Some countries in Asia are feeling the pain of inadequate cryptocurrency regulation, while others, like India, China and South Korea, have taken an uncertain or hostile stance to cryptocurrency. In contrast, Japan is building a clear framework for how virtual currency exchanges, and soon initial coin offerings (ICOs), should operate there. In doing so, Japan is becoming a hotspot for virtual currency exchanges that can afford to comply with its strict rules, while also creating a regulatory template for the rest of Asia to follow.
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Japan has always been friendly to cryptocurrency, but it took an early hit in 2014 when Tokyo-based cryptocurrency exchange Mt. Gox became the target of the largest bitcoin hack ever. The exchange was handling 70 percent of all of the bitcoin transactions in the world when, after a series of messy complications, it abruptly stopped trading[5] in February 2017. Following that, 650,000 bitcoin[6] worth $390 million at the time (or $6 billion at today’s value) were reported missing.
In response to the massive virtual currency heist, the Financial Action Task Force (FATF), the Paris-based international body that creates policies to combat money laundering, issued its “Guidance of Risk-Based Approach to Cryptocurrencies[7]” in 2015. The 46-page report recommends that countries license virtual currency exchanges and subject them to the same rules and oversight as any other financial institution or money transmitting business.
New Laws, Big Changes
Prompted by a desire to protect consumers and the FATF’s recommendations, Japan revised its Payment Services Act. The new law, which went into effect in April 2017, does two things. First, it legally defines virtual currency as a form of payment. (Japan still does not define bitcoin as
