Japan is at the forefront of blockchain development

Rage Review : Japan is actively paving the way for the development of blockchain. Although Barclays completed the world's first trade financing transaction in September this year, when it comes to breaking virtual currency regulations, Japan is at the forefront of leading the development of blockchain. The bill approved in March recognizes that virtual currencies such as Bitcoin have functions similar to real currencies. On May 25, the Japanese House of Representatives passed an amendment to the Banking Law, which will reduce the capital holding rate of domestic banks in other companies, which means that it is easier for domestic banks to invest in or acquire financial technology companies.

Translation: Nicole

Blockchain is best known as the technology behind Bitcoin, but other digital currencies are fast becoming one of the biggest threats to the financial services industry.

One country that is blazing a trail for blockchain development is Japan. The House of Representatives approved a set of regulations and banking law amendments on May 25 regarding virtual currencies, and since then, the financial services industry has continued to expand its influence in the field.

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In a research note published this week, analysts at Jefferies examined the rise of blockchain in Japan and the technology’s potential to transform the traditional financial services industry.

Blockchain: Japan Leads the Way

According to the Nikkei, Japan's leading newspaper, the potential market size of blockchain in Japan could reach 67 trillion yen, with about half of that coming from Internet transactions between individuals and contract management. For a long time, blockchain technology has been marginalized due to a lack of understanding of its potential. In the past year or so, blockchain's acceptance in the financial community has grown exponentially.

R3 Cev is a New York-based company that is currently conducting different technology trials, including blockchain research and experiments with 42 banks around the world. The consortium was launched on September 15, 2015 with only nine participants. Large Japanese banks MUFG, Mizuho, ​​SMFG, Nomura and SBI Holdings have joined the blockchain consortium. In September this year, Barclays completed the world's first trade finance transaction, and now the competition is to see who can get the most benefits from this technology.

For Japanese banks, Jefferies sees two main adoption paths for blockchain. The first is the development of mainstream IT that is unrelated to the current financial system, including private ledgers, pegged sidechains, and other cutting-edge topics. The second is to replace existing financial operations. The second option can save banks a lot of money and reduce costs, but it will likely take time to implement. Jefferies analysts labeled the two adoption paths as "new methods of money generation" and "old methods of money savings."

There are many obstacles to introducing technology into the financial system, but Japan has made progress in adapting regulation to accommodate blockchain. On May 25, the House of Representatives of Japan passed an amendment to the Banking Act that will reduce the capital holding ratio of domestic banks in other companies. The current law limits banks to holding more than 5% of other companies. The amendment will make it easier for domestic banks to invest in or acquire financial technology companies. Second, in March 2016, the cabinet approved a series of bills recognizing virtual currencies like Bitcoin as having "functions similar to real currencies." The House of Representatives of Japan approved these bills on May 25.

The benefits of using blockchain in the financial system are not only security and ease of operation. By using the technology, banks can reduce costs, increase overall profits, improve returns for investors, and improve customer experience. Although Barclays conducted the first trade blockchain transaction, when it comes to breaking regulations related to virtual currencies, Japan is at the forefront of leading the development of blockchain.