Canadian regulation of Bitcoin is favorable so far, but several more conditions have to be met for the cryptocurrency to meet its potential, a new report by a Canadian research institute found. 

The report, entitled “How Should Bitcoin Be Regulated?” and published by the Montreal Economic Institute last week, analyzed how cryptocurrency is treated in Canada compared to several other countries and offered insight on what needs to happen for Bitcoin to reach normalized, widespread use. 

So what’s the situation in Canada? 

Overall, pretty positive. Canada treats bitcoins like simple goods that can be exchanged in a barter system. The Canada Revenue Agency, the country’s tax regulation body, has declared that businesses have to declare sales in Bitcoin, and the currency falls under capital gains taxes if they are bought or sold for investment or speculation. 

Bitcoin is not considered money, so the Financial Transactions and Reports Analysis Center of Canada (FINTRAC) says it is exempt from money laundering laws. 

How does that compare to other countries? 

The Bitcoin environment in Canada is better than in the United States, the report said, but still not as good as Germany. Unlike in the US, Bitcoin users in Canada aren’t obligated to report transactions in the currency for capital gains tax, bypassing the bookkeeping nightmare that’s worrying tax law-abiding Bitcoiners across the border. 

Bitcoin is considered property by the American Internal Revenue Service (IRS), meaning users technically have to keep extensive records on all their transactions. New York’s Department of Financial Services is also working on creating BitLicenses to issue to Bitcoin exchanges, though the terms are still being hammered out. 

Heavier regulation in the States, “by undermining a fundamental use of Bitcoin, namely that of a currency facilitating all sorts of transactions, could discourage the use and adoption of this digital currency,” the report said. 

However, the report said, at least the US government has a clear stance on Bitcoin so users know how they’re legally supposed to treat it. 

In Germany, government attitudes to Bitcoin have reached a happy medium between control and acceptance. 

Bitcoin there is considered an international currency. Germany was one of the first nations in the world to regulate it (they’re go-getters) and the country also saw the first partnership between a bank and a Bitcoin exchange last July. The government’s rules are clear and not overly complicated, the report said, making it clear why Germany is a popular hub for Bitcoin. 

What’s in the cards for Bitcoin’s future in Canada – and the rest of the world? 

For Bitcoin to reach its potential, the report concluded, three conditions must be met. First, users must get a concrete benefit from using Bitcoin over other currencies. Second, governments must have clear rules for taxing and regulating it, which will boost consumer confidence in the currency and encourage investment. Third, the rules can’t be so complicated or antagonistic that they hamper Bitcoin’s use as a medium of exchange. 

Canada does plan to step up its regulation in the near future. The government said in February that it plans to introduce legislation to bolster its anti-money laundering measures to better address emerging risks, including the rise of virtual currencies. 

However, the report said, that change could be positive – it might boost interaction between Bitcoin companies and banks, which would up the currency’s credibility. 

Overall, the report concluded, governments need to remain open-minded. “Bitcoin is a technology that is constantly evolving, and that has multiple uses,” the report said. “The rules that regulate Bitcoin should ideally remain flexible and be adapted to this fluid character so as to give free reign to innovation,” it said. 

The Bitcoin Foundation Canada issued a comment on the report on Thursday, acknowledging that the Canadian government was justifiably concerned about money-laundering, but that cumbersome regulation to solve the problem was not welcome. 

“It is perfectly normal for governments to ask Bitcoin exchange platforms…to identify their customers,” the statement said. “We believe this would suffice in clarifying the legal framework surrounding Bitcoin and that no other regulation is needed in the near future.” 

Message received: Bitcoin users in Canada enjoy government’s relatively hands-off stance and want to keep it that way. Bitcoin use is growing there: Canada’s now the second most popular destination for venture capital investment into Bitcoin companies, behind the US and China. Still, it remains to be seen how friendly Canada will remain towards Bitcoin going forward.