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Norway's government says Bitcoin isn't real money

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Bitcoins (Casascius)
Bitcoins (Casascius)

Governments worldwide are trying to solidify their positions on Bitcoin. Chinese regulators banned financial institutions from using Bitcoin earlier this month, while in July, Thailand's government declared the virtual currency's use illegal due to a lack of applicable laws. Now Bitcoin has taken another hit to its legitimacy: Norway — Scandinavia's richest nation — has said that the currency doesn't qualify as real money.

Norway's director general of taxation, Hans Christian Holte, said the currency "doesn't fall under the usual definition of money." The Norwegian government instead decreed Bitcoin to be an asset upon which capital gains tax can be charged. Bloomberg News says profits from Bitcoin will fall under the wealth tax, and that losses can be deducted. Holte also said there will be a 25 percent sales tax for businesses. For now the new rules will apply to Norwegian Kristoffer Koch, whose $27 investment in the fledgling currency was worth $886,000 in October, but his home country's decision may not be final: Holte is reportedly planning to work with other nations to work out the legalities of the new currency.

Norway's government is planning to work on the legalities of Bitcoin with other countries

Earlier this year the German government reached a similar decision, classifying Bitcoin as "Rechnungseinheiten," or "units of account." That definition put Bitcoin at a similar standing to a regional currency. The French government was more accepting of the virtual currency earlier in the year — allowing the foundation of Bitcoin-Central, a real bank that allows customers to deposit and transfer money in both euros and bitcoins — but changed its course this month with the Bank of France issuing a warning about the financial risks of the currency.

The legalities of Bitcoin are still fuzzy

That warning was echoed by the European Banking Authority last week, which issued a document reminding consumers of the dangers of virtual currency. People using virtual currencies such as Bitcoin should, according to the EBA, "fully understand their specific characteristics and not use ‘real' money that they cannot afford to lose." Outside of the EU, the legalities of Bitcoin are still fuzzy. Many Bitcoin dealers in the US are not compliant with American law, and even Bank of America, once positive about the currency's future, is worried about a governmental crackdown.

Speaking to Bloomberg News, associate professor of financial economics at the BI Norwegian Business School Paul Ehling said Norway's definition of money could be shortsighted. Ehling spoke about currencies in history, saying "if it's accepted by a sufficiently large population, then that's enough." But Ehling also thinks Norway's cautious approach to the new currency stems from its ephemeral and volatile nature. "If there's a crisis or power outage, you need some bills in your wallet in case your credit card doesn't work — same goes with bitcoins." Ehling explained that if people started to trust Bitcoin and use it for large purchases, it could rival established currencies, but that "right now, we're not there".