Bitcoin is a form of digital currency, created and held electronically. No one controls it. Bitcoins aren’t printed, like dollars or euros – they’re produced by people, and increasingly businesses, running computers all around the world, using software that solves mathematical problems.

It’s the first example of a growing category of money known as cryptocurrency.

What makes it different from normal currencies?

Bitcoin can be used to buy things electronically. In that sense, it’s like conventional dollars, euros, or yen, which are also traded digitally.

However, bitcoin’s most important characteristic, and the thing that makes it different to conventional money, is that it is decentralized. No single institution controls the bitcoin network. This puts some people at ease, because it means that a large bank can’t control their money.

Who created it?

A software developer called Satoshi Nakamoto proposed bitcoin, which was an electronic payment system based on mathematical proof. The idea was to produce a currency independent of any central authority, transferable electronically, more or less instantly, with very low transaction fees.

Who prints it?

No one. This currency isn’t physically printed in the shadows by a central bank, unaccountable to the population, and making its own rules. Those banks can simply produce more money to cover the national debt, thus devaluing their currency.

Instead, bitcoin is created digitally, by a community of people that anyone can join. Bitcoins are ‘mined’, using computing power in a distributed network.

This network also processes transactions made with the virtual currency, effectively making bitcoin its own payment network.

So you can’t churn out unlimited bitcoins?

That’s right. The bitcoin protocol – the rules that make bitcoin work – say that only 21 million bitcoins can ever be created by miners. However, these coins can be divided into smaller parts (the smallest divisible amount is one hundred millionth of a bitcoin and is called a ‘Satoshi’, after the founder of bitcoin).

What is bitcoin based on?

Conventional currency has been based on gold or silver. Theoretically, you knew that if you handed over a dollar at the bank, you could get some gold back (although this didn’t actually work in practice). But bitcoin isn’t based on gold; it’s based on mathematics.

Around the world, people are using software programs that follow a mathematical formula to produce bitcoins. The mathematical formula is freely available, so that anyone can check it.

The software is also open source, meaning that anyone can look at it to make sure that it does what it is supposed to.

What are its characteristics?

Bitcoin has several important features that set it apart from government-backed currencies.

1. It’s decentralized

The bitcoin network isn’t controlled by one central authority. Every machine that mines bitcoin and processes transactions makes up a part of the network, and the machines work together. That means that, in theory, one central authority can’t tinker with monetary policy and cause a meltdown – or simply decide to take people’s bitcoins away from them, as the Central European Bank decided to doin Cyprus in early 2013. And if some part of the network goes offline for some reason, the money keeps on flowing.

2. It’s easy to set up

Conventional banks make you jump through hoops simply to open a bank account. Setting up merchant accounts for payment is another Kafkaesque task, beset by bureaucracy. However, you can set up a bitcoin address in seconds, no questions asked, and with no fees payable.

3. It’s anonymous

Well, kind of. Users can hold multiple bitcoin addresses, and they aren’t linked to names, addresses, or other personally identifying information. However…

4. It’s completely transparent

…bitcoin stores details of every single transaction that ever happened in the network in a huge version of a general ledger, called the blockchain. The blockchain tells all.

If you have a publicly used bitcoin address, anyone can tell how many bitcoins are stored at that address. They just don’t know that it’s yours.

There are measures that people can take to make their activities more opaque on the bitcoin network, though, such as not using the same bitcoin addresses consistently, and not transferring lots of bitcoin to a single address.

5. Transaction fees are miniscule

Your bank may charge you a £10 fee for international transfers. Bitcoin doesn’t.

6. It’s fast

You can send money anywhere and it will arrive minutes later, as soon as the bitcoin network processes the payment.

7. It’s non-repudiable

When your bitcoins are sent, there’s no getting them back, unless the recipient returns them to you. They’re gone forever.

So, bitcoin has a lot going for it, in theory. But how does it work, in practice? Read more to find out how bitcoins are mined, what happens when a bitcoin transaction occurs, and how the network keeps track of everything.

Bitcoin is a relatively new form of currency that is just beginning to hit the mainstream, but many people still don’t understand why they should make the effort to use it.

Why use bitcoin? Here are 10 good reasons why it’s worth taking the time to get involved in this virtual currency.

It’s fast

When you pay a cheque from another bank into your bank, the bank will often hold that money for several days, because it can’t trust that the funds are really available. Similarly, international wire transfers can take a relatively long time. Bitcoin transactions, however, are generally far faster.


Transactions can be instantaneous if they are “zero-confirmation” transactions, meaning that the merchant takes on the risk of accepting a transaction that hasn’t yet been confirmed by the bitcoin blockchain. Or, they can take around 10 minutes if a merchant requires the transaction to be confirmed. That is far faster than any inter-bank transfer.

It’s cheap

What’s that you say? Your credit card transactions are instantaneous too? Well, that’s true. But your merchant (and possibly you) pay for that privilege. Some merchants will charge a fee for debit card transactions too, as they have to pay a ‘swipe fee’ for fulfilling them. Bitcoin transaction fees are minimal, or in some cases free.

Central governments can’t take it away

Remember what happened in Cyprus in March 2013? The Central Bank wanted to take back uninsured deposits larger than $100,000 to help recapitalize itself, causing huge unrest in the local population. It originally wanted to take a percentage of deposits below that figure, eating directly into family savings. That can’t happen with bitcoin. Because the currency is decentralized, you own it. No central authority has control, and so a bank can’t take it away from you. For those who find their trust in the traditional banking system unravelling, that’s a big benefit.

There are no chargebacks

Once bitcoins have been sent, they’re gone. A person who has sent bitcoins cannot try to retrieve them without the recipient’s consent. This makes it difficult to commit the kind of fraud that we often see with credit cards, in which people make a purchase and then contact the credit card company to make a chargeback, effectively reversing the transaction.

People can’t steal your payment information from merchants

This is a big one. Most online purchases today are made via credit cards, but in the 1920s and ’30s, when the first precursors to credit cards appeared, the Internet hadn’t yet been conceived. Credit cards were never supposed to be used online and are insecure. Online forms require you to enter all your secret information (the credit card number, expiry date, and CSV number) into a web form. It’s hard to think of a less secure way to do online business. This is why credit card numbers keep being stolen.

Bitcoin transactions, however, don’t require you to give up any secret information. Instead, they use two keys: a public key, and a private one. Anyone can see the public key (which is actually your bitcoin address), but your private key is secret. When you send a bitcoin, you ‘sign’ the transaction by combining your public and private keys together, and applying a mathematical function to them. This creates a certificate that proves the transaction came from you. As long as you don’t do anything silly like publishing your private key for everyone to see, you’re safe.

