TOKYO -- The bitcoin renaissance seems to be at hand, with investors using the virtual currency to weather turbulent financial markets and banks striking partnerships to explore the system's underlying technology.
Until mid-May, 1 bitcoin fetched on the order of $400 -- a long way down from the currency's peak above $1,000 in late 2013. A month later, the exchange rate had shot back up to $700 or so. Because the virtual currency is not affiliated with any country, it tends, like gold, to strengthen when investors' confidence in national currencies falters. In this case, that crisis of faith struck the euro and British pound, which plummeted in the face of the U.K.'s referendum on whether to leave the European Union. When the Brexit result became certain, those jitters spread worldwide, hitting currencies such as the yuan.
An event known as a reward halving, part of bitcoin's code, has stoked demand further. Bitcoin can be obtained either on the open market or by "mining" -- that is, by having computers solve complex equations to earn a set amount of the currency. The amount handed out as a reward is halved every four years to limit the bitcoin supply. This came to pass on July 9. "Buying of the currency has increased on the expectation that scarcity will rise," a source at a bitcoin exchange said.
Japan has been somewhat cool toward virtual currencies since February 2014, when Tokyo-based Mt. Gox, then the world's largest bitcoin exchange, collapsed. But once-leery financial institutions here are now becoming more involved with the technology.
Among the most prominent players in the field is Bank of Tokyo-Mitsubishi UFJ, which on July 8 announced plans for a strategic tie-up with U.S.-based Coinbase, the world's leading bitcoin exchange. With the partnership, the megabank aims less to collect revenue from bitcoin trades than to gain expertise in the very core of the bitcoin system: the so-called blockchain used to record transactions and verify ownership of the currency.
Blockchain-based record-keeping operates using multiple copies of a file shared over the internet, allowing participants to quickly verify transactions. The system is both cheaper to implement and requires less processing power than conventional financial frameworks, leading BTMU to consider it for use in international fund transfers.
But that is just the beginning for the powerful technology. "I'd like to think that [blockchains] will be put to use in a variety of fields beyond finance, such as the 'internet of things'," said Eiichi Kashiwagi, head of the bank's digital innovation division.
Coinbase is thought to have been sounding out partnerships with other Japanese megabanks as well before the latest tie-up was announced. BTMU's plan was given the go-ahead by Tadashi Kuroda, parent Mitsubishi UFJ Financial Group's chief strategy officer, and didn't require a traditional meeting of management, enabling the bank to move faster.
Lack of leadership
Yet as Japan's bitcoin fever reignites, factionalism in the blockchain field and lingering legal barriers threaten to burn potential innovators.
The global Blockchain Collaborative Consortium, led by Japanese software developer Infoteria, held its first general meeting on June 30. The organization has grown to include 61 companies since its founding in April. By increasing chances for exchange, the group aims to spur development and adoption of blockchain and bitcoin technologies. Several other prominent industry organizations have emerged as well, including the Japan Blockchain Association, which aims to promote legislation related to virtual currencies, and the Crypto Currency Business Working Group consisting of brokerages and foreign exchange companies.
In theory, there is no need for a single umbrella organization in the industry. But scuffles over leadership and what can be considered blockchain technology are already emerging among various competing groups, hindering cooperation.
Legislative issues also remain to be addressed. For example, while Japan has at last granted virtual currencies legal recognition, they remain subject to an 8% consumption tax at purchase. Unless companies and organizations in this country can team up to explore the blockchain frontier, Japan could lose its chance to become a major industry player globally.