What Countries have Banned or Restricted Cryptocurrencies

There has been a contentious relationship between cryptocurrencies and the government since the very beginning. The idea of decentralized finance brought forward by cryptocurrencies threatens the government’s power to supply and regulate money. However, several countries’ governments have realized the great benefits that cryptocurrency has to offer to its people and have created laws to regulate it. For instance, the US thinks that it can accommodate cryptocurrencies within its financial ecosystem using appropriate laws and regulations.

However, the word “thinks” is the operative phrase in the previous sentence.

The federal government believes that it has put regulations in place to halt cryptocurrency-enabled tax evasion, hiding crypto assets via cryptocurrency exchanges, and scams. Numerous countries have enacted laws and regulations restricting or effectively banning cryptocurrencies. But first, let’s first look at some of the regulations that the I.R.S. and the federal government have ratified to slow the financial power of the cryptocurrency.

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CRYPTOCURRENCY-BASED TAX EVASION

So, what is so scary about cryptocurrencies that the American government takes a “regulate and legally restrain first” and then considers what to do about their attitude and approach? 

Cryptocurrencies will not replace fiat currencies, paper money, or coins anytime soon. And if that does happen, it will probably be the affiliated blockchain and algorithm accompanying technologies that help obsolete physical cash in the future more than cryptocurrencies themselves.

The advent of cryptocurrencies in the digital age has the potential to obsolete the current fiat currency global infrastructure. Of course, the advent of renewable energy has the same power to do the fossil fuel, a reality that won’t feasibly happen for another century, if not longer. No, the numerous problems that the I.R.S. has with cryptocurrencies are that they have the potential to create a fragile crypto bubble that could significantly and adversely impact the global economy when it pops. And if that does happen, then the fiat currencies of the world will have to clean up the mess after all. 

But what really fuels the regulation paranoia of the federal government is the fear of citizens using cryptocurrencies to evade and fraudulently lessen their tax liabilities. Cryptocurrency transactions are notoriously anonymous. Even though cryptocurrency transactions are public on a blockchain platform, they are shielded via their links to electronic addresses. And while the I.R.S. can theoretically observe blockchain transactions, they can’t prove multiple blockchain transactions are connected to one business or business entity. Currently, the I.R.S. reports that it loses over half a trillion annually due to unreported and untaxed salaries, for example. And that staggering $500 billion annual loss is due to tax evasion on traditional fiat currencies. So, how bad a problem would tax evasion become through anonymity-friendly cryptocurrency transactions?

The Biden Administration recently advised the public that cryptocurrencies were an effective and deceptive investment method to evade taxes. And that is a polite way of saying that the federal government is effectively blind when private citizens transact in cryptocurrencies.

As a regulatory method, the I.R.S. and the American government do not consider cryptocurrencies a traditional currency. Why would the federal government give the radical virtual currency and fiat currency alternative any official legitimacy? And while that could happen, the United States government is obviously not ready to embrace such a radical change in currency infrastructure. The I.R.S. considers cryptocurrencies to be a form of property. And since most cryptocurrency speculators invest and sell cryptocurrencies, the applicable tax rate can be determined as the sum between the coin’s purchase and sales price.

If the cryptocurrency asset has been held for less than a year before turning a profit, the traditional tax rate could range between 10% to 37%. And any cryptocurrency assets that are held for more than a year before turning a profit could qualify for a long-term capital gains tax liability. And depending on your income, the capital gains tax rate can be anywhere between 0% to 20%. Additionally, converting traditional fiat currencies to cryptocurrency, or vice versa, for the purposes of investment or transaction could be subject to taxation in varying circumstances. 

Sound convoluted? Well, the I.R.S. is just getting started when it comes to regulating and creating new laws regarding cryptocurrency ownership. As of 2021, anyone filing their annual tax return will have to acknowledge if they received, sold, exchanged, or maintain any financial interest in any virtual currencies, which is another name for cryptocurrencies. And the regulation and tracking of cryptocurrency transactions will probably increase in the future. After all, cryptocurrency investors who convert and profit from a crypto sale perhaps dozens or hundreds of times, a process that is not hard to conceal for experienced investors, will need to inform the I.R.S. for tax purposes.

