World CryptoMap: Japan — The Land of the Rising Sun for Crypto

In the inaugural instalment of our World CryptoMap series, we found out why Australia was called the “cryptocontinent”. This time, we’re going to take a look at Japan. As you might know, the latest update to Crypterium App brings along the Japanese yen as an available currency; we see it as a perfect opportunity to tell you more about the technologically advanced nation that is welcoming towards Bitcoin and other cryptocurrencies, yet is rather strict when it comes to regulations.

Here we go!

Overview: The impressive surge

Japan was the first country to recognize digital currencies as money, paving the way for the development of the crypto industry within the country and setting the bar for the rest of the world. According to the document published by the Japanese Financial Services Agency in March 2018, the country currently has at least 3.5 million individuals trading cryptocurrencies as assets, while over 140,000 people invest in cryptocurrency margins and futures. The majority of crypto investors are aged 20 to 50, with the ones in their 30s prevailing (34% of the total number). The leading cryptocurrencies by trading volume across Japanese crypto exchanges are BTC, ETH, XRP, BCH and LTC.

Bitcoin’s yearly trading volume in Japan grew about 4400 times over the 2014–2017 period ($22 million to $97 billion); Bitcoin margins and futures trading showcased an even more impressive surge, skyrocketing from just $2 million in 2014 to a mind-boggling $543 billion in 2017.

The Government: JCEA, FSA and legalization

Over the past two years, a lot has been done to define the legal status of cryptocurrencies in Japan. In March 2016, a bill was introduced to Japanese parliament regarding the regulation of virtual currency exchanges. The law was passed later the same year; since then, all virtual currency exchanges a required to register with the Japanese Financial Services Agency (FSA).

16 government-approved cryptocurrency exchanges have recently formed JCEA, a self-regulatory group with the power to impose rules upon its members. Presided by Money Partners’ CEO Taizen Okuyama, the group co-exists with two other Japanese crypto associations — JBA and JCBA. The purpose of JCEA is to develop crypto industry standards by requiring its members to uphold the best practices. JCEA is also focused on giving advice to the currently unlicensed exchanges.

Japan’s FSA also has a Fintech Support Desk and has signed agreements with Singapore MAS and UK FCA. This allows outside companies an easier entry into the Japanese market.

ICO regulation is another urgent matter for the Japanese government. In April 2018, guidelines were proposed for ICO legalization. The guidelines are focused on measures to prevent money laundering, scam and/or unfair trade practices such as inside trading.

Business: Innovations and collaborations

Japan is quickly becoming a global blockchain center hosting numerous firms that are active in the cryptocurrency space, including financial giants like Rakuten, SBI and GMO Internet. The latter is active in the mining and exchange industry, and its employees will soon be able to get part of their paycheck in Bitcoin. If GMO Internet’s example is successful, many other Japanese companies may follow the trend and take this novel approach to recurring payments.

Six Japanese companies listed on the Tokyo Stock Exchange have recently announced their intentions to enter the crypto industry by setting up their own exchanges. The companies in question — Money Forward, Drecom, Yamane Medical Corporation, Avex, Adways, and Daiwa Securities Group — are all well-known across the nation, with their activities ranging from entertainment content development (Drecom) to securities brokerage (Daiwa Securities Group). The six companies will join Yahoo! Japan, SBI Group and Line Corp that have also expressed an interest in launching cryptocurrency exchange services.

Japan’s FSA reports that 8 exchanges currently operating as “deemed dealers” (meaning that they are allowed to operate as crypto exchanges while their applications are being reviewed) are willing to withdraw their applications. At the same time, about 100 companies wish to enter the market. Among those 100 is CyberAgent, an Internet advertisement business with the largest market share in the country. Having already established a subsidiary called CyberAgent Bitcoin, the company is considering issuing its own cryptocurrency along with launching an exchange platform. However, CyberAgent is currently developing measures to reduce risks when entering the crypto market, so the process is going rather slowly.

Controversy: Security VS heist

Of course, it’s impossible to talk about crypto in depth without mentioning some of the biggest heists in the industry’s history — which, coincidentally, also happened in the East Asian nation.

One of the biggest hacks Bitcoin has ever witnessed is the Mt. Gox case of 2014. Mt. Gox, a Tokyo-based exchange that was handling about 70% of the world’s Bitcoin transactions at the time, reported a theft of almost 850,000 Bitcoins in 2014. Launched in 2010 by future Ripple creator Jed McCaleb, the exchange quickly rose to dominance despite early setbacks (including a hack for 2,000 Bitcoins in 2011 and a $75 million lawsuit from former business partner Coinlab in 2013). However, the infamous hack of February 2014 caused Mt. Gox to crumble, declaring bankruptcy the same month. The case has had long-lasting effects on the development of the global crypto industry, with new details still surfacing to this day.

However, the Mt. Gox incident was overshadowed by an even bigger theft that happened in late January 2018 when hackers managed to withdraw over $500 million from Japanese exchange Coincheck. This time, the company has seemingly managed to rebound by introducing and carrying out customer reimbursement plans; moreover, in March Coincheck released a statement reiterating their plans to continue as a business with numerous improvements. The company has also received an offer to be bought out by Japanese brokerage firm Monex.

These two cases have prompted the Japanese government to step in, with many of the recent “severe” crypto-related regulations stemming from security concerns. If anything, this might later prove to be a turning point in cryptocurrency regulation across the world, since the constant development of security measures is one of the industry’s primary concerns.

Crypto in Everyday Life

The Japanese National Tax Agency (NTA) has disclosed the number of high-income taxpayers declaring their cryptocurrency profits in 2017. As it turns out, 60% of those who have declared an income of over 100 million JPY (~$900,000) have had income generated from crypto transactions. With the aforementioned example of GTO Internet planning to introduce paychecks in Bitcoin, this number may very well grow in the future as other companies follow suit and make cryptocurrencies a bigger part of everyday life in Japan.

Cryptocurrencies are not only about trading figures or investments; they are gradually making their way into the entertainment sphere as well. Virtual Currency Girls, possibly the first crypto-themed J-Pop band, had its first live performance in Tokyo in January this year. This somewhat unexpected embodiment of cryptocurrency is seeking to “spread the word about bitcoin, ethereum, and other cybercurrencies”.

Summary

Japan’s history of cryptocurrency development has been quite a rollercoaster, with some of the biggest technological breakthroughs and some of the most infamous exchange robberies. Being a pioneer is never easy, and the country has a great opportunity to set an example for the rest of the world regarding crypto security and legal regulation.

We are sure a substantial part of our audience comes from Japan. What’s your take on the development of the Japanese crypto industry? Share your insights in our Telegram channel!