The question of how Bitcoin and cryptocurrencies in general fit into the American legal system at the federal and state levels is a great one, and that’s currently a burgeoning field of law in its own right.

In short, it is legal to own, mine, trade and make purchases in Bitcoin anywhere in the United States. But that barely scratches the surface of the issue. Let’s explore some of the legal facets of Bitcoin use in the US.

The Regulators

The United States operates as a confederation of 50 states or commonwealths, plus Washington DC and a handful of protectorates and other territories. That means that laws apply at two levels at least: The central federal level, and the state/territory level.

This makes regulation of a currency that already disregards national borders a nightmare in the US. There are no fewer than five major regulating bodies at the federal level, plus whatever else becomes applicable at the state level. These bodies include:

The Financial Crimes Enforcement Network, which enforces anti-money laundering laws and know-your-customer laws for so-called money transmitters. It has already said that Bitcoin suitable for exchange, but without legal tender status in any jurisdiction, according to BitLegal.io

The Commodity Futures Trading Commission, which regulates derivatives but to date has issued no regulations on Bitcoin.

The Securities Exchange Commission, which can regulate Bitcoins as securities under the Securities Exchange Act.

The Legislative branch, which to date has made no laws about Bitcoin but held hearings in November 2013 to define the currency’s legal threat to the country.

The Internal Revenue Service, which has classified Bitcoins as property and gains are taxed as capital gain or ordinary income depending on the character in the hands of the holder, according to BitLegal.io

Individual states have their own laws regarding property taxes and money transmitters. New York and California, in particular, have strict money transmitter licensing laws. New York has already begun taking applications for so-call “BitLicenses,” and the Texas Department of Banking has classified Bitcoin and other “virtual currencies” as not money.

So What?

Bitcoin doesn’t respect any nation’s borders, so the law doesn’t pertain to anyone dealing in that currency, right? Not so fast.

You’re going to have to claim your Bitcoin gains on your taxes. (Note: Lying on your taxes is fraud, a felony, so we highly, highly recommend you not try this.)

IRS Notice 2014-21 sets out all your tax obligations. If you earn any income of exchanges, transactions or mining, you have to report that. Income from mining constitutes normal income, but “[If] the virtual currency is a capital asset in the hands of the taxpayer,” then you will have to pay capital gains taxes from any money you make on exchanges.

For further information on money transmission regulations, take a look at the FinCEN Official Guidance, FIN-2013-G001, issued Mar 18, 2013.