Many financially developed countries are friendly toward bitcoin, the peer-to-peer digital currency that was developed in the wake of the 2008 financial crisis. The elimination of banks and other financial institutions as middlemen is a major selling point to users, as it has the potential to sharply reduce transaction costs while allowing virtually instantaneous payments. Objections from countries that do not allow bitcoin, or that sharply restrict its use, focus on the anonymity of transactions. The fact that bitcoin has been linked to both drug trafficking and the financing of terrorism is causing many countries, and especially the European Union, to consider sharply tightening regulations.
Bitcoin, like other so-called crypto-currencies, functions outside the purview of central banks, which seek to direct economies by increasing or decreasing the amount of currency in circulation and by raising or lowering interest rates. It will be interesting to see what impact, if any, bitcoin has on the reactions of central banks when the next financial crisis hits.
The US
The United States is arguably the most bitcoin-friendly country in the world, with the currency accepted by both major companies such as Dish Network and an increasing number of small businesses. The first regulations were issued by the Financial Crimes Enforcement Network (FINCEN) in March 2013, putting digital currency exchangers and processors under the Banking Secrecy Act by defining them as money service businesses. This means the companies must comply with a range of registration and record-keeping requirements consistent with other financial institutions.
The Securities and Exchange Commission (SEC) has issued investment advisories that warn of the risky nature of investing in bitcoin. The Internal Revenue Service (IRS) treats it as property rather than as currency for tax purposes.
Canada
Bitcoin is lightly regulated in Canada, and the Canadian Senate recommended it remain that way. With a new Liberal government having taken office in November 2015, however, it remains to be seen if that may change. The currency's popularity in the country has been uneven. The first bitcoin ATM was installed in Vancouver in October 2013, allowing people to trade between Canadian dollars and bitcoin. But in 2015, two major exchanges went out of business. This was followed by the announcement that one of the country's largest pension funds, the Ontario Municipal Employees Retirement System, was considering making investments in bitcoin and related startup businesses.
Australia
Australia has been very friendly toward bitcoin and does not have any significant restrictions on its use. But in September 2015, local banks closed the accounts of 13 of the 17 exchanges operating in the country due to concerns regarding links to illegal activities; this move was not required by the Australian anti-money laundering agency but was initiated by the banks themselves. The closures make it much harder to move money between the Australian dollar and bitcoin. This has caused its popularity among mainstream businesses, especially retailers, to decline sharply.
European Union
Bitcoin has been relatively free of regulation in the European Union and received a major boost from an October 2015 court decision that exempts transactions with the digital currency from value-added tax (VAT). This puts Bitcoin in line with transactions in other currencies. However, in the aftermath of the Nov. 13, 2015, terror attacks in Paris, there have been widespread calls for a crackdown on anonymous forms of payment. This includes Bitcoin, other digital currencies and prepaid debit cards. Legislation regarding this is expected to be introduced in the European Parliament early in 2016.
Japan
Japan has been very hospitable to bitcoin and has been subject to minimal regulation. However, the Mt. Gox scam and bankruptcy that erupted in February 2014 has led to calls for the introduction of a regulatory structure. This is likely to include a sharp reduction in the anonymity of transactions and rules to prevent money laundering. Regulations are expected to be introduced early in 2016.