American citizens can hide their cryptocurrency assets and evade taxes by hiding such assets in multiple caches. So, you could store or hide cryptocurrencies in USB drives, which is considered a cold wallet or a cryptocurrency cache that is disconnected from the internet. A hot wallet can be an online cryptocurrency exchange or a private cryptocurrency cache that is connected to the internet. There are just too many methods for American citizens to hide and store cryptocurrencies and ostensibly evade their tax liabilities.

Soon, there may even be a new cryptocurrency regulation called the “wash rule.” It prevents savvy cryptocurrency investors from claiming tax benefits through the clever manipulations of cryptocurrency investments. Because cryptocurrencies are considered property by the I.R.S. and not a currency, wealthy and shrewd crypto investors can sell a cryptocurrency at a loss on purpose. Then, they can claim a tax benefit because they lost money on an investment and then buy back the asset later. So, the crypto investor nullifies their losses, gets a tax break, and still gets back the coin asset they sacrificed to get the tax benefit and benefit from any price increase. Cryptocurrencies are notorious for their market volatility.

However, these laws, regulations, and restrictions are just the start of the federal government’s worries when it comes to cryptocurrencies. And then there are the cryptocurrency exchanges to worry about.

CRYPTOCURRENCY EXCHANGES

Remember how we previously mentioned that the American government is wary of the financial influence of cryptocurrencies and blockchain technology? The blueprint for the future proliferation of cryptocurrencies and perhaps a catalyst or inspiration for the future digital infrastructure of a potential cashless society could potentially be found in cryptocurrency exchanges. But currently, governments are concerned by how secretive cryptocurrency exchanges are and how they allow users to transact coins anonymously.

A cryptocurrency exchange is an online digital virtual currency exchange that allows users to buy, sell, trade, or convert cryptocurrencies and traditional fiat currencies. And what worries governments about cryptocurrency exchanges is their operational secrecy. Back in November 2018, a federal judge ordered Coinbase, one of the most well-known and popular cryptocurrency exchanges in the world, to reveal the identities of over 14,000 of its account users in the year, or the equivalent of over nine million cryptocurrency transactions. However, that was back in 2018 at the height of the cryptocurrency craze. And since then, cryptocurrency transactions have only become easier to shield from concerned authorities.

Cryptocurrency exchanges fall under the regulatory jurisdiction of the Bank Secrecy Act, which oversees the activities of financial institutions and payment transmitters. However, there are several countries that have banned or severely restricted its use. Two of the most common reasons cited by these countries’ governments are crypto scams and threats to the government’s monetary policy. The number of crypto scams grew by 40% during 2020 and is further predicted to grow by 75% in 2021. 

CRYPTOCURRENCY SCAMS

Cryptocurrency exchanges fall under the regulatory jurisdiction of the Bank Secrecy Act, which oversees the activities of financial institutions and payment transmitters. However, there are several countries that have banned or severely restricted its use. Two of the most common reasons cited by these countries’ governments are crypto scams and threats to the government’s monetary policy. The number of crypto scams grew by 40% during 2020 and is further predicted to grow by 75% in 2021. 

Cryptocurrency has been used as an instrument for money laundering and financial scams. Secondly, cryptocurrency undermines the government’s power to control the national currency. However, there is little evidence that such bans can work to deter people because of the decentralized nature of cryptocurrency, which means enforcing such a ban means controlling the internet. Here’s a list of countries that have completely banned the use of cryptocurrency.

Countries with Banned Cryptocurrencies

1. Bolivia and Ecuador

In 2014, Bolivia became the first country to ban the use of cryptocurrency. The Central Bank of Bolivia issued a ticket banning Bitcoin and other types of cryptocurrencies in order to protect its national currency and investors. There is also a ban on citizens mentioning the prices of any currency that is not approved by the national institutions of Bolivia. 

Similarly, Ecuador’s government announced that Bitcoin is not a legal tender in the country since its value is based on speculation. However, it is important to note that the exchange of cryptocurrencies on the internet is not prohibited but it cannot be used to purchase goods and services in the country.

