Yes. Bitcoin mining is legal in most countries that have no bans in place for transacting Bitcoin. A few countries have placed partial (implicit) or complete (explicit) bans on cryptocurrencies including, Bitcoin. It’s important to check your local regulations before mining Bitcoin.
If a country has explicitly banned cryptocurrencies, the ban likely applies to mining Bitcoin as it’s a form of transacting crypto, since miners are rewarded in Bitcoin.
In the case of implicit bans, banks and other financial institutions are restricted from transacting crypto or providing services to individuals and businesses dealing in crypto. Examples of such include crypto exchanges.
Created by the mysterious Satoshi Nakamoto in 2009, Bitcoin has grown to become the biggest digital currency. With a price of $42,455.54 and a market cap of over $800 Billion at the time of writing, Bitcoin has attracted lots of attention from regulators all over the world.
Many are concerned Bitcoin and cryptocurrencies as a whole may pose a threat to the banking systems or the currency may facilitate illegal activities such as money laundering and drug trafficking.
As a result, some countries have established regulations requiring cryptocurrencies dealers to adhere to the country’s anti-money laundering laws and counter-financing of terrorism laws (AML/CFT). Also, some jurisdictions now require crypto dealers and bitcoin miners to adhere to applicable tax laws.
Others have gone ahead and placed explicit or implicit bans.
Another concern about Bitcoin mining is the threat it poses to the environment. Mining is a computationally-intensive process that requires lots of energy. Miners are always on the lookout for cheap energy, and many have set up shop in countries relying on highly polluting fossil fuels such as crude oil, natural gas, and coal.
Other mining farms have sprung up close to hydroelectric power plants. While these are less polluting compared to fossil fuels, they pose a threat to local ecosystems. In some cases, the miners have put a strain on the local power supply causing power bills to increase for the locals.
In light of this, we will likely see more regulations established to address the impact of mining on the environment.
In the United States, the Internal Revenue Service (IRS), considers Bitcoin and other cryptos as property, making them taxable.
In addition, the US treasury considers Bitcoin a convertible currency with equivalent value as real currency or as a substitute for real currency.
The treasury’s department of Financial Crimes Enforcement Network (FinCEN) regulates cryptocurrencies for AML/CFT purposes. In 2019, FinCEN, defined certain businesses and individuals, e.g., exchanges, dealing in crypto as money services businesses (MSBs). They are, therefore, required to comply with the relevant regulations, same as other financial service businesses.
These regulations include registering with the treasury, following anti-money laundering guidelines, recordkeeping, and reporting responsibilities. That’s why exchanges and Bitcoin ATM companies require customers to complete KYC (Know Your Customer) processes to report transactions over $10,000, and any other suspicious activities, in line with the regulation requirements.
More regulations are expected in the near future as Congress continues to hold hearings concerning cryptocurrencies and their use.
In Europe, the mining and transacting of Bitcoin and other crypto has not been banned. However, the EU regulatory authority, the European Banking Authority, considers cryptocurrencies outside of its jurisdiction.
However, the EU is still trying to set up a regulatory framework for cryptocurrencies among the member countries, with several legislative proposals still in consideration.
In Canada, authorities have adopted the same stance as its southern neighbor, the USA. The Canada Revenue Agency (CRA) considers Bitcoin a commodity hence requiring the reporting of any income realized from transacting Bitcoin.
Income from Bitcoin and other crypto is considered business income or a capital gain, making them taxable.
Crypto exchanges and Bitcoin ATM businesses fall under MSBs in Canada. MSBs in Canada comply with Canada’s version of AML/CFT laws, which fall under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act.
Therefore, they are required to register with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), report transactions over a certain threshold, keep records, and follow other regulations.
El Salvador is the only country to designate Bitcoin as legal tender. Bitcoin is now accepted all over the country as a form of payment and some employers are even paying their employees in Bitcoin.
This has also led to an increase in the number of Bitcoin ATMs in the country, to facilitate the use of Bitcoin as a currency.
Countries Where Bitcoin Mining and Transacting Is Allowed
- Antigua and Barbuda
- Cabo Verde
- Cayman Islands
- Costa Rica
- Czech Republic
- El Salvador
- European Union
- Hong Kong
- Isle of Man
- New Zealand
- Russian Federation
- “Saint Kitts and Nevis”
- Saint Lucia
- South Africa
- South Korea
- Sri Lanka
- United Kingdom
- United States
Before China banned cryptocurrencies in June of 2021, the country was home to about 60% of the world’s Bitcoin mining. The country was preferred by miners due to the cheap electricity mainly generated from coal.
In May of 2021, China started the banning process by restricting financial institutions from transacting in cryptocurrencies. In June of the same year, bitcoin mining was banned, and finally, cryptocurrencies were explicitly banned in September.
Countries With Explicit Bans on Crypto and Bitcoin Mining
Countries With Implicit Bans on Crypto
- Burkina Faso
- Central African Republic
- Côte d’Ivoire
- Democratic Republic of the Congo
- Republic of the Congo
- Saudi Arabia
- United Arab Emirates
The Library of Congress has a report detailing the regulation of cryptocurrencies around the world. To check out the full list of countries with their regulations, you can get their report here.
With more countries either introducing regulations or banning private cryptocurrencies, it begs the question, what does the future hold for crypto?
In terms of mining, many blockchains now use proof of stake mechanism to reduce the strain on the environment that is being experienced with proof of work. In the near future, proof of work may become obsolete as many push to make cryptocurrencies carbon neutral.
In terms of regulations, given that some of the countries completely banning crypto are making plans to launch state-backed blockchains, how will these blockchains work? Will they still be known as crypto? Will these governments respect the decentralized nature of crypto?
With authoritative governments like China, it will be interesting to see what type of crypto they’ll launch. Will the CCP be able to grab crypto from their citizen’s wallets at will?
Written by Edmond K.