Why is bitcoin illegal in Iceland but not AUR or is bitcoin not illegal based on the above? AUR is really a bad clone of bitcoin but inherently performs the same function. Once you in the system you can bypass exchange controls. I believe this is what the user wants to find out.
Bitcoin is not illegal in Iceland. What is illegal is buying USD for ISK, to buy Bitcoin. It's the currency controls! This is also the reason for Auroracoin. The people here were given Auroracoin, they didn't have to buy it for USD.
If you want to use Bitcoin to bypass the currency controls, you can also just buy fish in Iceland and export it for USD or EUR. You can also open a hotel in Iceland and accept USD and EUR.
Same rules apply, you have to return the currency you make from exporting commodities or providing services back to the Icelandic banking system.
In Iceland Bitcoin and Auroracoin are considered to be commodities like gold and silver, which can act like a currency but
are not currency!