Japan Embraces Virtual Currencies
Jul. 20, 2016
As more and more people use virtual currencies, the Japanese government is adding restrictions and looking into ways to foster the new field.
Virtual currency is traded on the internet, and Bitcoin is the most widely used globally. The currency’s reputation took a hit in 2014.
Mt. Gox, one of the world’s major exchanges for bitcoin and legal tender, collapsed, losing 115 million dollars' worth of investors’ bitcoins.
"I'm extremely sorry for losing the bitcoins," said Mark Karpeles, the former CEO of Mt. Cox.
But the currency is regaining momentum. Around the world, over 5 billion dollars' worth of virtual currencies are traded every day. In Japan, more than 2,000 stores now accept them. Most of them are bitcoins.
Just bring your smartphone with a Bitcoin wallet app. Hold your phone over the shop's tablet and the payment's complete.
At one restaurant, customers can pay for their meal and tip the staff and chefs in bitcoins.
And it's not just restaurants this dentist also accepts them. The Japanese government has stepped in to the field of virtual currencies.
But the real advantage of using the virtual currencies is transferring money, especially across borders.
Here is how it works. I sent some bitcoins, the most used virtual currency, to a friend in Indonesia. First, I have to go to Bitcoin exchange website. Then I register my bank account to buy bitcoins. Now I enter the amount I want to send. It's 100 dollars worth of bitcoins, then click send. Five minutes later, I get a call from him. The transaction didn't cost me anything.
That's not the case with banks. When we asked a major bank about sending the same amount of money to Indonesia, they said the fee would be about 80 dollars and take about a week for it to get there.
The difference is obvious when using Bitcoin. But this convenience has raised concerns of terrorist organizations using virtual currencies. It was a major topic at this year's G7 Summit. Leaders adopted a plan to stop a method from being used for illegal payments.
Now the Japanese government has taken the first step forward. The Diet in May added new regulations for virtual currencies. I spoke with the person who oversaw the law.
"We're the first major country to have nationwide regulations on virtual currencies. We need to fight the financing of terrorism and money laundering as well as protect users," says Norio Sato, an official at the Financial Services Agency.
Sato says there is another purpose for enacting the law.
"It's not just for restricting them. We also want to foster virtual currencies. Businesses in this field are expected to expand, and this will lead to further development of financial technology such as the blockchain," Sato says.
The blockchain, is a key technology for the currency. It's essential to perform bitcoin transactions.
Under a traditional banking system, financial institutions with host computers guarantee all transfers and records are not disclosed. Blockchain takes the opposite approach. It doesn't need these institutions with host computers. Every transaction record is made public. All users can see them. This way, transactions are guaranteed as legitimate by all users of the network.
"We think that blockchain technology with other innovative technologies will lead us to new businesses that will bring more benefits to consumers. So we'll be watching developments in these fields," Sato says.
Kenji Saito, an expert on virtual currencies and blockchains, joins anchors Aki Shibuya and Yuko Fukushima in the studio.
Shibuya: I've never used virtual currencies before. How widespread do you think they will be used in the future?
Saito: I doubt that everyone will be using the currency directly, but in the area of fund transfers, I think this currency is maybe dominant because it's much less expensive than using bank transfers. There will be services that we use daily for transferring Japanese yen, in the back end they exchange Japanese yen to bitcoin and then transfer, and then exchange the bitcoin back to Japanese yen or something like that.
Fukushima: So end consumers like us might not be using it so much but it will be used by businesses in the background. Now I guess I understand that the law, that the government enacted a law on digital currencies because there's going to be widespread use of it. But what do you think is the real intent of the government, to restrict the use of virtual currencies?
Saito: I think the aim of the law itself is to promote the use of those currencies by protecting consumers and to prevent money laundering. But the reason why they want to promote those currencies to begin with is that they are interested in the blockchain technology behind those currencies that may affect a large part of Japanese industries.
Shibuya: Will the blockchains change the way we do business?
Saito: Fundamentally, what blockchains try to enable is for people at both ends of the transaction, not the intermediaries, to have total control. In the area of finance, banks are intermediaries. So they're threatened by the technology and they need to change. In the future, the financial services will reside closer to our ends, to assist our intelligence to handle our own financial needs by ourselves instead of depositing our money somewhere and then let them handle our needs. So the banks as we know today may disappear, or at least transform into something else in a matter of decades.
Shibuya: Does this mean the blockchain technology will bring us a great future of great efficiency?
Saito: Yes, in many areas, I think so. But there are certain problems. Like when we use blockchains, it looks as if we have total control because we have control of assets. But in fact, we don't have any control of the technology itself. We have no power in handling the future of the technology, how the technology evolves. The blockchains are designed to work automatically to maintain a record of a single correct sequence of events. But sometimes we want to intervene to fix things. But only a handful of people, the developers or maintainers of the technology can intervene. Maybe we are giving too much power to those people.
Fukushima: So you just gave an example of the financial sector changing dramatically because of blockchain technology, but it could apply to any other sector with intermediaries.
Saito: Yes, I think so. The principle of end-too-end, or no intermediary, can be applied to any industry, or even to how governments handle records.
Fukushima: You just mentioned that blockchain isn't perfect. But how can end users like us help to overcome this obstacle and make blockchain more useful to society?
Saito: The users should raise their voice. For instance, in Bitcoin there is something called target keys by which we have total control of the coins we own. But if we lose those keys than we lose the coins altogether and there is no way to recover them. This is bad design. So we should clarify our requirements for the technology and communicate that to the developers and prepare the environment where the general public instead of a handful of technologists take control of the technology if we decide the technology should be a part of our social infrastructure.