to Bloomberg on 31st January 2014 calling bitcoin a "problematic scheme", warning investors assumed all risks and reminding people that bitcoin businesses have been known to disappear overnight with customers' money.

Finland

Finland issued a regulatory guide to bitcoin in September 2013, which imposed capital gains tax on bitcoins, and taxes bitcoins produced by mining as earned income.

In January 2014, bitcoin was classified as a commodity after the Scandinavian country’s central bank declared that it did not meet the definition of a currency.

France

The French Senate held hearings into bitcoin and digital currencies in mid-January 2014 that were considered mostly investigatory and positive in tone. The focus was mainly on the opportunities presented by the new technology and how existing laws and organizations could be used to catch wrongdoers. Making bitcoin illegal was not an option, according to observers, and France needed to catch up to neighboring countries in its approach.

More recently, on 5th April, the French Ministry of Economy and Finance said that, while bitcoin is not officially recognized by the state, revenues generated from digital currency transactions are subject to taxation.

“All taxpayers are required to declare all their revenues, including those originating from abroad. This said, there is a certain tolerance [from the state authorities] regarding minor and irregular revenues, for instance from occasional sales,” a spokesperson for the French ministry told Le Monde.

Germany

Germany is perhaps the most advanced country when it comes to regulating bitcoin and virtual currencies. Although some issues remain unresolved, the German government has exempted bitcoin transactions held for over one year from 25% capital gains tax. It also categorized bitcoin as a form of private money. In early January 2014 the Bundesbank repeated a warning that bitcoin was “not an alternative to national currencies”, and values were “highly speculative”.

Greece

Greece, quite remarkably, has also taken time out from its years-long government spending-related financial crisis to warn you about the dangers of bitcoin.

Iceland

One of only two countries to have instigated a ban on bitcoin and other digital currencies due to capital controls resulting from the banking crisis of 2008. Personal ownership does not seem to be an issue, rather buying (importing) bitcoins from outside the country is illegal because it constitutes a movement of capital out of the country. Furthermore, selling products or services for cryptocurrencies is also prohibited

The locally created digital currency auroracoin recently made headlines with its 'Airdrop' to all Icelandic citizens and is not illegal due to its provenance within the country.

However, Iceland's Economic and Trade Committee of Parliament recently met to discuss taxation of auroracoin and to see whether it falls within the capital controls that restrict bitcoin. At the same time they warned of the risks of using the altcoin, which they said is not a currency or regulated by the central banking authorities. Frosti Sigurjónsson, Chairman of the committee, even went as far as to say: “There is evidence however that this is a case of [a money] scam and illegal” on his blog.

Lithuania

Lithuania, wedged between the European Union and its largest trading partner, Russia, issued a warning at the end of January and hinted at a ban on non-government currencies, but later tempered the statement by saying new regulation was "under discussion".

The Netherlands

Holland in typically liberal style has tacitly assented to the use of digital currencies by issuing guidelines on their tax status. Logically, bitcoin and other cryptocoins are treated as any other currency for tax purposes.

Slovenia

Slovenia is one of the more permissive governments towards digital currency use, though regulators there issued a statement on 24th December 2013 to remind people that bitcoin is considered neither a currency nor a financial instrument. The country’s Tax Administration and Ministry of Finance also said that bitcoin is subject to income tax like any other non-monetary income, and would be calculated based on the bitcoin-Euro exchange rate at the time of transaction. Selling bitcoin would not be subjected to capital gains tax.

Sweden

Sweden’s Finansinspektionen financial regulator now considers bitcoin as a means of payment, following guidance issued last year. Exchanges must register with the regulator and meet the requirements faced by other financial institutions.

Russia

“The official Russian currency is the ruble. The use of any other monetary instruments or surrogates is forbidden,”announced Russia’s General Prosecutor’s Office in early February 2014. “The anonymous payment systems and crypto-currencies, including bitcoin [...] are monetary surrogates. As such, their use by private citizens or legal entities is not allowed.” So, bitcoin and other digital currencies seemed to have been are banned in Russia to the shock of the bitcoin world.

However, on 6th March, Russia seemed to soften its stance in a letter from the central bank to an individual who had asked for clarification. In it they said that a meeting of top Russian financial authorities in February did not result in a bitcoin ban, but rather was devoted to “combating crimes in the sphere of the economy devoted to the use of anonymous payment systems and cryptocurrencies on the territory of Russia”. Furthermore, the goal of the meeting was also to “develop a unified approach to the determination of the legal status of cryptocurrencies”.

The exact status of cryptocurrencies in Russia is still a grey area, however, on 1st August 2014 the Ministry of Finance announced proposals to ban the issuance of bitcoin and any operations involving cryptocurrency. If approved, the ban will likely see those who break the new laws end up in jail.

