Cryptocurrency expert: Japan's new virtual currency regulations are comparable to Bitlicense and may harm the development of Bitcoin

Koji Higashi, co-founder of IndieSquare wallet, believes that Japan's new virtual currency regulations that will take effect soon give Bitcoin a new definition (Bitcoin becomes an official form of payment) will do more harm than good to the emerging industry.

Bitlicense in Japan

Following the collapse of the infamous Japanese bitcoin exchange Mt. Gox and the arrest of CEO Mark Karpelès, the country's regulators have begun considering setting regulations for bitcoin.

The entire regulatory framework took more than two years to build. The first version of the bill was submitted to Congress in March last year. In May of the same year, the government revised the Payment Services Act and the Prevention of Transfer of Proceeds of Crime Act. Currently, the draft, which includes regulatory details and guidelines, has been officially passed.

The new law, which will take effect this spring, is designed to protect consumers by helping them distinguish between safe (that is, officially approved) and shady exchanges.

The bill also defines several specific cryptocurrencies as legal payment methods to prevent users from falling into the trap of pyramid schemes, fake digital assets and IOU tokens.

While the bill has been praised by Western and Japanese media, Koji Higashi, co-founder of IndieSquare and community director of the Counterparty Coin Foundation, believes that this new regulatory framework will cause huge problems for the Japanese Bitcoin community.

Higashi listed several major problems caused by this bill in his blog, and believed that it was very similar to the Bitlicense:

In fact, I think this bill will be far more harmful to the Japanese (Bitcoin) industry in the long run than the New York Bitlicense.

Why the disadvantages outweigh the advantages

Most community members believe that the Bitlicense launched by New York not only shows a strong bureaucratic nature, but also sets too high a threshold for small startups, thus endangering the development of Bitcoin startups in the region. In the end, companies such as ShapeShift and LocalBitcoins had to stop serving New York customers.

Japan has the same plan, Higashi explained:

If you’re a bitcoin startup and don’t like paying high legal and compliance fees, then Japan’s upcoming new regulations are definitely not good news for you.

The bill stipulates that Bitcoin startups must submit business plans within three years, separate fund management, comply with KYC/AML regulations, undergo external audits, and make regular reports to relevant departments.

Experts estimate that a compliant exchange will cost between $300,000 and $500,000. Not only trading platforms, but any company involved in cryptocurrency business must bear additional fees and a lot of paperwork, so this new regulation will also affect P2P decentralized transactions.

Higashi said:

It is hard to say whether the cost of Japan's new Bitcoin regulations will exceed that of the Bitlicense, but what is certain is that this new policy is enough to put tremendous economic pressure on start-ups, and one day they will be forced to declare bankruptcy.

In addition, although the government's choice to legalize specific centralized cryptocurrencies can protect consumers, it will inevitably endanger the development of virtual currencies that are not on the list.

Bitcoin in Japan

While Japan’s new regulations may affect the development of bitcoin startups, they will also promote the popularity of this virtual currency in the country and increase the trust of new users. Japan is currently the fastest growing country in the bitcoin market. Recently, Japan’s trading volume has successfully surpassed that of China and the United States.

In Japan, there is growing interest in Bitcoin among users, investors and merchants. Blockchain technology is also a focus of attention for the country's businesses and government. Higashi said the Japanese community is one of the largest gathering places for cryptocurrency crowdfunding activities and ICO investors.