It isn’t inflationary

The problem with regular fiat currency is that governments can print as much of it as they like, and they frequently do. If there are not enough US dollars to pay off the national debt, then the Federal Reserve can simply print more. If the economy is sputtering, then the government can take newly created money and inject it into the economy, via a much-publicised process known as quantitative easing. This causes the value of a currency to decrease.

If you suddenly double the number of dollars in circulation, then that means there are two dollars where before there was only one. Someone who had been selling a chocolate bar for a dollar will have to double the price to make it worth the same as it was before, because a dollar suddenly has only half its value. This is called inflation, and it causes the price of goods and services to increase. Inflation can be difficult to control, and can decrease people’s buying power. Bitcoin was designed to have a maximum number of coins. Only 21 million will ever be created under the original specification. This means that after that, the number of bitcoins won’t grow, so inflation won’t be a problem. In fact, deflation – where the price of goods and services falls – is more likely in the bitcoin world.

It’s as private as you want it to be

Sometimes, we don’t want people knowing what we have purchased. Bitcoin is a relatively private currency. On the one hand, it is transparent – thanks to the blockchain, everyone knows how much a particular bitcoin address holds in transactions. They know where those transactions came from, and where they’re sent. On the other hand, unlike conventional bank accounts, no one knows who holds a particular bitcoin address. It’s like having a clear plastic wallet with no visible owner. Everyone can look inside it, but no one knows whose it is. However, it’s worth pointing out that people who use bitcoin unwisely (such as always using the same bitcoin address, or combining coins from multiple addresses into a single address) risk making it easier to identify them online.

You don’t need to trust anyone else

In a conventional banking system, you have to trust people to handle your money properly along the way. You have to trust the bank, for example. You might have to trust a third-party payment processor. You’ll often have to trust the merchant too. These organizations demand important, sensitive pieces of information from you. Because bitcoin is entirely decentralized, you need trust no one when using it. When you send a transaction, it is digitally signed, and secure. An unknown miner will verify it, and then the transaction is completed. The merchant need not even know who you are, unless you’ve arranged to tell them.

You own it

There is no other electronic cash system in which your account isn’t owned by someone else. Take PayPal, for example: if the company decides for some reason that your account has been misused, it has the power to freeze all of the assets held in the account, without consulting you. It is then up to you to jump through whatever hoops are necessary to get it cleared, so that you can access your funds. With bitcoin, you own the private key and the corresponding public key that makes up a bitcoin address. No one can take that away from you (unless you lose it yourself, or host it with a web-based wallet service that loses it for you).

You can create your own money

In spite of the amazing advances in home office colour printing technology, most national governments take a fairly dim view of you producing your own money. With bitcoin, however, it is encouraged. You can certainly buy bitcoins on the open market, but you can also mine your own if you have enough computing power. After covering your initial investment in equipment and electricity, mining bitcoins is simply a case of leaving the machine switched on, and the software running. And who wouldn’t like their computer to earn them money while they sleep?

OK, so you’ve learned the basics about bitcoin, the next step is to get some bitcoins. But how? This guide will tell you what you need to know.

You can buy bitcoins from either exchanges, or directly from other people via marketplaces.

You can pay for them in a variety of ways, ranging from hard cash to credit and debit cards to wire transfers, or even with other cryptocurrencies, depending on who you are buying them from and where you live.

 

Surprisingly, it’s still not easy to buy bitcoins with your credit card or PayPal, depending on your jurisdiction.

This is because such transactions can easily be reversed with a phone call to the card company (ie ‘chargebacks’). Since it’s hard to prove any goods changed hands in a transfer of bitcoins, exchanges avoid this payment method and so do most private sellers.

However, the options have recently grown for consumers in some countries inlcuding South Africa in Africa.

First, get yourself a bitcoin wallet at Elcoin.Trade

Next, you will need a place to store your new bitcoins. In the bitcoin world, they’re called a ‘wallet’ but it might be best to think of them as a kind of bank account.

Depending on the security levels you want, different wallets will provide different levels of security. Some act like everyday spending accounts and are comparable to a traditional leather wallet, while others tout military-grade protections.

The main options are: (1) a software wallet stored on the hard drive of your computer, (2) an online, web-based service or (3) a ‘vault’ service that keeps your bitcoins protected offline or multisig wallet that uses a number of keys to protect the account.

Most have their vulnerabilities: if you store bitcoins locally on your computer, make sure you back up your wallet regularly in case the drive becomes corrupted; and online web wallets employ varying degrees of security against hackers, from quite good (multi-factor authentication) to quite poor (ID and password).

For more on storing bitcoins, see our guide on the subject.

Exchanges and Online Wallets

Bitcoin newcomers will find a variety of exchanges and wallets competing for their business.

Some are full-blown exchanges for institutional traders, while others are simpler wallet services with a more limited buying and selling capabilities.

Most exchanges and wallets will store amounts of digital and/or fiat currency for you, much like a regular bank account.

Exchanges and wallets are the best option if you want to engage in regular trading and speculation, don’t need total anonymity and don’t mind lengthy bureaucratic setup procedures that usually involve proof of identity and supplying detailed contact information.

This is the law in most countries and no regulated exchange can get around it, as any company interfacing with the current financial system must meet ‘know your customer’ (KYC) and anti-money laundering (AML) requirements.

The best exchange option also depends where you’re located.

Wallet and bitcoin debit card provider Xapo has also recently entered the fray, offering deposits in fiat currency that are converted to bitcoin in your account.

Once you’ve set up your account, you’ll probably need to link an existing bank account and arrange to move funds between it and your new exchange account via wire transfer. This usually entails a fee. Some exchanges allow you to make a deposit in person to their bank account (that is, via a human teller, not an ATM).

While people in most countries can transfer money to overseas accounts, fees are much higher and you may face more long delays changing your bitcoins back into fiat currency (should you still wish to do that).

If you are required to link a bank account to use the exchange, it may only admit banks from that country.

Face-to-face, or ‘over-the-counter’ (OTC) trades

If you live in a city, prefer anonymity or don’t want bank hassles, the easiest option to acquire bitcoin is to make a face-to-face trade with a local seller.

Elcoin.Trade is the primary site where such transactions are arranged and prices negotiated. The site also provides an escrow service as an added layer of protection for both parties.

There are security considerations for both buyers and sellers, especially if the trade is a sizeable one. Always meet in a busy public place, don’t meet in private homes and take all the precautions you’d usually taken when walking around with large amounts of cash.