Ukraine

Despite the unstable political situation in early 2014, Ukraine's central bank has still managed to issue statements on digital currencies, saying related businesses "must register with the agency and abide by existing laws related to the management of electronic money".

United Kingdom

Meetings with policymakers in the UK in September 2013 suggested that bitcoin-based businesses would not have to register with regulators, at least for the time being, while they consider their regulatory position. For a while, the UK suggested that bitcoins wouldn’t be treated as money, but would instead be classified as single-purpose vouchers, which could carry a value-added tax (sales tax) liability on any bitcoins that are sold.

However, this idea was reversed in guidance issued on 3rd March. Although the UK tax department, HMRC, stepped back from explicitly recognising bitcoin as a currency, its approach effectively treats it like any other form of payment for tax purposes: “In all instances, VAT will be due in the normal way from suppliers of any goods or services sold in exchange for bitcoin or other similar cryptocurrency.”

Most recently, on 6th August 2014, Chancellor George Osborne announced a new initiative that will explore the potential role of cryptocurrencies in Britain’s economy. Osborne said he has commissioned the Treasury to produce a programme of work on cryptocurrencies, examining their potential risks and benefits. The results, due to be published in the Autumn, could pave the way toward a new regulatory framework for cryptocurrencies in Britain.

As a UK Crown dependency, the Isle of Man is self-governing and has also made moves over recent months to set itself up as a regulated but bitcoin-friendly jurisdiction. In July 2014, the island's Financial Supervision Commission clarified the application of existing regulations on bitcoin, indicating that digital currency businesses will not be subject to a conduct of business or prudential regime by the commission unless they engage in activities regulated under the Financial Services Act of 2008, such as money transmission services. The commission also said it is in the process of drafting a new bill that will provide it with the ability to oversee how digital currency operators comply with AML/CFT legislation.

Asia

China: People's Republic of China

China’s authorities have had arguably the biggest impact on bitcoin adoption and values in the past months. In early December 2013, the People's Bank of China (PBoC) issued a statement warning of  bitcoin risks and banning financial institutions from engaging in bitcoin business themselves or transferring funds to/from bitcoin exchanges. Another statement just days later also blocked third-party payment processors from dealing with exchanges, and the price of bitcoin worldwide crashed from its record high of over $1200 by about 50%. The moves have had a dramatic effect on the market share of large bitcoin exchanges in the country.

In mid-January, a PBoC official claimed there is no move to suppress or discriminate against bitcoin in China, and exchanges have been allowed to remain open for business. There does seem to be an official campaign to limit bitcoin trade to the fringes, however, and China’s state-owned business TV channel broadcasted a documentary the same week full of dire warnings about risks to investors from price volatility.

China: Hong Kong

Hong Kong’s Secretary for Financial Services and the Treasuryissued a warning about risks associated with bitcoin on 9th January 2014. The Special Administrative Region (SAR) of China and financial hub has remained otherwise hands-off in its approach to bitcoin, saying it does not pose a risk to the financial system if it is not widely adopted.

Indonesia

Indonesia’s central bank, Bank Indonesia, issued a warning on 16th January 2014 that bitcoin was not regarded as a currency and accepting it as payment might even break national currency laws. No subsequent action against exchange businesses has been taken as yet, however.

India

India’s central bank is said to be “watching” bitcoin. In a series of dramatic moves, the Reserve Bank of India (RBI) issued a warning about bitcoin in late December 2013, which was followed almost immediately by exchanges choosing to suspend operations. One exchange had its premises raided and another was paid a “friendly” visit by tax officials to investigate how digital currencies could be managed and taxed. Some exchanges have since re-opened for business.

Japan

At present there are no laws covering cryptocurrencies in the country. However, since the collapse of bitcoin exchange Mt. Gox and the attention that garnered from the international media, Japan seems to have been pressurised into taking some action.

Initially it appealed for a coordinated effort from the international community to agree on regulation. More recently, Japan’s ruling party, the Liberal Democratic Party (LDP) has launched an committee to investigate cryptocurrencies, and issued a statement saying it is “not a currency, but taxable”. Currently the situation seems to be that bitcoin will be treated as a good and is subject to taxation if transactions fulfil standing tax requirements. Gains on exchange rates are taxable too.

The government has also blocked related banks from “brokering bitcoin transactions or opening accounts holding the virtual unit”. Exactly what constitutes a ‘bitcoin account’ remains unknown, but it presumably refers to one with a known bitcoin service likeBlockchain.info or Coinbase.

The Japanese government is, however, generally curious about bitcoin and will not make any further statements on the matter until it has discussed matters with local bitcoin interests, a government representative has said.

