What is bitcoin? Why is it illegal in many countries?

Bitcoin is a digital currency created in January 2009 following the housing market crash. It follows the ideas set out in a whitepaper by the mysterious and pseudonymous Satoshi Nakamoto. The identity of the person or persons who created the technology is still a mystery. Bitcoin offers the promise of lower transaction fees than traditional online payment mechanisms and is operated by a decentralized authority, unlike government-issued currencies.

There are no physical bitcoins, only balances kept on a public ledger that everyone has transparent access to, that – along with all Bitcoin transactions – is verified by a massive amount of computing power. Bitcoins are not issued or backed by any banks or governments, nor are individual bitcoins valuable as a commodity. Despite it not being legal tender, Bitcoin charts high on popularity, and has triggered the launch of hundreds of other virtual currencies collectively referred to as Altcoins.

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Understanding Bitcoin

Bitcoin is a collection of computers, or nodes, that all run Bitcoin's code and store its blockchain. A blockchain can be thought of as a collection of blocks. In each block is a collection of transactions. Because all these computers running the blockchain have the same list of blocks and transactions and can transparently see these new blocks being filled with new Bitcoin transactions, no one can cheat the system. Anyone, whether they run a Bitcoin "node" or not, can see these transactions occurring live. In order to achieve a nefarious act, a bad actor would need to operate 51% of the computing power that makes up Bitcoin. Bitcoin has around 47,000 nodes as of May 2020 and this number is growing, making such an attack quite unlikely.

In the event that an attack was to happen, the Bitcoin nodes, or the people who take part in the Bitcoin network with their computer, would likely fork to a new blockchain making the effort the bad actor put forth to achieve the attack a waste.

Countries That Say No to Bitcoin

While Bitcoin is welcomed in many parts of the world, a few countries are wary because of its volatility, decentralized nature, perceived threat to current monetary systems, and links to illicit activities like drug trafficking and money laundering. Some nations have outright banned the digital currency, while others have tried to cut off any support from the banking and financial system essential for its trading and use.

China

Bitcoin is essentially banned in China. All banks and other financial institutions like payment processors are prohibited from transacting or dealing in Bitcoin. Cryptocurrency exchanges are banned. The government has cracked down on miners.

Russia

Bitcoin is not regulated in Russia, though its use as payment for goods or services is illegal.

Vietnam

Vietnam's government and its state bank maintain that Bitcoin is not a legitimate payment method, though it is not regulated as an investment.

Bolivia, Columbia, and Ecuador

El Banco Central de Bolivia has banned the use of Bitcoin and other cryptocurrencies. Columbia does not allow Bitcoin use or investment. Bitcoin and other cryptocurrencies were banned in Ecuador by a majority vote in the national assembly.