Crypto In Iceland

Crypto adoption is spreading like wildfire all over the world. Cryptocurrency is becoming increasingly popular among retail and institutional investors. Countries with favorable conditions are developing into their own “crypto hubs”. The small nation of Iceland is the perfect example, becoming one of the leading mining hubs in the world.

Cheap electricity has prompted many miners to open facilities in Iceland and numerous interesting projects have started to pop up. However, it’s not all that straightforward, although a significant part of the Icelandic economy relies on Bitcoin mining, some challenges still remain. In this article, we will be exploring just what Iceland does right and where there’s still some room for improvement. So let’s get into it!

Is crypto legal in Iceland?

Surprisingly given the popularity of mining in the country the legal status of cryptocurrency there stays quite unclear. After the 2008 financial crisis, the Icelandic government adopted strict financial controls that could jeopardize the future of crypto. During the financial crisis, the Icelandic economy went bankrupt, forcing the government to realize controls on how citizens spend their money. 

Laws were passed that stopped citizens from taking foreign money out of the economy to prevent it from collapsing. The regulation also performed as an indirect ban on BTC as it resulted in a big capital from the Icelandic economy. However, we would be more correct in stating that the use of Bitcoin was in a gray area. The ban was never applied to digital currencies so the regulation regarded crypto only on paper. 

However, that changed in 2017. The Icelandic Central Bank lifted the rule forbidding the outflow of foreign assets from the country. This essentially canceled the indirect ban on crypto as cross-national currency transfers are completely legal today. However, there are still limitations existing. For starters, investors are required to notify the Icelandic Central Bank of international purchases of Icelandic krónur and derivative transactions, and rules also require a reserve when there is an inflow of a foreign assets into Iceland.  

Additionally, restrictions on crypto also apply in the case: 

1. trading derivatives for non hedging purposes; 
2. foreign exchange transactions between residents and non-residents without an intermediary in a financial undertaking; 
3. in certain cases, foreign exchange loans from residents to non-residents. 

Crypto might be deemed foreign exchange transactions between residents and non-residents without an intermediary in a financial undertaking, which would make it at least in theory prohibited. However, crypto transactions are de facto allowed in Iceland. The national central bank hasn’t said anything about the standing of cryptocurrencies under these restrictions and the government has never expressed the will to go after crypto users.

Also, Iceland is like most northern countries known for its high taxes. The country taxes 40% of cryptocurrency gains up to the value of $7000 and 46% for any amount higher than that. However, the economic conditions remain favorable and the high tax rates have not stopped miners from investing in Iceland.

Iceland Mining Hub

Iceland has long been a go-to destination for crypto miners. Bitcoin mining has been popular on the island since the launch of Bitcoin. According to this report, in 2017, 90% of the Icelandic Data Center power consumption was cryptocurrency processing. Miners flood the country due to its abundance of geothermal energy making the electricity bill a lot lighter. If you want to know more about the eco-mining trend, make sure to check out our detailed article.  

The country's biggest mining companies are Hive Blockchain Technologies, Genesis Mining and Bitfury Holding. These hold millions in capital and without them Bitcoin wouldn’t function as well as it does. 

Mining is a serious business in Iceland and attracts millions in investments. However, the Icelandic government still refuses to abandon its ambivalent stance on crypto.

Conclusion 

Crypto is a big deal in Iceland. The sector brings millions in investment every year and makes up a substantial part of the country's GDP. Considering the amount of wealth crypto brings to Iceland it is very surprising to see the government still on the fence on the topic. The Icelandic government is not anti-crypto but there’s still a lot of work to be done. 

If you want to know more about crypto regulation in different countries, make sure to check out our articles about Germany, South Korea, Brazil, UAE, Australia, Nigeria, Mexico, India, Russia, Vietnam, USA, Switzerland, Portugal, Finland, Japan and Philippines!