Nov 14 (News On Japan) - Many people believe that we are entering the golden era of crypto or as crypto enthusiasts would say a bull market, but given that the world has seen many crypto scams, even from big exchanges that collapsed, governments are extremely careful when regulating cryptocurrencies.
The issue here is a big one. Cryptocurrencies and blockchain technology obviously solve many big problems in the financial world, but they also raise the risk of potential scams like rug pull, which is why this industry needs to be regulated.
Fortunately, Japan is one of the first countries that started the regulation of blockchain technology. So, while the global regulatory landscape around blockchain still seems chaotic, Japan is one of the few countries that have developed a relatively clear and well-structured system designed to regulate digital assets.
So, are there any important things you need to know about Japan's crypto regulation? And what will be the impact on the industry on a global scale?
The Birth of Japan’s Blockchain Regulation
It takes a lot of effort and courage to come up and regulate an industry that nobody knows much about. However, that didn’t stop Japan from regulating cryptocurrency exchanges, and this was just after the high-profile Mt. Gox hack that happened in 2014.
This case exposed the serious vulnerabilities in the crypto exchange space. Japan was quick to react with the establishment of a licensing framework for crypto exchanges, enforced by the Financial Services Agency (FSA). But what’s unique is that the FSA actually works with he Japan Virtual Currency Exchange Association (JVCEA) and the Japan Security Token Offering Association (JSTOA) just to better structure these regulations.
If we fast forward to 2024, we can see that Japan is constantly refining its approach to blockchain technology. Why?
Well, we are talking about a billion-dollar industry, that might be the future of the world’s financial system. In other words, countries wouldn’t want to miss out on this opportunity. So, they would like to offer some space for innovation in the industry, while still protecting investors from scams and frauds.
The blockchain industry is quite big, and Japan wouldn’t want to miss this opportunity by limiting innovation. Cryptocurrencies are just a start, we also have blockchain gaming, metaverse, blockchain assets, and many other things.
Important Crypto Regulatory Frameworks in Japan
Now that we know that blockchain technology and crypto are regulated in Japan, what does this mean? Japan’s regulatory framework for crypto is quite robust and multi-layered. The two main regulations that govern crypto assets in Japan are the Financial Instruments and Exchange Act and the Payment Services Act.
But these acts don’t mean a thing to everyday investors, so what do they mean?
Well, these laws require crypto exchanges to register with the FSA, they also have to follow strict compliance with anti-money laundering (AML), and consumer protection standards.
Basically, they’ve decided to regulate the big players (crypto exchanges), which is a good move.
Japan recently passed new regulations around stablecoins, digital assets pegged to traditional currencies like the yen or dollar. With this new regulation, only licensed financial institutions can issue stablecoins in Japan, which aims to have a more controlled environment for growth.
Are These Strict Regulations?
Although they might seem strict, these regulations are good for the crypto industry. Their goal is to protect investors from shady strategies in the industry, and the best thing is that they don’t put any limits on innovation.
After all, Japan has more than 30 registered crypto exchanges, which shows that the Japanese government has an interest in keeping the ecosystem safe for investors, while still getting all the benefits of this technology.
The biggest change that happened in Japan is the Mt. Gox incident that we mentioned before, and the 2018 Coincheck hack, which collectively lost over half a billion dollars’ worth of crypto.
All these changes are designed to maintain a safe environment for investors, and although some might say that the government overview of the process ruins the decentralization of cryptocurrencies, it is the only way to protect people from unethical companies.
Who’s in Charge?
The FSA is the primary regulator for crypto in Japan, but it’s not the only one involved. The Ministry of Economy, Trade and Industry (METI) and the Japan Virtual and Crypto assets Exchange Association (JVCEA) also play pivotal roles in shaping the country's blockchain policy.
The JVCEA, for example, works closely with the government as a self-regulatory body for crypto exchanges, setting additional standards and recommending best practices to protect users. This collaborative approach helps Japan maintain its pro-innovation stance while mitigating risks.
In 2024, the Japanese government announced that it is preparing new guidelines specifically for NFTs (non-fungible tokens) and the metaverse. This is a clear sign that Japan sees the broader blockchain space as integral to its digital economy.
Fostering Innovation: Blockchain Beyond Crypto
Blockchain isn't just about cryptocurrencies, and Japan's government gets that. The country is investing in blockchain research and development to explore applications in sectors like supply chain management, healthcare, and intellectual property. For instance, the city of Fukuoka, known as a startup hub, is actively fostering blockchain startups through subsidies and pilot projects aimed at leveraging blockchain technology for public services and business efficiency.
Japan also plans to introduce a “sandbox” environment for blockchain projects, allowing startups to test new ideas with temporary exemptions from specific regulations. This flexible environment is meant to encourage innovation without the usual compliance burden, making it ideal for experimental projects in sectors beyond finance.