Remember, if you’re meeting face-to-face somewhere, you’ll need to have access to your bitcoin wallet. Whether it’s a smartphone, tablet or laptop, you’ll also need live Internet access to confirm the transaction.

If one-on-one trades aren’t your thing, check out Meetup.com to see if your area has a bitcoin meetup group, where you can do it all in a group setting and learn a lot from the other members in the process.

London held its first Satoshi Square event on Saturday 18th January 2014

Depending on the seller, you may pay a premium of around 5-10% over the exchange price for a face-to-face trade, for convenience and privacy. A reputable trader will negotiate the price before a meeting, but many won’t want to wait too long in case bitcoin’s value takes a dramatic shift.

Some sellers may let you use a PayPal account to pay, though most prefer non-reversible cash for the reasons described earlier.

It’s also wise to check first if such trades are legal in your local area. There is also a slight danger you’ll arouse police suspicion by exchanging cash in a public place, if they think you’re trading something more illicit.

A word or two about ‘mining’

What about this mining thing? I’ve heard you can make your own bitcoins.

You might’ve heard about ‘mining’ your own bitcoins with your PC or a powerful graphics card. That was possible until not so long ago, but time and the increasing popularity of bitcoin have brought more and more powerful, mining-specific devices (called ASICs) onto the network, increasing the difficulty and energy required to mine worthwhile amounts of bitcoin.

Added to that, the number of bitcoins remaining to be mined diminishes sharply as time progresses. All this means mining as an individual isn’t as cost-effective as it was just a year ago. Many end up paying more for hardware and electricity than they ever make back in bitcoin.

Most mining these days is the domain of large mining groups called ‘pools’, and companies set up specifically to mine. You may choose to buy shares in such a pool or company, but mining is definitely not the hobbyist pursuit it once was. If you want to get into mining, our guide to that is here.

Anyone who claims you can mine bitcoins with an ordinary PC or even a graphics card array in 2014 either has out-of-date information, or may be trying to sell you outdated equipment. Beware.

Another relatively new option is ‘cloud mining’, where to mine bitcoins without investing in expensive and fast-dating equipment, a person pays to use a company’s data centers to mine on their behalf. For more, see our guide to cloud mining.

An investment trust

If you don’t like the idea of having to buy and safely store a large quantity of bitcoins, you can turn to an investment trust, such as the Elcoin Bitcoin Investment Trust (EBIT)

This trust invests exclusively in bitcoins and uses a state-of-the-art protocol to store them safely on behalf of its shareholders. So far, the fund has been exclusively for serious (i.e.: very rich) investors, but is to open to all, hopefully by the fourth quarter of 2014.

The Bitcoin Superfund is a new option soon to launch in the UK ans South Africa.

Bitcoin ATMs

Though a relatively new concept, bitcoin ATMs are growing in number.

More are on the way, from a number of different vendors including BitAccess, CoinOutlet, Genesis Coin, Lamassu and Robocoin.

Like a face-to-face exchange but with a machine, you insert your cash and either scan your mobile wallet QR code or receive a paper receipt with the codes necessary to load the bitcoins onto your wallet.

Exchange rates vary, and may be anything from 3% to 8% on top of a standard exchange price.

Keep up with the latest bitcoin ATM news and also view the locations worldwide on our bitcoin ATM map.

Conclusion

Buying bitcoins is not always as easy as newcomers expect. The good news is the number of options is increasing, and it is getting easier all the time.

Some may not even necessarily require a wallet or Internet access. Other ideas have included bitcoin debit cards, physical bitcoin ‘coins’ with a wallet value pre-loaded, and stored-value cards.

Bitcoin wallets store the private keys that you need to access a bitcoin address and spend your funds. They come in different forms, designed for different types of device. You can even use paper storage to avoid having them on a computer at all. Of course, it is very important to secure and back up your bitcoin wallet.

Bitcoins are a modern equivalent of cash and, every day, another merchant starts accepting them as payment. We know how they are generated and how a bitcoin transaction works, but how are they stored? We store fiat cash in a physical wallet, and bitcoin works in a similar way, except it’s normally digital.

Bitcoin paper, coin and USB wallets
Bitcoin paper, coin and USB wallets

Well, to be absolutely accurate, you don’t technically store bitcoins anywhere. What you store are the secure digital keys used to access your public bitcoin addresses and sign transactions. This information is stored in a bitcoin wallet.

Bitcoin wallets come in a variety of forms. There are five main types of wallet: desktop, mobile, web, paper and hardware. Here’s how they work.

Desktop wallets

If you have already installed the original bitcoin client (Bitcoin Core), then you are running a wallet, but may not even know it. In addition to relaying transactions on the network, this software also enables you to create a bitcoin address for sending and receiving the virtual currency, and to store the private key for it.

There are other desktop wallets too, all with different features. MultiBit runs on Windows, Mac OSX, and Linux. Hive is an OS X-based wallet with some unique features, including an app store that connects directly to bitcoin services.

Some desktop wallets are tailored for enhanced security: Armory falls into this category.

Others focus on anonymity: DarkWallet – uses a lightweight browser plug-in to provide services including coin ‘mixing’ in which users’ coins are exchanged for others’, to prevent people tracking them.

Mobile wallets

Desktop-based wallets are all very well, but they aren’t very useful if you are out on the street, trying to pay for something in a physical store. This is where a mobile wallet comes in handy. Running as an app on your smartphone, the wallet can store the private keys for your bitcoin addresses, and enable you to pay for things directly with your phone.

In some cases, a bitcoin wallet will even take advantage of a smartphone’s near-field communication (NFC) feature, enabling you to tap the phone against a reader and pay with bitcoins without having to enter any information at all.

One common feature of mobile wallets is that they are not full bitcoin clients. A full bitcoin client has to download the entire bitcoin blockchain, which is always growing and is multiple gigabytes in size. That could get you into a heap of trouble with your mobile service provider, who will be only too happy to send you a hefty bill for downloading it over a cellular link. Many phones wouldn’t be able to hold the blockchain in their memory, in any case.

Instead, these mobile clients are often designed with simplified payment verification (SPV) in mind. They download a very small subset of the blockchain, and rely on other, trusted nodes in the bitcoin network to ensure that they have the right information.

Examples of mobile wallets include the Android-based Bitcoin wallet, Mycelium, Xapo and Blockchain(which keeps your bitcoin keys encrypted on your phone, and backed up on a web-based server).

