Japan Officially Recognizes Bitcoin and Cryptocurrencies as Currency

Japanese banks are proposing new laws to embrace Bitcoin. Has Bitcoin finally come of age in the land where the sun rises?

On March 4, 2016, the Japan Times reported that the Japanese Cabinet had approved a series of bills that would help the banking industry expand its exposure to information technology businesses. This intertwining of banking and IT is also known as the emerging term "FinTech".

Interestingly, the Cabinet also considered the importance of virtual currencies, and the new bill will include them as a form of payment with the potential for digital transmission.

Japan just gave legal status to virtual currencies, something many other countries are still struggling with.

Saito, a lawyer specializing in virtual currencies, told CoinTelegraph:

“I think the new law will promote the acceptance of Bitcoin and other virtual currencies. Some major financial institutions, investors, and advertising agencies are hesitant about Bitcoin-related issues. The reason is that Bitcoin is unregulated, its nature has been uncertain, and some people still have a bad impression of Bitcoin.”

Is Bitcoin sunrise in the land where the sun rises?

The Japanese government is looking to bring virtual currencies under the purview of the Financial Services Agency (FSA), the same Japanese agency that manages Japan’s own currency, the yen. This would also mean registering virtual currency exchanges, aiming to extend protections to people using currencies like Bitcoin to prevent money laundering.

Kagayaki (Kaga) Kawabata, from Coincheck.jp’s business development department, explained these developments to Cointelegraph:

“We believe this action is positive for the Bitcoin and cryptocurrency community. Due to the Mt. Gox incident, the vast majority of the Japanese public do not trust Bitcoin and believe that Mt. Gox is Bitcoin. People believe that Bitcoin is money used for fraudulent activities. Legally accepting Bitcoin similar to legal tender will change how people view Bitcoin and cryptocurrencies in general. This government move will have a huge impact on helping Bitcoin gain public awareness and will accelerate the integration of Bitcoin by other businesses. In addition, since Japan is one of the first countries to recognize Bitcoin as legal tender, this is very important. This will be a great opportunity for Japan, who are actively pursuing innovative technologies throughout the country.”

However, Kaohsiung Chaoshan, CEO of the Technology Bureau Group (Zaif Securities), cautiously said:

“Japan considers all virtual currencies, including crypto, to be just ‘circulation’. This is an extension of payment methods. The law requires a certain capital and registration with the FSA, and forces exchanges to segregate and manage deposits to exchanges. However, it is not entirely clear how cryptocurrencies will be segregated and audited. The benefit of this new law is that we can remove most of the fraudulent ‘HYIP coin schemes’, but I am afraid it will also eliminate small high-tech startups that benefit from crypto technology.”

Bringing information technology to the banking industry

The Japanese banking sector will benefit the most from this law. Japanese banks have been more open to Bitcoin than their European counterparts, which seem to have closed their doors to active participants in the cryptocurrency world.

Jeremy Wood, co-founder and CSO of Input Output, a company operating in Hong Kong and Japan, said:

“I think in some ways, banks have already accepted Bitcoin. There haven’t been bank failures in Japan like there have been with Bitcoin companies.”

So, is the Bank of Japan ready to take a giant leap and start embracing Bitcoin?

Kaohsiung Chaoshan Technology Bureau Co., Ltd. (ZAIF Exchange) thinks so, telling us that things are starting to change because before January 2016, virtual currencies in 2015 were, in his words, "Voldemort" to the Bank of Japan. He said that in January 2016, the Bank of Japan began running trials and began talking about cryptocurrencies to the media "with a smile." Kaohsiung believes that they are preparing to apply it in business after the law takes effect next year.

Kaga of coincheck.jp also echoed his view that banks have shown interest in virtual currencies such as Bitcoin since the announcement. He believes that this will mean more opportunities for existing Bitcoin and cryptocurrency exchanges. However, he believes that startups may face greater difficulties entering the market due to the additional regulations.

Women may play a key role in Japan’s bitcoin adoption

Japan is unique in the world of personal finance in that many financial decisions are made by housewives. It is well known that many men receive a fixed allowance from their wives, who are mostly the breadwinners of the household. This allowance, called okozukai, is used by men for entertainment, and they are mostly left without a say in the household finances. Japanese women are considered money managers and investment wizards. In an environment of zero and sub-zero interest rates, Japanese housewives are looking for new and interesting investment options.

In fact, Input Output co-founder Jeremy Wood was surprised by his Japanese wife’s curiosity about Bitcoin.

He told CoinTelegraph:

“I was very surprised when my wife told me she wanted to buy Bitcoin. Japanese people are very interested. Even my wife’s mother was asking questions about Bitcoin.”

Jeremy believes that while Bitcoin is an attractive form of investment for the Japanese, he has a hard time thinking they will use it for transactions because Japan is a very cash (paper money) oriented society.

The Road Ahead

Japan is paving the way for Bitcoin and other virtual currencies to play a role in the country's financial system so they can be better regulated and managed domestically.

The technology behind these currencies can also be used in the existing banking system. This will undoubtedly give the Japanese banking system an advantage in early adoption. However, this does not mean that Bitcoin has a parallel status with the Japanese yen.

Charles Hoskinson, co-founder and CEO of Input Output, said:

"From a government perspective, unless you can use it to pay taxes, it's not as good as official currency."

However, the new law proposed by the Japanese Cabinet is a welcome step and something other jurisdictions can take inspiration from.