Bitcoin isn’t anything new. It’s been around for over a decade. However, this doesn’t mean that everybody knows how it works or its origins. Some people also find themselves wondering about the legality of this type of currency. So, is Bitcoin legal?

We’ve put together a comprehensive guide that outlines all of the information you need to know. Let’s dive in.🤿

What Is Bitcoin?

Interestingly, many people don’t know precisely what Bitcoin is. For those unaware, Bitcoin is a type of digital currency (also known as cryptocurrency) primarily used to avoid providing personal information during transactions. To elaborate, paying for something with Bitcoin is possible if you have an Internet connection. Many people think of this type of currency as a form of digital cash.


One of the primary benefits of Bitcoin is that a government cannot manipulate or tamper with it. So naturally, this attribute itself is highly enticing to many Bitcoin holders. For the average person, though, Bitcoin is simply part of their investment portfolio. BTC is volatile due to the mystique that surrounds it. Individuals are still determining whether or not they trust it, and many need help deciding whether they believe it will be around in the future.


Of course, there are plenty of others who feel the opposite. This duality causes the price of Bitcoin to fluctuate regularly. For those who have never been involved with using or investing in Bitcoin, there is more information you need to know first.

How Does It Work?

Is bitcoin legal?

Since Bitcoin is not a physical currency, all its information lies within a public archive known as a ledger. Everyone who owns Bitcoin has access to this information. This ledger is also known as something called the blockchainBitcoin is created through a process known as mining. So although you may be picturing the infamous Gold Rush in the southwestern United States, you aren’t quite as far off as you might expect.

Bitcoin mining is achieved by solving complex mathematical problems with high-powered computers. These math problems are so extensive and challenging that they are impossible to solve by hand. After enough of these have been solved, a “block” will be completed and added to the blockchain. This step essentially provides extra space to store additional information about Bitcoin transactions.


Although it’s possible to mine your own Bitcoin, this is often a fruitless endeavor. Moreover, to do so at a sufficient rate, you’ll need many high-powered computers (and plenty of extra money to spend on your electric bill). In fact, people sometimes transform entire warehouses into Bitcoin mining facilities. Every single Bitcoin transaction is verified within the blockchain. As you might expect, this also takes massive computing power. After each transaction, a unique string of numbers and letters known as a “key” generates. The key essentially serves as a receipt of the transaction. These factors combine to create a digital currency that can be used for instant payments and transfers by leveraging a decentralized network (the blockchain).

Why Do People Think Bitcoin Is Illegal?

There are a handful of reasons why people think Bitcoin is illegal. They may have heard from a relative in another country that its government has just outlawed it. Or, they may have seen a news headline that described a scenario where hackers demanded payment in the form of Bitcoin. Immediately jumping to this conclusion doesn’t come without consequences. Not only do you forego the utility that Bitcoin can provide, but you also eliminate it as an investment opportunity.

Let’s briefly explore the above factors and some of the most notable ones.

It Is Associated With Criminal Activity

Because Bitcoin is centered around facilitating private transactions, it should come as no surprise that criminals take advantage of it. One of the most common scenarios involves criminals stealing or encrypting sensitive information on someone’s computer and then demanding a payment in Bitcoin before granting access to this data. In context, this is known as a ransomware attack. However, in an attempt to remain as untraceable as possible, criminals also use Bitcoin and other forms of cryptocurrency when buying illegal products or services. Therefore, questioning Bitcoin’s legality due to the above scenario would be the same as saying cash should be outlawed because criminals use it.

Certain Countries Have Banned Bitcoin

Is bitcoin legal?

In contrast, this is a far more legitimate reason to question the legality of Bitcoin.

In May 2021, China made a move that many investors had feared for a significant time — they outlawed the use of Bitcoin entirely. This means it is illegal to mine and trade with Bitcoin (and cryptocurrency in general) in China. China was home to a large percentage of Bitcoin miners. So, the market price of this cryptocurrency immediately fell. 


Although Bitcoin might be illegal to mine or trade in China, it says nothing about its legality in the United States. Therefore, this monumental decision made by the Chinese government had no immediate impact on its legality elsewhere.

It’s worth noting, though, that government agencies within the US are making consistent efforts to reduce the possibility of using Bitcoin to facilitate illegal activity.

Despite this, many well-known businesses (such as Microsoft) accept Bitcoin as payment. This fact alone should deter any doubts about its legality.

IRS Attention

The IRS officially defines Bitcoin as a form of virtual currency. As of 2020, IRS Form 1040 explicitly asks whether or not you sold, exchanged, sent, or received any virtual currency within the previous year. Since you don’t need to provide a Social Security number or similar personal information as you would at a conventional bank, the IRS has specific measures to ensure that this type of income is accounted for. The only legal issue that arises is if you blatantly lie to the IRS or attempt to conceal your virtual currency transactions. Put simply; this is nothing new regarding how the IRS looks for suspicious or fraudulent behavior.

People Don't Understand It

It should be no surprise that a lack of understanding regarding this type of currency significantly contributes to the fact that people question its legality. At first glance, it makes sense — it’s a digital currency you can never physically see or touch. Combining that with the fact that it has been frequently reported to be associated with criminal activities may prevent someone from wanting to learn more about it. Others may simply have no idea how blockchain technology works and might conclude that it’s entirely fraudulent.


By taking the time to understand how it works, you’ll be able to determine whether or not this could benefit you. Aside from anonymity, those who use Bitcoin for transactions can avoid costs and fees associated with international purchases.

Bitcoin users can also circumvent banking fees and enjoy a high level of accessibility when making purchases or transfers.

So...Is Bitcoin Legal?


The simple answer is yes. Many people question its legality due to its association with criminal activity. However, this does not inherently mean that this type of currency is unlawful. Certain individuals prioritize using it due to its anonymity. Countries that have banned its use have done so to prevent potential complications from arising within the system they have already established. So, there’s no need to wonder, “is Bitcoin legal?” in the United States. The above guide is all you need to know.


At Byte Federal, we’re in the business of providing secure, simple, and trusted access to 25+ cryptocurrencies including Bitcoin, Ethereum, and more. 


Want to learn more about what we have to offer? Feel free to get in touch with us today and see how we can help.