Apple is notoriously paranoid about bitcoin wallets. Coinbase had its mobile wallet app pulled from the app store altogether in November 2013, and this was followed in February 2014 by removal of Blockchain’s iOS app. However, in July 2014, bitcoin wallet apps began to reappear on the iOS store, and now all of the major bitcoin wallet providers have released new editions of their previous apps.

Aegis Wallet Wear Moto 360
The Aegis Bitcoin Wallet even supports android smartwatches

There are also other types of wallets that can be used on a mobile, such as the browser-based wallet CoinPunk is developing. Another unusual wallet is the Aegis Bitcoin Wallet, which supports Android smartwatches.

Online wallets

Web-based wallets store your private keys online, on a computer controlled by someone else and connected to the Internet. Several such online services are available, and some of them link to mobile and desktop wallets, replicating your addresses between different devices that you own.

One advantage of web-based wallets is that you can access them from anywhere, regardless of which device you are using. However, they also have one major disadvantage: unless implemented correctly, they can put the organisation running the website in charge of your private keys – essentially taking your bitcoins out of your control. That’s a scary thought, especially if you begin to accrue lots of bitcoins.

Coinbase, an integrated wallet/bitcoin exchange operates its online wallet worldwide. Users in the US and Europe can buy bitcoin through its exchange services.

Circle offers users worldwide the chance to store, send, receive and buy bitcoins. Currently only US citizens are able to link bank accounts to deposit funds, but credit and debit cards are also an option for users in other countries.

Blockchain also hosts a popular web-based wallet, and Strongcoin offers what it calls a hybrid wallet, which lets you encrypt your private address keys before sending them to its servers – encryption is carried out in the browser.

Xapo aims to provide the convenience of an simple bitcoin wallet with the added security of a cold-storage vault.

Hardware wallets

Hardware wallets are currently very limited in number. These are dedicated devices that can hold private keys electronically and facilitate payments.

Trezor hardware wallet

Trezor Bitcoin Wallet CoinDesk
The Trezor hardware wallet is available from $99 directly from SatoshiLabs

The Trezor hardware wallet is targeted at bitcoiners who wish to maintain a substantial stash of coins, but do not want to rely on third-party bitcoin storage services or impractical forms of cold storage. Read our Trezor hardware wallet review to find out more.

Ledger USB wallet

ledger-wallet-nano-review-vires-keyboard
The Ledger Wallet Nano is Available driect for €34.80 and also from Overstock

The compact Ledger USB Bitcoin Wallet uses smartcard security and is available for a reasonable price. CoinDesk reviewed this wallet in December 2014.

KeepKey launched a hardware wallet in September 2015, which is priced at $239 a unit. The KeepKey wallet software was originally a fork of Trezor’s code.

KeepKey
The KeepKey hardware wallet is for sale for $239.

Mycelium, Cryptolabs and BitStash currently have a hardware wallets in development, but, as of September 2015 none of these had delivered finished products. Announced on February 4th 2014, is the Nymi sports wristband from Boinym, which can act as a bitcoin wallet and uses your heart rhythm as a security key.

Paper wallets

One of the most popular and cheapest options for keeping your bitcoins safe is something called a paper wallet. There are several sites offering paper bitcoin wallet services. They will generate a bitcoin address for you and create an image containing two QR codes: one is the public address that you can use to receive bitcoins; the other is the private key, which you can use to spend bitcoins stored at that address.

A bitcoin paper wallet
A bitcoin paper wallet

The benefit of a paper wallet that is made correctly is that the private keys are not stored digitally anywhere, and are therefore not subject to standard cyber-attacks or hardware failures.

To find out more about creating a paper wallet, read our tutorial.

Are bitcoin wallets safe?

It depends how you manage them. The private keys stored in your wallet are the only way to access the transaction data stored in a bitcoin address. If you lose them, you lose your bitcoins. So, they are only safe in so far as no one else can access them, and they don’t get lost.

Are bitcoin wallets anonymous?

On the one hand, bitcoin is entirely anonymous. On the other, it is completely transparent and trackable.  Due to this fact, bitcoin is often cited as being pseudonymous.

This fact resulted in some companies emerging with the goal of controversially tracking suspect transactions to ‘police’ the blockchain. To counter this, ideas were developed in the bitcoin community to take anonymity further, such as merge avoidance, stealth addresses, and coin mixing.

The alpha version of Dark Wallet – a crowdfunded bitcoin wallet – went live in May 2014. Created by Amir Taaki and Cody Wilson, Dark Wallet was designed to provide new tools for financial privacy, including in-built coin mixing and stealth wallet addresses. At the time of writing, the developers are urging users to use the testnet with ‘play money’ to iron out bugs before risking significant amounts of bitcoin.

Wallets and services like Dark Wallet ultimately mean that using bitcoin can be as anonymous as you want it to be.

How can I secure my wallet?

There are several ways to make your bitcoin wallet more secure:

Encrypt it

One way to protect your wallet from prying eyes is to encrypt it with a strong password. This makes it difficult to access your wallet, but not impossible. If your computer is compromised by malware, thieves could log your keystrokes to find your password.

Back it up

If you have your private keys stored in one wallet, but you mislay that wallet or it gets corrupted, you will lose your keys. Backing up your wallet makes a copy of your private keys, but it’s important to back up your whole wallet. Some addresses are used to store change from transactions, and may not be shown to you by default. Back up the whole wallet in several different places, and keep them safe from prying eyes.

Use multisig

The number of services which support multi-signature transactions is increasing. Multi-signature addresses allow multiple parties to partially seed an address with a public key. When someone wants to spend some of the bitcoins, they need some of these people to sign their transaction in addition to themselves. The required number of signatures is agreed at the start when people create the address.

Since multiple signatures are needed before funds can be spent, the additional signatures could come from, say, a business partner, your significant other, or even from a second device which you own, to add a second factor to spending your coins.

Take it offline

Safe with cash insideIf you are too nervous to store your bitcoin keys digitally, for fear that they may be stolen by hackers, there is another option: ‘cold storage’. Cold storage wallets store private bitcoin keys offline, so that they can’t be stolen by someone else on the Internet.

It’s a good idea to use cold storage for the bulk of your bitcoin fortune, and transfer just a little to separate bitcoin addresses in a ‘hot’ wallet with an Internet connection, making it easy to spend. That way, even if your mobile phone is lost, or the hot wallet on your notebook PC is erased during a hard drive crash, only a small amount of bitcoin cash is at risk.

Many software bitcoin wallets feature a cold storage option. Or, you could go completely analogue, and simply use paper wallets for offline storage.

