According to IndieSquare Co-founder Koji Higashi, new regulations in Japan, which will make Bitcoin an official form of payment (starting today April 1), may do more harm than good for the fledgling industry in the country.
Japan to Introduce Own ‘Bitlicense’
Following the disastrous demise of the infamous Japanese exchange, Mt. Gox and the arrest of its CEO Mark Karpelès, regulators in the country decided to introduce regulations for Bitcoin.
The regulatory framework has been in the works for over two years. The first bill was submitted to the Diet in Japan (the legislature consisting of the Lower and the Upper Houses) last March, and the Payment Services Act and the Act on Preventing of Transfer of Criminal Proceeds were amended in May 2016. Now, new drafts for detailed regulations and guidelines have been approved.
The new law, which is now in place starting today (April 1), is meant to protect consumers and to help them distinguish safe, i.e. approved exchanges, from fraudulent operations.
The law also recognizes approved cryptocurrencies as a legal method of payment in Japan, preventing users from investing in so-called scam coins, fake digital assets, and IOU tokens.
Although praised by western and Japanese media alike, the new regulatory framework may pose serious problems for the Japanese Bitcoin community, according to Koji Higashi, Co-Founder of IndieSquare and Community Director at the Counterparty Foundation.
In a blog post, Higashi outlines the major issues with what he calls “Japan’s Bitlicense” due to the similarities found between the two, saying:
I’d actually argue that this law may turn out to be more damaging to the Japanese industry in the long run than what Bitlicense has been to NY.
Why It Could Be Worse Than NY’s
The Bitlicense introduced in New York has been widely perceived by the community as damaging for Bitcoin startups in the region due to the bureaucracy and high entry barriers for small startups. It resulted in several startups like ShapeShift and LocalBitcoins halting services for NY-based customers.
Now, Japan is doing the same, explains Higashi. “If you are not a fan of the excessive cost for legal and compliance fee for Bitcoin startups, however, the new law in Japan is certainly not exciting news for you,” he notes.
Among others, the requirements involve the submission of a 3-year business plan, segregated fund management, KYC/AML requirements, segregated fund management, frequent reporting to authority, and external audits.
Some experts estimate that the costs involved with becoming a compliant exchange could be as high as $300,000-$500,000 USD. Moreover, additional fees and paperwork will also apply to companies beyond trading platforms and will affect P2P decentralized exchanges as well.
It’s hard to say whether the regulation in Japan is more costly than the Bitlicense but I can say it’s expensive enough to put serious financial pressure on startups and may force them to go out of business completely in some cases.
Another issue with the new regulatory framework is that it will require virtual currencies to be accepted into an official list of approved coins. Although this system may protect users from being scammed out of their savings, it may end up damaging the reputation of coins that don’t make it to the list, which will most likely be a conservative one at best.
Bitcoin in Japan
The new regulations may affect Bitcoin startups negatively but are also likely to push adoption forward and to create a sense of trust for new users in the virtual currency space. Japan is the fastest growing country in the Bitcoin market. For example, trading volume in Japan has recently surpassed that of China and the U.S.
The country is experiencing growing interest in Bitcoin from users, investors, and merchants. Blockchain is also a technological focus point both for companies and the government. The Japanese community is also one of the biggest investors in crypto-related crowdfunding campaigns and Initial Coin Offerings, according to Higashi.
[Note: This article was originally published on February 9, 2017. It has been updated as today (April 1) is the first day Japan’s new cryptocurrency law comes into effect.]
Will the new regulations drive companies away from Japan? Or will it usher a new age for cryptocurrency adoption in the country?
Images courtesy of CryptoCompare, Shutterstock, Counterparty.io