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Cryptocurrency increasingly popular for payments, purchases

TOKYO -- Bitcoin is once again a talking point. Just one year after the Mt. Gox exchange filed for bankruptcy protection under the fast-track Civil Rehabilitation Law at the end of February 2014, conversations about the cryptocurrency are more sounding more positive.

     While the bankruptcy, and Mt. Gox's claim that it lost a huge amount of assets, quickly cooled booming interest in the currency at the time, recent reassessments of the virtual currency involve a number of noticeable developments.

     One new development was the January investment by Recruit Holdings in bitFlyer, a startup offering a platform on which to buy and sell bitcoins, as well as using them to make payments. The startup is a hive of activity filled with young staff dressed in casual attire, processing orders at the company's headquarters located near the Japanese Prime Minister's office in Tokyo.

     "Bitcoins have a strong potential," said Yuzo Kano, who quit Goldman Sachs Japan to establish bitFlyer in January 2014.

New payment mode

The value of bitcoins constantly changes, just like traditional currencies. The bitcoin system was introduced in 2009. The issuance of bitcoins is carried out collectively by the network that has set a cap on issuance of the coins. There is no authority, such as a central bank, responsible for issuing the cryptocurrency, which circulates on the Internet and is increasingly used around the world.

     Recruit isn't the only company watching bitcoins closely, Rakuten is too.

     Hiroshi Mikitani, president of Rakuten, speaking at a financial conference his company held in Tokyo on Monday, said the e-commerce site will probably start allowing customers to make payments using bitcoins.

     More places to trade the coins are opening. Coinbase, a Calfornia-based startup, opened the first licensed bitcoin exchange on Jan. 26. It used funds from the New York Stock Exchange and other investors. Intercontinental Exchange, which owns the NYSE, said in a statement that it looks forward to supporting Coinbase's growth. The startup has raised $75 million.

     Other large companies are also getting in on the act. Microsoft began accepting bitcoins for purchases of apps and games on its e-commerce site last December. PayPal, an American digital wallet operator for payments and money transfers through the Internet, has made arrangements enablnig companies to accept payments for games and other products in the digital currency.

     The cryptocurrency has "chances of greatly changing financial services," according to Yukio Noguchi, an adviser to Waseda University's Institute of Financial Studies. In fact, the global circulation of bitcoins is already valued at about 1 trillion yen ($8.33 billion), larger than the currencies issued by emerging economies such as Cambodia.

     But bitcoins still have problems. In early February, for example, a proprietary bitcoin exchange in Hong Kong was reported to have stopped trading all of sudden.

     Unlike regular currencies, such as the dollar and yen, which are managed by governments and central banks, the legal status of bitcoins differs depending on the country, and sometimes the area within that nation. Some U.S. bitcoin exchange claims that it is authorized by state-level governments. But California said it has yet to decide whether existing regulations to virtual currency and other states adopting similar stances.

     Japan is taking a similar position. The Japanese government has yet to clarify whether bitcoins are goods or not. Last year it said the cryptocurrency is "neither money nor securities."

Safety concerns

A private sector-led program to ensure that bitcoins are safe is now a focal point of discussions around the virtual currency.

      Last autumn, bitcoin companies established the Japan Authority of Digital Assets as a self-regulating body. It decided that customer assets should be managed in bank accounts separate to those holding assets belonging to bitcoin traders. The separation of bank accounts protects customers when a bitcoin company goes bankrupt.

     The JADA has also made it mandatory to keep customer assets in a data management system that is not connected to the Internet in order to prevent any unauthorized bitcoin withdrawals, in the case of cyberattacks. But the safety measures being developed are all in the early stages.

     Money is generally thought to have three functions; a common standard for measuring relative worth of goods and services, storing held wealth, and being a medium of exchange for buying and selling goods and services. While bitcoins are an increasingly convenient and inexpensive tool for purchases, they are unreliable for storing of value.

     At present, the cryptocurrency is quietly growing as an attractive financial tool, but there are still risks.

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