This year has been something of a watershed, with a number of merchants – some of them retail giants with billions of dollars in revenue – deciding to accept bitcoin in exchange for goods and services. Many of them are online e-commerce sites, but an increasing number of bricks-and-mortar stores are also now accepting cryptocurrency.

While in the past trying to find a bitcoin-accepting merchant for the item you want was often tricky or even impossible, there are now growing options for people who don’t wish to pick their way through hundreds of listings just to find products vaguely approximating those they want.

The best way to find bitcoin-accepting merchants is via marketplaces and aggregator sites that gather large numbers of supporting establishments together at once. CoinMap.org also offers a visual way to locate bitcoin stores in any geographical area, and new businesses are appearing all the time. However, CoinDesk has summed up some of the more notable examples of both online and real-world stores in the guide below.

Spending your bitcoin

In previous guides, we’ve told you how to mine bitcoin, and how to buy it. However you acquired your digital currency, if it’s not purely an investment, you’re going to want to spend it at some point. So, what can you buy with bitcoin?

Buying physical goods with bitcoin

Online e-commerce sites

Microsoft products pageGlobal computing giant Microsoft added bitcoin as a payment option for a variety of digital content across its online platforms in December 2014. According to the company’s payments information page, US-based customers can now use bitcoin to add money to their accounts, which can then be used to purchase content like apps, games and videos from its Windows, Windows Phone and Xbox platforms.

Dell, the multinational computer technology specialist, announced in July that it is accepting bitcoin through a partnership with Coinbase. As an introductory offer, people buying with bitcoin will get a price reduction of 10% on high-end Alienware PCs. With annual revenue approaching $57bn, Dell is roughly four times the size of DISH Network – the previous biggest bitcoin-accepting business.

Overstock became the first major retailer to accept bitcoin when it made the announcement back in January 2014. The firm offers everything from furniture to jewellery to electronics. Prices are in dollars but there is an option to pay in BTC on the checkout page. Initially a US-only offering, the firm opened up bitcoin purchases to over 100 countries in September.

Newegg, also a retail giant, is a Los Angeles-based company that recorded $2.8bn in annual revenue in 2013. It specialises in computer hardware and software, but also sells a variety of appliances and goods.

Showroomprive.com took the crown of largest European company to start accepting payment in bitcoin in September 2014. The merchant, which sells a variety of products including clothes, fashion accessories, cosmetics and homeware, is to accept bitcoin via European cryptocurrency company Paymium. At the time of the announcement, its websites in France and the Netherlands were accepting bitcoin, with other countries to follow over coming weeks. It has not yet announced a plan to integrate the digital currency with its mobile app platform.

TigerDirect, the online retailer of computers and consumer electronics now accepts payments in bitcoin. This is handy, perhaps, for miners who can buy kit with coin they have mined.

Monoprix is a major French retail chain that has announced plans to start accepting bitcoin payments on its merchant website this year. The company further indicated that it is also working on a mobile payment solution for physical stores and bitcoin could eventually be used there too.

Bitcoinshop.us offers products from air-conditioners to watches, all priced in bitcoin (and, as of July 14th 2014, litecoin and dogecoin too), for those wanting to make a purchase. The catch: it only ships to people in the continental US.

Memory Dealers carries a range of networking hardware equipment and computer memory. It has been a ‘bitcoin believer’ from the beginning.

AirBaltic, the Latvian airline, may be the first to accept payments in bitcoin, after starting accepting the cryptocurrency on 17th July. A company representative said that the bitcoin payment option is offered for basic class fares, excluding China, Indonesia, India, Iceland, Jordan, Japan, Lebanon, Malaysia, Russia, Taiwan and Vietnam. After initially and controversially charging a fee of 5.99 euros per bitcoin transaction, airBaltic changed its mind and now has no fee.

Air Lituanica, another Eastern European airline, is now accepting bitcoin for flight tickets as part of its ongoing bid to embrace new and innovative methods of serving customers.

CheapAir.com, the California-based online travel booking website, started taking bitcoin in November 2013 and announced in July that it has completed more than $1.5m in bitcoin sales on flights, around 200,000 hotels and Amtrak railway bookings via its platform.

BTCTrip is an online flight and hotel booking service that was one of the first in its industry to serve the bitcoin community. As of August 2014, the firm also accepts payments in dogecoin and litecoin.

The UK’s Theatre Tickets Direct has recently started accepting bitcoin, offering a ticket booking service for mostly London shows, such as West End theatre and musicals.

Honest Brew is a UK-based online beer platform that specialises in craft beers from its own and guest breweries – including quirky labels like Weird Beard, BrewDog and Pressure Drop.

Coco Mats ’n More offers bitcoin-logoed doormats for fans of the cryptocurrency, as well as ‘Bitcoin Accepted Here’ mats for merchants wanting to advertise the payment option.

CoinDesk frequently discovers interesting local sellers: Keystone Pet Place will handle all your pet’s needs, The Java Nomad will ship you fresh coffee beans from Bali and Persian Shoes will sell you handmade shoes and bags from Iran. Several local, niche merchants accept bitcoin only and will not/cannot accept fiat currency.

The good news is that there are hundreds of small retailers accepting bitcoin too.  One of our favourites at CoinDesk (We’d love one in our office) are these beautiful, hand-made Water Filter Crocks. Coinmap and UseBitcoins.info keep up-to-date databases of these shopping destinations.

Using bitcoin to obtain discounts
Purse.io is a peer-to-peer marketplace that matches individuals wanting to buy items on Amazon at a discount with others wanting to buy bitcoin with a credit card or via PayPal. The service claims potential discounts of up to 20% for bitcoin shoppers. Read our review of the service here.

Bitcoin gift cards

eGifter cardsIf you can’t find physical or online stores that accept bitcoin directly for the item(s) your require, the easiest way to turn your digital currency into ‘real-world’ goods and services is via gift cards.

Plenty of gift card businesses accept bitcoins and these cards can be used at a surprising number of major retailers like Walmart, Amazon, Target and Nike. For US customers, companies like Gyft, eGifter, iTradeBTC and GiftCardZen have the widest range of options.

In the UK, Gift Off lets customers use 15 cryptocurrencies to buy gift cards for 177 retailers, such as Amazon, Marks & Spencer, Ryan Air, and American Apparel. The service is currently rolling out to the EU too, with France and Germany being first to receive a more limited number of gift card options. More countries and retailers are planned to follow soon.

