Sunday, February 5, 2023

Japan Sets the Standards: The Carrot, the Stick, and the Horse

Japan Sets the Standards: The Carrot, the Stick, and the Horse

With an estimated half of all bitcoin trading conducted against the Japanese Yen, Japan has been both early adopters of cryptocurrency, tolerant and encouraging of the technology, and among the first to recognize cryptocurrency as a legal means of payment.

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Not All Smooth Sailing in Japan

Japan has also suffered its fair share of crypto pain, with the Mt. Gox hack almost bringing bitcoin to its knees and the recent NEM hack at Coincheck marking the largest exchange attack ever. Despite enduring those setbacks, Japan has developed an increasingly advanced and nuanced approach to cryptocurrencies, with two recent announcements indicating the country’s preparedness to be both accommodating of cryptocurrency and conscientious in protecting its citizens from financial security risks.

The Carrot

Not only is bitcoin (and other cryptocurrencies) widely accepted in Japan and becoming more so, the Japanese government recently announced a detailed plan – submitted by the Centre for Rule-making Strategies at Tokyo’s Tama University – to permit ICOs in the country in a manner that is coordinated, safe, and in the interests of both investors and startups.

China recently banned ICOs domestically and citizens’ participation in them at all. The SEC in the U.S. has made them too onerous both domestically and abroad for average Americans to participate in. Other jurisdictions, it is fair to say, simply don’t quite know what to do with them.

With a more mature and disciplined approach, Japan seems on course to create a regulatory framework around ICOs that afford investors the protections they deserve and entrepreneurs the infrastructure they need to develop an environment conducive to this innovative form of fundraising.

The principles of the proposals are largely commonsense. ICOs must follow rules relating to investor verification, preventing money laundering, and protecting existing investors and debt holders. The report states that:

“ICO is still in its infancy and has no industry practices yet. Appropriate rules must be set to enable ICO to obtain public trust and to expand as a sound and reliable financing method.”

Funds raised during an ICO must be distributed as outlined and insider trading banned. The Japanese Financial Services Agency (FSA) will deliberate the findings and potentially move toward creating a regulatory framework for ICOs in Japan with a few years.

The Stick

At the same time as moving toward allowing a regulated ICO industry, the Japanese Metropolitan Police Department has established a unit to deal with cybercrime to coordinate information between currently disparate agencies. IBM Security and Ponemon Institute recently released a report indicating that the average per capita cost of data breaches was $140 million USD in Japan in 2017, with the financial services sector the second most significantly targeted industry worldwide. Half of all data breach incidents in Japan were the result of malicious cyber attacks.

Since the January Coincheck hack, the FSA conducted flash inspections of the exchanges operating in Japan that had applied for and were awaiting full registration. With an estimated two-three million Japanese cryptocurrency holders and 16 FSA-registered exchanges, Japan is intent on strengthening its cybercrime capabilities to enhance, and not harm, the burgeoning industry.Japan horse

The Horse

It is doubtless that Japan’s enthusiasm for cryptocurrency and fintech is at least partially informed by a thirty-year recession and concurrently missing out entirely on countless technology developments (think mobile phones, mp3 players, internet innovation, disruptive technologies) that employ workforces and stimulate growth.

Bitcoin – and the blockchain technology underpinning it – represents the horse Japan is jockeying to deliver the country into a new era of economic growth and technological advancement. The country appears to be well advanced in balancing the need to manage the risks involved in blockchain and fintech industries with the imperative to encourage the innovation they bring.

What do you think? Has Japan shown a level of maturity toward cryptocurrency and fintech that is rare around the world? Share your thoughts below.

Images via Pixabay, Pexels  

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