2. Algeria

In 2018, the Algerian government issued a ban on the use of all kinds of cryptocurrencies. The official legislation called cryptocurrency “internet money”, which they characterized by the absence of physical support like coins, paper, credit, or debit cards. Anyone who tries to conduct transactions in digital currency will be punished according to the laws and regulations put in place.

3. Egypt

In March 2021, the Central Bank of Egypt banned the issuance, trade, or promotion of cryptocurrencies under Article 206 of the Central Bank and Banking System Law. They also banned establishing or operating platforms for trading cryptocurrencies or implementing other activities relating to them. Earlier in 2018, the Islamic legislator Shawki Allam declared that trading in cryptocurrency is haram (prohibited) under Sharia Law since the use of crypto can lead to tax evasion, terrorist funding, money laundering, and other illegal activities.

4. Morocco

The Moroccan government explicitly banned Bitcoin and other cryptocurrencies in November 2017. The government announced that the use of virtual currencies infringes exchange regulations in the country and those to flout it are liable to specific rules and regulations. Crypto is considered a secretive payment system not backed by the state’s financial institutions and involves great risks for its users.

5. Turkey

In April 2021, Turkey outlawed the use of cryptocurrencies for payments. The reason cited by the Turkish financial authorities was the “lack of a central regulatory authority or the absence of regulations and supervisory mechanisms”. This legislation also came in the light of high inflation rates, which has led Turkish people to invest in crypto rather than their national currency. The government also feared that increased use of crypto can be detrimental to the country’s national currency.

6. Qatar

In 2018, the Qatar Central Bank warned banks against using Bitcoin and other digital currencies. But in 2020, the Qatar Financial Centre Regulatory Authority banned all the operations of virtual asset services. “Virtual asset services” is a broad term that refers to any kind of exchange (crypto or fiat), crypto to crypto trades, or any other kind of service that allows the issuance of virtual assets. The government said that the measure will curb illicit trading and terrorist funding.

7. Bangladesh

In 2017, the Central Bank of Bangladesh issued a notice against the use of cryptocurrencies under any circumstances. The use of cryptocurrencies violates the Foreign Exchange Regulation Act (1947) of the country and unnamed people can use cryptocurrency to make online transactions, which may further violate Money Laundering Prevention Act (2012). This regulation forbids people from performing, advertising, and assisting any transactions through virtual currencies.

Countries with Restricted Cryptocurrencies

There are some countries that have not completely banned the use of cryptocurrencies rather just restricted their use:

1. South Korea

Cryptocurrencies are legal in South Korea but there is strict regulation over crypto exchanges. In the recent regulation of 2021, the government mandated all virtual asset providers, including crypto exchanges, register with the Korea Financial Intelligence Unit. These rules are being implemented to prevent money laundering and other financial crimes. According to estimates, $4.9 billion have been lost in crypto-related financial frauds since 2017.

2. India

India warned its citizens against the use of cryptocurrencies as it believes that crypto can be used to fund illegal activities. It hasn’t passed any anti-crypto legislation yet but it has prepared a draft bill that proposes a ban on all private cryptocurrencies. However, the country is not against the idea of digital currency as it is looking at its own Central Bank Digital Currency (CBDC) – the digital rupee.

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3. Thailand

Cryptocurrencies are not considered a legal tender in Thailand and the Bank of Thailand issued a notice in 2018 urging financial institutions to not engage in cryptocurrency transactions. In 2021, it put a selective ban on meme coins, non-fungible tokens (NFTs), fan tokens, and digital tokens. However, the government does not plan to ban cryptocurrencies altogether because it is planning to create a regulatory framework for them.This is not an all-comprehensive list of countries and regulations pertaining to crypto. With further growth of the crypto industry, the legal landscape will change not just in these countries but also globally. Surely, there is a need for a regulatory framework to curb financial crimes, fraud, and data breaches associated with cryptocurrency transactions. But since digital money is most likely to grow both in size and popularity, a complete ban might mean not reaping the benefits of the revolutionary technology. Sign up today to understand how crypto can help grow your business and change the way you think about investment.

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