Note: many gift cards are only valid in their country of issue, which is usually the United States (although overseas shoppers may still make purchases with gift cards from US retailers in many cases). Other countries have their own options; for example, Australians can see what’s available at Bitcoin Gift Cards. You will usually pay a little more to trade your bitcoins for gift cards (around 5-10% is normal) but on the upside, you don’t need to deal with exchanges or transfers.

Physical stores that accept bitcoin

diamondbtcREEDS Jewelers, a large jewelery chain in the US, is one of the most notable merchants to accept bitcoin as a form of payment. The firm is headquartered in Wilmington, North Carolina, and has 64 retail locations in the eastern US, as well as an online presence. The retailer, which has been in business since 1946, is allowing its customers to pay using bitcoin both in-store and online.

CeX, a UK technology exchange and retailer, launched a one-store bitcoin-only payments initiative in Glasgow this May, as well as Scotland’s first bitcoin ATM. It has now rolled out ongoing bitcoin acceptance to 30 stores across Britain, with more to follow soon.

The Sacramento Kings NBA franchise accepts bitcoin for products including tickets, jerseys, hot dogs and beer. The team says it will accept the currency online and at the Sleep Train Arena, its home stadium.

The San Jose Earthquakes, a soccer club from California, implemented bitcoin integration at the team’s Buck Shaw Stadium on 25th May. Coinbase is acting as the stadium’s bitcoin payments processor, leveraging the exchange’s tablet app to accept payments. Game attendees can use bitcoin to buy tickets at the box office and additionally pay for concessions at certain locations and buy merchandise at the stadium gift shop.

Perhaps stretching the definition of a store, a private hospital in Warsaw, Poland, which is run by the Medicover Group, will soon let patients pay their bills in bitcoin. The medical facility is probably the first to accept payments for the full range of healthcare services, including major surgery.

Check out CoinMap.org for a large number of smaller bricks-and-mortar bitcoin stores across the globe.

Where to Buy and Sell Bitcoin


One of the dreams of the cryptocurrency community is to be able to travel – across borders, perhaps –and to be able to pay in bitcoin. This would avoid having to visit currency exchanges and pay their commissions and fees, while also avoiding the need to carry much cash around. Now the dream is starting to take off, with notable names starting to welcome bitcoin onboard.

Hotels and property

Most notably, Expedia has announced it will now accepts bitcoin for all hotel bookings, making it the first major travel company to accept payments in cryptocurrency. Expedia said bitcoin will be integrated into the payment options for customers at check-out, sitting alongside payment methods like PayPal and Visa. If all goes well, the company says it may expand the payments option to other areas of its business, including flights.

A Holiday Inn hotel in Brooklyn, New York, is now accepting bitcoin payments in a pilot programme overseen by by bitcoin entrepreneur Charlie Shrem. The Park Slope Holiday Inn Express is located on Union Street in Brooklyn and bitcoin reservations are possible either by phone, online or in person. Again, if the pilot goes well, the chain should open up more hotels to bitcoin paying customers.

Spanish chain One Shot Hotels has been accepting bitcoin payments since 1st October 2014 for its two locations in Madrid (one with its own bitcoin ATM). New branches in Barcelona, Valencia, Seville and London are planned for the future and will accept bitcoin too.

Offering international investors the chance to buy UK properties with an extensive range of digital currencies, including bitcoin, Cai-Capital claims to be the first UK firm providing this facility. Targeting markets such as China, Russia and the Middle East, the Cheltenham-based company, which works in partnership with estate agent Hill-Mathieson & Partners, hopes that cryptocurrency payments will draw in new customers for the company’s sales, letting and property management services.

Bars and restaurants

Bars and restaurants that accept bitcoin remain the exception, rather than the rule. Luckily they’re usually great places to go. If you’re determined to spend your digital currency on a plate of fish and chips, or a cold beer, there are easy ways to find out where you can go.

Bitcoin.Travel is a respected site, offering a mappable list of accommodation, apartments, attractions, bars, and beauty salons around the world. Coinmap also maintains a worldwide database of establishments.

If you’re in London, UK, the Pembury Tavern is well known, as is the Old Fitzroy pub if you’re in Sydney, Australia. If you make it to Tokyo, you’ll find local bitcoiners dining out on bitcoin at The Pink Cow.

For those who happen to be both peckish and located in London, a quick snack can be had for both bitcoin and dogecoin at the Burger Bear stall, which sells a range of artisan burgers and also caters for parties and events. The business has also just completed a crowdfunding campaign for more permanent establishment in the near future too.

When it comes to food and drink, there are other ways to spend bitcoins, even if a restaurant doesn’t directly accept them.

Foodler, a site enabling you to browse and order delivery and take-out meals from restaurants across the globe, has over 13,000 restaurants in 3,150 cities on its books. You can use bitcoins to pay for ‘Foodler credits’, which can be used at any of the restaurants.

Takeaway.com, a European online food ordering site which employs over 100 people and reported a revenue of over €100m in 2012, announced in November 2013 that its website in the Netherlands was accepting payment in bitcoin via payment processor BitPay.

Interestingly, we are starting to see nascent clusters of bitcoin-friendly establishments. For example, the Bitcoin-Kiez in Berlin is persuading local establishments in small numbers along the Graefekiez there to support bitcoin.

Similarly, in the Netherlands, all of the businesses (nine restaurants and an art gallery) along two canal-side streets in the centre of the Hague have collectively started to accept bitcoin. Unofficially the two streets running along the canal – Bierkade and Groenewegje – have also changed their name to ‘Bitcoin Boulevard’.

Payment platforms

Another development that has recently seen large numbers of merchants joining the bitcoin space en masse is the adoption of the digital currency by payments platform providers. These companies offer businesses the ability to easily accept payments from customers by a variety of means, such as credit/debit cards and PayPal. The good news for the crypto community is that they are also starting to roll out bitcoin services too. The merchant may not necessarily have made the bitcoin functionality live on their stores yet, but many will have and more are bound to follow.

Perhaps the biggest news of 2014 in this space was that, in September, PayPal announced partnerships with three major bitcoin payment processors – BitPay, Coinbase and GoCoin. The move means that online merchants will now be able to accept bitcoin via all three companies through its PayPal Payments Hub, a product that enables customers to accept credit cards, mobile carrier payments and other payment methods through a single integration.

Popular e-commerce platform Shopify added a bitcoin payment option for its sellers in late 2013. With a base of over 70,000 online stores, the number of goods that can potentially be purchased with bitcoin suddenly expanded significantly. Strangely, finding them is not currently very easy, because the Shopify.com marketplace page no longer exists, however there is a list of 75 stores now accepting BTC on their blog.

