by Joseph Young
On February 4, the Cabinet of Japan officially approved a set of legislation which recognizes virtual currencies such as bitcoin as authorized payment instruments. Digital currencies will be accepted and regulated like normal reserve currencies and will be used as an asset-like medium in making payments and international transactions.
The lawmakers and Cabinet of Japan emphasized that the recognition of virtual currencies as a financial instrument would mean that bitcoin startups, including exchanges and payment technology providers, will have to abide by the financial laws and policies established in Japan, and most likely will help local law enforcement to prevent money laundering by keeping an accessible record of client data and sensitive financial information.
The Japanese Financial Services Agency (FSA) will act as a regulator of virtual currencies and startups in Japan. As the newly passed legislation begins to take effect in the upcoming months, the FSA will continue to release more information regarding the faith of bitcoin and digital currency startups in the country. However, some predict that the government is highly likely to impose heavy restrictions and financial policies for digital currencies due to the Mt. Gox heist in 2014.
In 2014, Mt. Gox board of directors and former CEO Mark Karpeles announced the combined loss of US$460 million after the disappearance of its Bitcoin stores secured in a local server. In response to the increasing number of complaints from Japanese citizens and residents who lost their Bitcoin on Mt. Gox, the government of Japan in collaboration with Kraken, a bitcoin exchange based in Europe and the U.S, and local law enforcement announced the launch of an investigation against Mt. Gox and its controversial CEO, Mark Karpeles.
The Japanese government and lawmakers have since hinted at the release of a set of laws and policies that would restrict the operations of bitcoin startups, exchanges and wallet platforms. In late 2015, Finance Minister Taro Aso explained that the government is considering defining and regulating the state of virtual currencies and bitcoin startups.
“We have to carry out studies,” on ways to regulate virtual currencies, he said. Aso further emphasized that bitcoin could be used for money laundering and funding terrorist groups internationally. Thus, the Finance Minister of Japan proposed a license-type regulation for digital currency firms which would require the companies to develop or provide enough information to law enforcement to eliminate illicit use of bitcoin.
While it is hard to speculate the short-term plans of the Japanese government regarding the regulations and financial policies they aim to impose on bitcoin startups, it is highly likely that the government would require a type of server integration that enables government agencies and law enforcement to access customer data for further verification, citing money laundering and terrorist funding investigation as the core reason.