What is the Difference Between Litecoin and Bitcoin?

In 2009, Satoshi Nakamoto launched bitcoin as the world's first cryptocurrency. The code is open source, which means it can be modified by anyone and freely used for other projects. Many cryptocurrencies have launched with modified versions of this code, with varying levels of success.

Litecoin was announced in 2011 with the goal of being the 'silver' to bitcoin's 'gold'. At the time of writing, Litecoin  has the highest market cap of any mined cryptocurrency, after bitcoin.

Here's our guide to show you the crucial difference betweenbitcoin and litecoin.

At-a-glance differences

	bitcoin	litecoin
Coin limit	21 Million	84 Million
Algorithm	SHA-256	Scrypt
Mean block time	10 minutes	2.5 minutes
Difficulty retarget	2016 block	2016 blocks
Block reward details	Halved every 210,000 blocks.	Halved every 840,000 blocks
Initial reward	50 BTC	50 LTC
Current block reward	25 BTC	50 LTC
Block explorer	blockchain.info	block-explorer.com
Created by	Satoshi Nakamoto	Charles Lee
Creation date	January 3rd, 2009	October 7th, 2011
Market cap	$10,467,596,650.78	$540,274,528.26
	Bitcoin Statistics	Litecoin Statistics

Mining differences

Just like bitcoin, litecoin is a crytocurrency that is generated by mining. Litecoin was created in October 2011 by former Google engineer Charles Lee. The motivation behind its creation was to improve upon bitcoin. The key difference for end-users being the 2.5 minute time to generate a block, as opposed to bitcoin's 10 minutes. Charles Lee nowworks for Coinbase, one of the most popular online bitcoin wallets.

ASIC Mining

For miners and enthusiasts though, litecoin holds a much more important difference to bitcoin, and that is its different proof of work algorithm. Bitcoin uses the SHA-256 hashing algorithm, which involves calculations that can be greatly accelerated in parallel processing. It is this characteristic that has given rise to the intense race in ASIC technology, and has caused an exponential increase in bitcoin's difficulty level.

Litecoin, however, uses the scrypt algorithm – originally named as s-crypt, but pronounced as 'script'. This algorithm incorporates the SHA-256 algorithm, but its calculations are much more serialised than those of SHA-256 in bitcoin. Scrypt favours large amounts of high-speed RAM, rather than raw processing power alone. As a result, scrypt is known as a 'memory hard problem'.

The consequences of using scrypt mean that there has not been as much of an 'arms race' in litecoin (and other scrypt currencies), because there is (so far) no ASIC technology available for this algorithm. However, this is soon to change, thanks to companies like Alpha Technologies, which is now taking preorders.

GPU mining

To highlight the difference in hashing power, at the time of writing, the total hashing rate of the bitcoin network is over 20,000 Terra Hashes per second, while litecoin is just 95,642 Mega Hashes per second.

For the time being, 'state of the art' litecoin mining rigs come in the form of custom PCs fitted with multiple graphics cards (ie: GPUs). These devices can handle the calculations needed for scrypt and have access to blisteringly fast memory built into their own circuit boards.

There was a time when people could use GPU mining for bitcoin, but ASICs have made this method not worth the effort.

Transaction differences

The main difference is that litecoin can confirm transactions must faster than bitcoin. The implications of that are as follows:

• Litecoin can handle a higher volume of transactions thanks to its faster block generation. If bitcoin were to try to match this, it would require significant updates to the code that everyone on the bitcoin network is currently running.
• The disadvantage of this higher volume of blocks is that the litecoin blockchain will be proportionately larger than bitcoin's, with more orphaned blocks.
• The faster block time of litecoin reduces the risk of double spending attacks – this is theoretical in the case of both networks having the same hashing power.
• A merchant who waited for a minimum of two confirmations would only need to wait five minutes, whereas they would have to wait 10 minutes for just one confirmation with bitcoin.

Transaction speed (or faster block time) and confirmation speed are often touted as moot points by many involved in bitcoin, as most merchants would allow zero-confirmation transactions for most purchases. It is necessary to bear in mind that a transaction is instant, it is just confirmed by the network as it propagates.

HOW TO MAKE A BITCOIN PAPER WALLET

How to Make a Paper Bitcoin Wallet

One of the most popular options for keeping your bitcoins safe is something called apaper wallet. Here we explain how to transfer all those digital coins into a physical paper form using just a printer.

Note that in this guide we’ll be talking about bitcoin. However, the basic concepts apply to any other cryptocurrency; for example, litecoin.

What is a wallet and why do I need one?

A bitcoin wallet consists of two ‘keys’. The one you’ll already likely be familiar with is the public key, which is your wallet address and is how other people send bitcoins to you.

The other part of your bitcoin wallet is the private key. It is this that enables you to send bitcoins to other people.

The combination of the recipient’s public key and your private key is what makes a cryptocurrency transaction possible.

It is important to understand that, if anyone else obtains the private key of your wallet, they can withdraw your funds – this is why it’s absolutely essential that nobody else discovers it.

So, if you keep your coins in either an online wallet, or a hard-drive-based software wallet, you are vulnerable to attacks by hackers or malware that can log your keystrokes.

Furthermore, a stolen PC or a hard-drive crash could also see you waving bye-bye to your digital treasure.

Used with care, a paper wallet can protect you from these possibilities.

What is a paper wallet?