Commerce-as-a-service solutions provider Digital River, a company that processed more than $30bn in online transactions in 2013, announced in June that it was adding bitcoin as a payment option for its online merchants. The offering is now available to merchants using the Minnesota-based company’s SWREG solution for small and mid-sized businesses.

Similarly, Mollie, a payments platform in the Benelux region has potentially opened up over 10,000 merchants to bitcoin buyers.

Buying services with bitcoin

US satellite service provider DISH Network announced that it will start accepting bitcoin payments later this year. The Colorado-based company is one of the biggest content providers in America, with more than 14 million pay-TV subscribers. DISH says bitcoin payments will be made available to all customers who decide to make one-time payments on mydish.com starting in the third quarter of 2014, but it has not yet revealed an exact date. Once it does, it will become the biggest company to accept bitcoin to date. Last year DISH Network Corporation reported revenue of $13.9bn. The company has more than 30,000 employees.

Following its successful test with bitcoin micropayments provider BitWall back in February, the Chicago Sun-Times has announced that it has partnered with San Francisco-based bitcoin startup Coinbase to accept bitcoin payments for subscriptions. The announcement makes the Sun-Times the first US newspaper to accept bitcoin as a payment option.

A property listings site in the US gives a discount to users who advertise on the site and pay in bitcoin. The listings site, called RentHop, is offering landlords and agents who advertise properties in New York a discount of up to 60% if they pay for their adverts in bitcoin. RentHop customers pay for ads with credits purchased from the site.

How about paying for education with bitcoin? Orlando, Florida-based online interactive education specialist Treehouse now accepts bitcoin for its subscription web design and web development education services. The firm, which to date has raised $24.6m through six funding rounds, boasts 70,000 students who use the platform to learn valuable skills in languages and software such as Android, CSS, HTML, Java, jQuery, iOS and Ruby, among others.

And if you’re looking for friends or love, OKCupid, the matchmaking site, began accepting bitcoin payment way in April 2013, making it an extremely early adopter as far as large companies go. With four million users as of 2013, OKCupid is part of IAC, a media and Internet company whose holdings include Ask.com, Vimeo and Match.com. While OKCupid boasts of being completely free, it also offers an ‘A-List’ premium subscription that brings extra features which can be paid in cryptocurrency.

“The most dangerous global sorority of beautiful pin-up girls that has ever existed” is now accepting bitcoin for its membership subscriptions. SuicideGirls is a popular adult-themed online community that bills itself as a celebration of alternative lifestyles and female empowerment. Some 2,624 SuicideGirls provide photos, video and blog posts to the website. Further, the larger brand has expanded from photography and video to include comic books, magazines and books since its launch in 2001.

Web/tech services

Perhaps not surprisingly for a movement that requires a fair bit of technical know-how, bitcoin has garnered a lot of support from the online services community. Hosting companies in particular are willing to give your website or server a home on the Internet in exchange for bitcoin.

The bitcoin wiki has a good list. WordPress is among the most visible and popular sites, and will offer you a blogging presence online for payment in cryptocurrency. You can also go to BitcoinCodes to buy credits for Steam, Spotify, XBoxLive, PlayStation Network and AirVPN. Namecheap accepts bitcoin directly as payment for domain services. If you want a little more privacy online, several VPN (virtual private network) providers now accept only bitcoin after being blocked by credit card companies and PayPal.

Bitcoin gambling sites

One of the biggest destinations for people’s bitcoin is online gambling. It’s fast, with an immediate return (or loss) and bets can start relatively small. When done properly, it’s also easy to prove that bets are fair – either by tracking payouts in the block chain, or by using external proof.

SatoshiDice has been the most popular online gambling site. Users mail money to one of a set of addresses, and in return they get a payout based on the probability of winning. Others include PeerBet – which accepts a host of cryptocurrencies other than bitcoin – plus Primedice.

Bullion traders

If you prefer your sound money in slightly heavier form, you have several choices. BitGold, a startup which recieved $3.5m in funding in 2014, offers a service which utilizes gold for payments and savings.

Amagi Metals has been trading bitcoins for precious metals since 2012. Based in Denver, the company sells bullion via its e-commerce site to almost anywhere in the world and says bitcoin is a great tool for promoting interest in financial responsibility.

Online bitcoin marketplaces and auctions

Online marketplaces are another way to spend bitcoins. They are effectively clearing houses that enable anyone to sell products to anyone else.

It all started with Silk Road, an underground marketplace that enabled people to sell illicit goods and services using bitcoin. The site, only accessible via the Tor anonymous browsing system, capitalized on the currency’s ability to facilitate anonymous trades (if you know what you’re doing).

Silk RoadSilk Road got shut down in October 2013 and promptly ‘returned’ a month later. If that’s not your game, there are more legitimate bitcoin marketplaces where you can spend your coins. Most of them are still in the fledgling stage and have a limited range of goods to offer, though.

Bitcoin Market and Cryptothrift are two category-driven sites, albeit sparsely populated. Flibbr allows you to search listed products by name. Reddit offers a subthread called Bitmarket, that allows people to list their goods as Reddit posts.

There are other, specialist sites popping up. BitPremier will sell your high-end luxury items for bitcoins, using an escrow service. It has an impressive selection of high-end listings including luxury cars, yachts, condos, antiques, and artworks. There is even an island for sale.

Tipping, or donating bitcoin to a cause

Feel like giving your bitcoins away to a good cause, or to reward an interesting comment? Here’s The Sri Lanka Campaign for Peace and Justice, a London-based NGO that campaigns for “justice, human rights and reconciliation” in Sri Lanka, and Sean’s Outpost – a homeless shelter in Pensacola, Florida.

Bitcoin transactions are sent from and to electronic bitcoin wallets, and are digitally signed for security. Everyone on the network knows about a transaction, and the history of a transaction can be traced back to the point where the bitcoins were produced.

Holding onto bitcoins is great if you’re a speculator waiting for the price to go up, but the whole point of this currency is to spend it, right? So, when spending bitcoins, how do transactions work?

There are no bitcoins, only records of bitcoin transactions

Here’s the funny thing about bitcoins: they don’t exist anywhere, even on a hard drive. We talk about someone having bitcoins, but when you look at a particular bitcoin address, there are no digital bitcoins held in it, in the same way that you might hold pounds or dollars in a bank account. You cannot point to a physical object, or even a digital file, and say “this is a bitcoin”.

