Japan – cryptocurrency capital of the world
Regulation has a bad name just about everywhere. We rationally understand we need it, emotionally groan when we come up against it. Regulation can be a double-edged sword for many entrepreneurs causing, as it often does, form-filling, additional costs and other pulls on valuable time. We rarely recognise the upside of regulation – until somebody finds a loophole in what already exists and then robs us blind.
But in the case of Bitcoin – which started life as an anarchist’s wildest dream come true – regulation by national authorities confers acceptance and recognition of what is still to the wider world either an unfathomable geek-thing – or the criminal world’s way of laundering ill-gotten gains.
For many of us in the blockchain/cryptocurrency world – especially those of us disappointed at the extent of scamming and outright robbery that has taken place over the last couple of years – regulation that protects investors and users creates the acceptance and trust so vital if our industry is to thrive.
So in 2016 Japan recognising Bitcoin as a means of payment gave Bitcoin a legitimacy that it previously didn’t have. Japan recognised that, behind all that wasn’t yet going quite right, there was a sleeping giant, a force to be reckoned with. And the Japanese wanted in at the ground floor.
What the Japanese Financial Services Authority did specifically was recognise Bitcoin as “a means of payment that is not a legal currency”.
And recognising cryptocurrency exchanges as one of the most vital components of crypto architecture the Japanese FSA decided that working with them was the best way forward. So the FSA requires cryptocurrency exchange operators to be licensed – and it subjects those exchanges to annual audits.
The decision did not see Bitcoin as currency nor bond under the current Banking Act and Financial Instruments and Exchange Law – therefore prohibiting banks and securities companies from dealing in Bitcoins.
Shortly after the Japanese FSA’s recognition of Bitcoin as a payment method Japan also removed a consumption tax that had been dissuading foreign investors from purchasing Bitcoins on Japan’s market. The removal of the tax opened up Japan’s markets to international investors.
So Bitcoin is legal in Japan in the sense that payments can be made and accepted using the currency. You also have to be registered with the authorities to accept Bitcoin. Note that the Japanese are not saying Bitcoin is legal tender – that would then imply that sellers would have to accept the Bitcoin.
But Japan’s recognition of Bitcoin signaled to investors and enthusiasts that the currency had arrived and was here to stay. And this de facto approval has contributed to Bitcoin being very big in Japan indeed.
Compared to any other country Japan is the most Bitcoin-friendly place there is. A recent survey of the 25 – 30 age group shows an impressive 14% of them hold some kind of cryptocurrency investment. Undoubtedly this warmth felt by the Japanese to cryptos will have been encouraged by their own government’s creation of a solid legal footing for the use of cryptos.
No surprise then that in January 2018 the Japanese yen accounted for 56.2% of Bitcoin purchases – compared with the USD at a little over 28% and all others at a touch more than 15%.
BIG IN JAPAN – THE CURRENCY AND THE HEISTS
Of course, if you’re one of the planet’s biggest players in cryptos you’re going to be one of the hardest hit by hackers and thieves. Even before Japan’s current friendliness towards cryptocurrencies it held the unenviable record for hosting the world’s biggest ever financial heist.
The most famous exchange hack in Bitcoin history – probably the one that will forever discussed in Bitcoin folklore – is the Mt Gox hack back in 2014. 650,000 Bitcoins worth $437 million (then – they’re worth multiple billions now) were stolen affecting 127,000 customers.
And confidence in cryptos was rocked most recently in Japan when in January 2018 the Coincheck exchange was hacked leading to the theft of 523 million XEM – worth about half a billion dollars. This heist cements Japan’s dubious record as crypto-heist capital of the world – although in Japan’s defence the Coincheck exchange had started trading before the FSA rules had come into place and its application for registration was under review at the time of the hack.
But the Japanese learn from what’s happening around them – and are moving to make things right. Japan’s 16 state-registered exchanges recently announced plans to create a self-regulatory body as a means to grow trust in the crypto sector. Set to open in spring 2018 the body will then invite exchanges whose applications for state registration are still being considered. Exchanges have the strongest of interests in creating a safe, favourable environment in which crypto transactions can take place. Augmenting state regulation with additional voluntary best-practices is going to make working with cryptocurrencies an increasingly solid proposition for all actors.
Bitcoin – and some of the new cryptos – needs to be taken seriously because they are a serious deal for the world. But to be taken seriously they must operate in safe environments where all players observe rules designed to make it easy for good things to happen and very difficult for bad things to happen. Japan – realising that cryptocurrencies are here to stay – is the first nation to take full advantage of the blockchain/cryptocurrency phenomena because it recognised early that acceptance and regulation was the best way to deal with what looks to be an unstoppable force.
It’s good that Japan did this. As we reported recently on the G20 summit, others will, in time, follow.