A paper wallet is a document that contains copies of the public and private keys that make up a wallet. Often it will have QR codes, so that you can quickly scan them and add the keys into a software wallet to make a transaction.

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

The disadvantage of a paper wallet is that paper and ink can degrade, and paper is relatively fragile – it’s definitely worth keeping well away from fire and water for obvious reasons.

Furthermore, if you lose a paper wallet, you’ll never be able to access the bitcoins sent to its address.

Creating a paper wallet

Here are 10 steps needed to create a paper wallet:

1. To generate a new bitcoin address, open BitAddress.org in your browser (orLiteAddress.org for litecoin).
2. BitAddress (but not LiteAddress) will ask you to create some randomness by either randomly typing characters into the form or moving your cursor around.
3. You will be presented with your public and private keys and their respective QR codes. Do not scan these.
4. Click the ‘Paper wallet’ tab.
5. Select the number of addresses to generate.
6. If you don’t wish to keep the bitcoin artwork, click the ‘Hide art?’ button.
7. Click the ‘Generate’ button to create new wallets.
8. Once the wallets are generated, click the ‘Print’ button to make a hard copy.
9. Your browser will ask you to select the printer you wish to use. In the case of Google Chrome, you may also save the page as a PDF file.
10. Make a note of the public addresses, or scan the public address QR code in your bitcoin (or litecoin) app and start depositing funds.

For users of the Blockchain.info website, there is also a basic paper wallet option too. Click on the ‘Import/Export’ option, and look for the ‘Paper wallet’ link on the left-hand menu.

A much more sophisticated option for your paper wallet can be found atBitcoinpaperwallet.com.

This website offers a tamper-resistant design of paper wallet. It is also possible to order holographic labels to demonstrate that the wallet hasn’t been tampered with. It also supplies a live-boot Ubuntu CD with paper-wallet software pre-installed.

Security Concerns

Given the implications and risks of storing large amounts of money, you may want to take serious precautions for how to go about creating your paper wallet and storing it afterwards.

• Do not let anyone see you create your wallet.
• BitAddress and LiteAddress both support encryption of private keys through the BIP38 algorithm. This provides two factor authentication for your paper wallet; ie: something you have (the paper wallet), and something you know (the passphrase). Also note, that you will have to use the same website in the future to decrypt the private key.
• To rule out the risk of any sort of spyware monitoring your activity, you should use a clean operating system. A good way to achieve this would be to create a USB flash drive or DVD with a ‘LiveCD’ Linux distribution, such as Ubuntu.
• Furthermore, once a paper-wallet has been set up via a website, it should be possible for the website code to run offline. Therefore, before creating the private and public keys, take your computer offline before generating the keys.
• For ultra-tight security, print the paper wallet from a printer that is not connected to a network.

Tips for keeping your paper wallet safe

• Store the paper wallet in a sealed plastic bag to protect against water or damp.
• If your paper wallet isn’t folded you could laminate it for durability and proof against water.
• If you have one, store your paper wallet in a safe to protect from theft and fire.
• You could entrust the paper wallet with a solicitor. For example, the person who holds your last will & testament.
• For added redundancy, you may store a wallet in several locations. Some bitcoiners use trusted family members, others use deposit boxes.

Exporting private keys from altcoin wallets

If you want to create a paper wallet for a lesser-used currency that doesn’t have an address generator website, there is still a way to achieve this.

What every alt-currency does have is a variation of the Bitcoin-Qt wallet application.

• Goto the ‘Receive’ tab, where your wallet addresses are listed.
• Right-click on the address you wish to save, then copy the address to the clipboard.
• Click the ‘Help’ menu and select ‘Debug’.
• In the ‘Console’ tab, enter “dumpprivkey” and paste in the wallet address.

The console will then display the private key of that wallet.

You then have the public and private keys of the wallet. You can print these ‘as is’, or you can opt to generate QR codes to print.

However, the wallet details will still exist in your computer. The only way to remove them it is to open your file explorer in the ‘C:\Users\[YourUsername]\AppData\Roaming\[Wallet App Name]\’ folder and delete the ‘wallet.dat’ file.

NOTE: this will remove all addresses held in the software wallet, and you should make sure that there are no funds remaining in the other addresses you will be deleting.

Now you should be the proud owner of an unhackable paper wallet for your digital currency. If a paper wallet is not for you, however, you could use your own mind with abrain wallet.

IS BITCOIN LEGAL OR ILLEGAL?

Is Bitcoin Legal?

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?

Government 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 document highlighting 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

Each 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 willaccept 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.

Private sector companies (banks)

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

In 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 theFinancial Times that 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 calledDATA, 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 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 documentoutlining 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

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

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

The 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

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

On 12th March 2014, the Bank of Mexico issued its first statementon 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

The 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

The 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’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

Long 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

So 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'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 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

The 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 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, quite remarkably, has also taken time out from its years-long government spending-related financial crisis to warn youabout the dangers of bitcoin.

Iceland

One 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, 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

Holland 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 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’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.

Russia

“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

Despite 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

Meetings 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’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 statementwarning 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 adramatic 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’s Secretary for Financial Services and the Treasuryissued a warning about 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’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’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

At 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 likeBlockchain.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

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’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 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)

The 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

On 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

The 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

The 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

The 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

The country’s central bank, the Bank of Lebanon, issued a warningstatement 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

Both 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 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.