Instead, there are only records of transactions between different addresses, with balances that increase and decrease. Every transaction that ever took place is stored in a vast public ledger called the block chain. If you want to work out the balance of any bitcoin address, the information isn’t held at that address; you must reconstruct it by looking at the blockchain.

What does a transaction look like?

If Alice sends some bitcoins to Bob, that transaction will have three pieces of information:

  • An input. This is a record of which bitcoin address was used to send the bitcoins to Alice in the first place (she received them from her friend, Eve).
  • An amount. This is the amount of bitcoins that Alice is sending to Bob.
  • An output. This is Bob’s bitcoin address.

How is it sent?

How do bitcoin transactions workTo send bitcoins, you need two things: a bitcoin address and a private key. A bitcoin address is generated randomly, and is simply a sequence of letters and numbers. The private key is another sequence of letters and numbers, but unlike your bitcoin address, this is kept secret.

Think of your bitcoin address as a safe deposit box with a glass front. Everyone knows what is in it, but only the private key can unlock it to take things out or put things in.

When Alice wants to send bitcoins to Bob, she uses her private key to sign a message with the input (the source transaction(s) of the coins), amount, and output (Bob’s address).

She then sends them from her bitcoin wallet out to the wider bitcoin network. From there, bitcoin miners verify the transaction, putting it into a transaction block and eventually solving it.

Why must I sometimes wait for my transaction to clear?

Because your transaction must be verified by miners, you are sometimes forced to wait until they have finished mining. The bitcoin protocol is set so that each block takes roughly 10 minutes to mine.

Some merchants may make you wait until this block has been confirmed, meaning that you may have to make a cup of coffee and come back again in a short while before you can download the digital goods or take advantage of the paid service.

On the other hand, some merchants won’t make you wait until the transaction has been confirmed. They effectively take a chance on you, assuming that you won’t try and spend the same bitcoins somewhere else before the transaction confirms. This often happens for low value transactions, where the risk of fraud isn’t as great.

What if the input and output amounts don’t match?

Because bitcoins exist only as records of transactions, you can end up with many different transactions tied to a particular bitcoin address. Perhaps Jane sent Alice two bitcoins, Philip sent her three bitcoins and Eve sent her a single bitcoin, all as separate transactions at separate times.

These are not automatically combined in Alice’s wallet to make one file containing six bitcoins. They simply sit there as different transaction records.

When Alice wants to send bitcoins to Bob, her wallet will try to use transaction records with different amounts that add up to the number of bitcoins that she wants to send Bob.

The chances are that when Alice wants to send bitcoins to Bob, she won’t have exactly the right number of bitcoins from other transactions. Perhaps she only wants to send 1.5 BTC to Bob.

None of the transactions that she has in her bitcoin address are for that amount, and none of them add up to that amount when combined. Alice can’t just split a transaction into smaller amounts. You can only spend the whole output of a transaction, rather than breaking it up into smaller amounts.

Instead, she will have to send one of the incoming transactions, and then the rest of the bitcoins will be returned to her as change.

Alice sends the two bitcoins that she got from Jane to Bob. Jane is the input, and Bob is the output. But the amount is only 1.5 BTC, because that is all she wants to send. So, her wallet automatically creates two outputs for her transaction: 1.5 BTC to Bob, and 0.5 BTC to a new address, which it created for Alice to hold her change from Bob.

Are there any transaction fees?

Sometimes, but not all the time.

Transaction fees are calculated using various factors. Some wallets let you set transaction fees manually. Any portion of a transaction that isn’t picked up by the recipient or returned as change is considered a fee. This then goes to the miner lucky enough to solve the transaction block as an extra reward.

Right now, many miners process transactions for no fees. As the block reward for bitcoins decreases, this will be less likely.

One of the frustrating things about transaction fees in the past was that the calculation of those fees was complex and arcane. It has been the result of several updates to the protocol, and has developed organically.

Updates to the core software handling bitcoin transactions will see it change the way that it handles transaction fees, instead estimating the lowest fee that will be accepted.

Can I get a receipt?

ReceiptBitcoin wasn’t really meant for receipts. Although there are changes coming in version 0.9 that will alter the way payments work, making them far more user-friendly and mature.

Payment processors like BitPay also provide the advanced features that you wouldn’t normally get with a native bitcoin transaction, such as receipts and order confirmation web pages.

What if I only want to send part of a bitcoin?

Bitcoin transactions are divisible. A satoshi is one hundred millionth of a bitcoin, and it is possible to send a transaction as small as 5430 satoshis on the bitcoin network.

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?

is bitcoin legalGovernment 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 documenthighlighting 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

United States of America flagEach 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.

New York’s BitLicense was the first virtual currency-specific licensing regime to address bitcoin and digital currencies in the US.

Developed by the New York State Department of Financial Services and released in June 2015, the regulation stands in contrast to decisions by US states such as Texas and Vermont to apply existing financial law to the use of the technology, as well as efforts in California to amend prior legislation.

It has emerged as the most recent example of the challenge governments face when attempting to regulate an emerging technology.

BitLicense Research

 

Private sector companies (banks)

Several banks have stopped accounts owned by people operating bitcoin exchanges. In at 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

US tax formIn 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 the Financial Timesthat 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 called DATA, 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 flagCanada 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 document outlining 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 flagBolivia

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 flagBrazil

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

Colombia flagThe 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 flagEcuador

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

Mexico flagOn 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

EU flagThe 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

Belgium flagThe 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 flagBulgaria’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

Cyprus flagLong 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 Cyprus issued a statement on 7th February 2014 warning about bitcoin’s volatility and reminding citizens it is not recognized as legal tender.

Denmark

Denmark flagSo 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 flagEstonia’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 flagFinland 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

France flagThe 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 flagGermany 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 flagGreece, 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

Iceland flagOne 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 flagLithuania, 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

Netherlands flagHolland 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 flagSlovenia 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 flagSweden’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.

South Africa

South Africa’s  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

Russian Federation flag“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

Ukraine flagDespite 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

United Kingdom flagMeetings 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 flagChina’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 flagHong Kong’s Secretary for Financial Services and the Treasury issued a warningabout 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 flagIndonesia’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 flagIndia’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

Japan flagAt 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 like Blockchain.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 flagKyrgyzstan

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 flagMalaysia’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 flagSingapore 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)

Taiwan flagThe 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

Thailand flagOn 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

Vietnam flagThe 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

Israel flagThe 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 a joint 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

Jordan flagThe 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

Lebanon flagThe country’s central bank, the Bank of Lebanon, issued a warning statement 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

New Zealand flagBoth 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 Australia flag

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.