Kyrgyzstan

The National Bank of the Kyrgyz Republic, the central bank of the Central Asian nation, has said that the use of bitcoin and other digital currencies as a form of payment is currently illegal under national law. Issued this July, the notice states that the only legal tender in Kyrgyzstan is the national currency, the som (KGS), and that as such, any use of bitcoin for payment violates this policy.

Malaysia

Malaysia’s central bank, Bank Negara Malaysia (BNM), issued one of the shortest statements of its kind on 4th January, cautioning people to be careful when investing in bitcoin but otherwise saying simply, “The Central Bank does not regulate the operations of bitcoin”.

Singapore

Singapore is another major international financial services hub and appears to be one of the world’s most permissive environments for bitcoin. The Monetary Authority of Singapore has stated it “will not interfere” with bitcoin business, despite an earlier warning in September 2013 of the risks. In mid-January 2014 Singapore’s taxation authority, the Inland Revenue Authority of Singapore (IRAS) sent a statement to local brokerage Coin Republic with details on how bitcoin business would be taxed.

Bitcoin will be treated not as a currency, but as either a good or asset, said IRAS. As a good it would be subject to GST (VAT or sales tax) when traded to and from local currency by Singapore-resident businesses and goods purchased with bitcoin would also be subject to sales tax. As an investment asset, bitcoin would not be taxed as Singapore does not have a capital gains tax.

Most recently, on March 13th 2014, MAS announced it will regulate virtual currency exchanges and ATMs, in order to address potential money laundering and terrorist financing risks. Such intermediaries will have to verify the identities of their customers and report any suspicious transactions.

Taiwan (Republic of China)

The Financial Supervisory Commission of the Republic of China and the Central Bank of the ROC issued a joint statement at the very beginning of 2014 warning against bitcoin use in Taiwan. Regulators there have also said they will block any attempt to install Robocoin bitcoin ATMs.

Thailand

On March 18th 2014, after flip-flopping on the issue for the last nine months, the Bank of Thailand issued its first clear statement on bitcoin, warning consumers that it is not a currency and that its use comes with inherent risks. The statement bears similarities to others issued from central banks around the world, but could be considered an improvement in the legal status of bitcoin users, as Thailand was widely considered to have implemented a bitcoin ban in the summer of 2013.

One issue in Thailand is not so much the legality of owning bitcoin, but whether exchanges qualify for a licence to trade in cryptocurrencies, which could be considered a foreign exchange activity and therefore illegal. Hopefully, the legal status of exchanges in the light of the new statement will become clear in coming days.

Vietnam

The second country in this list (and the world) to have banned bitcoin: Vietnam's central bank forbade financial institutions from using digital currencies as a means of payment or from offering services in exchange for them back in February 2014. The country had previously warned against their use, stating that the government and State Bank did not recognize bitcoin as a legitimate method of payment.

All that considered, some small bitcoin businesses are still plying their trade in the Southeast Asian country and a bitcoin conference is to be held there in May.

Middle East

Israel

The Israeli Tax Authority was said to be considering a tax on bitcoin, but no further statements have been made at the time of writing. The Bank of Israel (BoI) and the Israeli Ministry of Finance issued ajoint statement in February 2014 warning of investment risks as well as the dangers digital currencies posed as vehicles for fraud, money laundering and terror financing. However, the Israel Bar Association ruled in August 2013 that bitcoin “is an appropriate form of payment for attorneys” and authorized its members to accept it.

Jordan

The Central Bank of Jordan has also issued a similar warning of digital currencies' unregulated status in February 2014 and has prohibited banks, financial companies, payment processors and currency exchangers from dealing with them, particularly bitcoin.

Lebanon

The country’s central bank, the Bank of Lebanon, issued a warningstatement on 2nd January 2014 saying that bitcoin did not offer consumer protections, had a volatile price and was often used in criminal transactions. It advised people not to use digital currencies.

Oceania

New Zealand

Both the Governor and Assistant Governor at the Reserve Bank of New Zealand (RBNZ) issued personal warnings in mid-December 2013, warning of risks associated with volatility, but also commenting that the technology was “interesting”.

Australia

While the Governor of the Reserve Bank of Australia has previously warned of “speculative excesses”, the Australian Tax Office (ATO) has now provided businesses with guidelines on how it intends to deal with bitcoin, stating that income and profits derived from bitcoin transactions are taxable.

In a letter to an individual, the ATO said that transferring bitcoins to a private company in return for shares would count as income, and that transferring bitcoins to another party would be subject to Goods and Services Tax (GST). Bitcoin profits would also be subject to capital gains tax, it said.

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