Where Is Crypto Banned? An In-Depth Overview

When it comes to cryptocurrency, there’s no arguing that governments can no longer ignore it. After surpassing a $1 trillion market cap in 2021, crypto has become an undeniable force in 21st century finance. National and international institutions are now hard at work crafting laws aimed at the cryptocurrency market. 

While some countries welcome the innovations of Web3, others have made crypto illegal. Crypto laws are constantly in flux, but a few nations seem to have an inflexible stance against virtual currencies. If you’re new to the crypto ecosystem and aim to be a part of it, you should know where crypto is banned and whether your country of residence fully permits it, partially permits it, or completely bans it to better understand the legal landscape for digital assets. But before we dive into which nations ban it, let’s understand why some have a no-crypto policy in place.

Why do some countries ban crypto?

Every non-crypto nation has unique reasons for putting a Bitcoin ban in place. However, here are a few common arguments anti-crypto authorities use: 

Crypto’s association with criminals and money laundering  

In the early history of cryptocurrency, Bitcoin became closely associated with criminals on nefarious portals like the Silk Road. Regulators frequently express concerns that crypto’s decentralization makes it more difficult to track illegal activities like terrorist funding, drug smuggling, or money laundering. The Financial Action Task Force and International Monetary Fund have frequently argued that crypto’s lack of a central authority makes it ideal for criminal organizations. 

In 2022, the U.S. Treasury Department used this argument to ban the use of a DeFi (decentralized finance) mixer called Tornado Cash. Crypto mixers use advanced cryptography to mask transactions, thus making it easier for people to send anonymous crypto transfers. According to the U.S. government, North Korean hackers used Tornado Cash to steal funds from major crypto projects like Ethereum’s play-to-earn game “Axie Infinity.” 

The blockchain analysis firm Chainalysis also points out that crypto-related crime grew from $7.8 billion to $12 billion during 2020-2022. However, analysts note that the total percentage of crypto used in the crime has decreased over the past decade. According to Chainalysis, overall crypto transactions increased by more than 560% from 2020 to 2021, of which only 79% was related to illicit activities. 

Although more crypto is associated with illicit activities, Chainalysis suggests it makes up an increasingly smaller part of the total crypto economy. While cybercrime remains a prevalent issue for cryptocurrency, it appears to be a smaller percentage of transactions than in the Silk Road days. Plus, even organizations like the FATF admit that cash remains the preferred currency for activities like money laundering. 

That said, many regulators still associate cryptocurrencies with criminal activities. This link may prompt countries to take a harsh stance toward digital assets. 

Competition for fiat currencies and CBDCs

Another reason nations might ban crypto is to eliminate competition with their fiat currencies. For example, in Turkey, many citizens have turned to stablecoins or Bitcoin as an alternative to local currencies. As the Turkish lira inflates, more citizens are willing to adopt cryptocurrencies as an alternative investment or payment method. To make crypto less attractive in Turkey, the country’s central bank banned the use of digital assets for daily payments. A major purpose of this ban was to avoid further diluting the value of the Turkish lira. 

Some nations also view crypto as a threat to their CBDCs (central bank digital currencies). CBDCs are digital currencies that use blockchain tech, but a country’s central bank controls them. China, Russia, India, and a few others hope to introduce CBDCs as an alternative to cryptocurrencies and stablecoins. Governments may make crypto illegal to increase the prominence of their upcoming CBDCs. 

Consumer protections

Cryptocurrencies are volatile assets, and they don’t come with any insurance protections like FDIC or SIPC. Plus, the crypto market is susceptible to significant scams and hacks. Some countries may wish to protect their citizens from the risks of crypto by restricting access to crypto trading services. 

For example, many nations vowed to introduce new stablecoin regulations following the collapse of Terraform Labs’ UST stablecoin. Unlike centralized stablecoins like USDC, UST wasn’t backed by an equivalent amount of fiat reserves. Instead, Terraform Labs used an advanced arbitrage trading algorithm against its LUNA token to maintain UST’s value. Organizations like the European Union have since introduced proposals against algorithmic stablecoins on the grounds of consumer protection. 

What is the spectrum of crypto legality?

Since crypto is a new sector, most governments are still developing legal frameworks to regulate this industry. Many politicians are still learning the intricacies of Web3 technology and the distinctions between digital assets like coins, utility tokens, and security tokens. 

Even if countries impose a ban on crypto, they may find it difficult to police these tokens due to the nature of blockchain and the internet. To date, no authoritative international institutions solely focus on crypto regulation. Hence, each nation has to formulate crypto laws for its particular situation.

This has led to a broad spectrum of crypto legality around the world. Some nations like China have taken a tough stance against all forms of cryptocurrency, while other countries are more accommodating. For instance, El Salvador and the Central African Republic made Bitcoin legal tender in 2021. 

Currently, most countries fall in between a harsh crypto ban and full legalization. Even nations that are welcoming of cryptocurrency often hold crypto businesses to a high standard for compliance. Some nations may impose high crypto taxes to discourage Bitcoin trading, while others could enforce bans on businesses accepting crypto. 

As it stands today, the degree of crypto legality largely depends on local laws. 

Case study: A history of crypto bans in China

To better understand the complexities of crypto legislation, it’s helpful to review China’s history with crypto bans. The People’s Bank of China first issued a ban on Bitcoin transactions in 2013 focused on the country’s banks. Chinese officials didn’t recognize Bitcoin’s monetary value since it isn’t backed by any national government. Also, the People’s Bank of China raised concerns over BTC’s role in money laundering.

Despite these harsh restrictions, BTC mining activity in China grew rapidly. According to information from the Cambridge Bitcoin Electricity Consumption Index (CBECI), China accounted for more than 60% of Bitcoin’s total hash power in 2020. 

In response to the growing popularity of crypto mining, China’s State Council issued a ban on both Bitcoin mining and crypto transactions in 2021. Shortly after this law took effect, the total hash power on Bitcoin went from over 150 ExaHashes per second (Eh/s) in May 2021 to 100 EH/s in June 2021. All the hash power on Bitcoin’s network that had been in China went offline as activity in nations like the U.S. and Kazakhstan increased. 

Despite these extreme restrictions on crypto trading, the CBECI notes that Chinese BTC miners have rejoined the network. In January 2022, Chinese BTC miners accounted for more than 20% of the Bitcoin blockchain’s hash power. This fact highlights the difficulty nations face effectively “banning” cryptocurrencies. 

Crypto legality in the future

Crypto legality will likely continue to evolve on a case-by-case basis. Although international institutions are now looking into crypto legislation, it’ll likely take years before the FATF and IMF develop crypto policies. Also, by the time these organizations create crypto laws, more nations will probably already have crypto policies in place, and potentially game-changing Web3 technologies may emerge.  

Predictably, countries with an open stance toward crypto usage and innovation will see more significant growth in their blockchain sector. In contrast, nations that enforce strict policies against cryptocurrencies will drive away developers and businesses interested in this field. Therefore, countries with lax crypto laws will likely become major hubs for the future of the crypto industry.

Wrapping up 

Not every country agrees on whether Bitcoin is legal. However, as digital assets become increasingly popular, more nations may open up to the benefits of crypto. Increased consumer protections and KYC (know-your-customer) requirements may also encourage countries on the fence about crypto to begin warming up to Web3. 

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