The grass is always greener…
Ahhh Japan. That mysterious, magical country you read about online, dreaming one day to venture there and immerse yourself within its ancient culture, amazing anime, scrumptious sushi, or more recently, its
Having made the move to Japan around five years ago, I couldn’t be happier. But it’s not for the reasons above. There’s no doubt that I was initially drawn here because of them, however having lived here for a while now, it’s clear to me that it’s just another country with its share of both good and bad points. And I’m OK with that.
In contrast, many Westerners arrive to live here expecting a never-ending journey of fun and technological discovery, mainly due to the dazzling image of Japan portrayed through travel blogs and brochures. Many ultimately realise that Japan too has its flaws, and begin to resent living here.
Thanks to the crypto media the world over, foreigners may also now think they can come here and spend crypto anywhere, on anything. Well, that’s not actually true (more on this below).
There is definitely some “the grass is always greener on the other side” mentality at play here, from both the wide-eyed Westerners dreaming of a fun new home, and those writing the recent articles bestowing Japan with the title of “crypto haven”. It’s easy to get carried away with positive news, particularly when it’s regurgitated without a second thought by so many.
This article will examine the current status of cryptocurrency in Japan, while aiming to dispel some all-too-common misconceptions.
As part of my research, I surveyed 30 Japanese citizens about their sentiments regarding current cryptocurrency adoption and support. While I questioned several individuals whom I know personally; I also found willing survey respondents in several Japanese crypto telegram groups.
Over 90% of the respondents were male. About 70% were engaged in work unrelated to IT, with the vast majority (80%) being full-time company employees. Among those who possess cryptocurrency, a significant plurality (43%) are in their 30s.
Despite the small sample size, this survey produced several clear and significant findings, all of which I will refer to below.
Exchange regulation: a step in the right direction
In 2016, Japan’s Payment Services Act was amended to reflect “changes in the environment made by information and communications technologies” – i.e., cryptocurrencies. In effect for over a year, these amendments formally recognize and address cryptocurrencies in Japanese law (and thus, among the first few countries to legally recognize cryptocurrency). Upon passing these amendments, news outlets around the world were quick to label Japan as a forward-thinking, crypto-friendly nation. Below is a summary of the current regulations.
The new law stipulates that only business operators registered with local finance bureaus may operate a cryptocurrency exchange business. Registrants must supply documents describing how their cryptocurrency exchange business will be appropriately managed and conducted as well.
Exchanges must establish security systems to protect their business information. While commonly expected of any business operation handling sensitive information, cybersecurity issues frequently plague Japanese companies, and thus regulators require a greater focus on this area.
Exchanges must provide information regarding fees and contract terms to their customers. As a safety measure, customer funds must also be managed separately from the exchange. In addition, certified public accountants (or accounting firms) must review exchange management methods. Finally, these exchanges must contract with designated dispute resolution centers (those that specialize in cryptocurrency disputes). Since these have yet to come into existence, the Tokyo Bar Association’s alternative dispute resolution service arbitrates and resolves conflicts.
Exchanges must keep accounting records detailing cryptocurrency transactions and present annual reports to the Financial Services Agency (FSA). Indeed, the FSA can order an exchange to submit financial reporting and documentation at any time. They’re also authorized to conduct site inspections to ensure proper conduct. If an exchange is found to be falling short of the requirements, the FSA can issue improvement orders, suspend an exchange’s operations, or remove its registration.
The Act on Prevention of Transfer of Criminal Proceeds was also amended, subjecting cryptocurrency exchanges to anti-money laundering regulations. Consequently, exchanges must verify the identities of users, keep transaction records, and notify authorities of suspicious activity.
You can see an example of bitFlyer’s written explanation of their exchange service as required by law, here.
These new regulations are definitely a breath of fresh air compared to the US, where cryptocurrency exchanges have little guidance beyond being told that “any platform providing trading of digital assets that behave like securities and which operate like exchanges must register with the SEC as a national securities exchange, or seek an exemption such as ATS registration”. Such a directive hinges on how cryptocurrencies and tokens are defined, which isn’t particularly helpful given that US regulatory agencies have yet to come to a consensus on definitions.
Regulation of ICOs: in the works…
The Japanese government does not currently regulate ICOs using a specific set of ICO-related laws. Instead, the FSA released a document warning cryptocurrency users and business operators about their financial risks. In addition to identifying particular risks, the FSA also reserves the right to pursue future regulatory action on ICOs under either the Payment Services Act or Financial Instruments and Exchange Act. However, agency information concerning this matter is neither very detailed nor very clear.
On April 5 of this year, a government-backed research group proposed new ICO principles and guidelines. Since the FSA is still deliberating these recommendations, it’s a good bet that any new ICO laws remain at least two to three years away.
Following January’s Coincheck hack, the FSA has reportedly changed their focus away from promoting future growth and more towards regulation and monitoring. Accordingly, they’re carefully reviewing individual exchanges and hunting down illegal ICOs. This new focus is a dramatic departure from last year when blockchain entrepreneur Koji Higashi commented that Japan “isn’t an ICO haven, there’s just currently no enforcement.” And according to Ken Kawai, a legal adviser to the Japan Cryptocurrency Business Association, has stated that harsh regulations are likely to be imposed should self-regulation by the ICO-industry fail.
In any case, the current absence of ICO regulation is impeding innovation from blockchain startups in Japan (more on this below).
Bitcoin is not legal tender in Japan
Last year, just about every online media outlet announced that Japan had made bitcoin “legal tender.” Well, that’s not true. Legal tender is money that a goods or service provider is obligated to accept as payment. In Japan, this is not the case. For instance, I can’t hop into any taxi and pay with Bitcoin, nor can I use it to pay for my delicious meal of yakiniku (Japanese BBQ) just down the road from my house. Vendors are free to decide whether or not they will provide the option to pay with bitcoin or any other cryptocurrency. Only Reuters corrected their mistake, posting an advisory notice that the term “legal tender” was incorrect.
The FSA clearly notes on its cryptocurrency homepage that “cryptocurrencies are not legal tender.” Instead, the government merely recognizes cryptocurrencies as holding “property value” and thus a legal method of payment (per the Payment Services Act). Accordingly, there doesn’t appear to be much difference here between Japan and other countries regarding cryptocurrency as an allowed method of payment.
I’m not sure where the “legal tender” rumor originated; it may have just come from a mistranslation. However, it’s an excellent example of how quickly and widely factually incorrect information can spread these days.
That concludes Part 1 of this story. Stay tuned for Part 2, which will examine the adoption of and support for cryptocurrency within Japan.
Would you like to know more?
We don’t just publish articles, XTRABYTES is a whole new blockchain platform that allows DApps to be programmed in any language, utilizing a new consensus algorithm called Proof of Signature. In doing so, XTRABYTES presents a next – generation blockchain solution capable of providing a diverse set of capabilities to the general public.