TOKYO -- Bitcoin, a leading example of financial technology, or fintech, is posing a challenge to Japan's existing financial system.
The Japanese government recently adopted a draft law to treat the virtual currency, currently considered a commodity, as having the same functions as legal tender.
Some financial institutions are already starting to adopt cryptocurrency technologies.
In late February, DMM.com, an online streaming service with 19 million users, began accepting online payments in bitcoin. This one move raises the prospect of wider bitcoin acceptance. DMM.com also sells comic books, games and online English lessons.
"In Japan, bitcoin is starting to be used to settle small transactions," said Yusuke Otsuka, chief operating officer of ResuPress, which runs the bitcoin exchange coincheck. DMM.com uses coincheck's settlement service.
The number of shops in Japan that accept bitcoin payments was around 1,000 at the end of last year.
How do consumers use the cryptocurrency? Well, in December, a 30-something investor in Hong Kong bought a condominium in the coastal city of Atami, south of Tokyo, for some 500,000 yen ($4,351). She paid in bitcoin and saved about 5,000 yen in processing fees that a bank would have charged. In addition, the cross-border payment was settled in an instant, bringing convenience to the process, she said.
There are an estimated 12 million bitcoin users around the world; 50,000 of them are thought to be in Japan. For a time, the cryptocurrency was used for speculative purposes. But, thanks to its ease of use and lower fees, it is increasingly being used by overseas students and immigrant workers transferring money across borders.
The trend has prompted the Financial Services Agency to see bitcoin in a new light. "The proposed regulations are designed to promote healthy businesses," one official said. The proposal would not only give bitcoin currencylike status, it would also try to protect consumers.
Yet it is hard to predict to what extent the virtual currency will actually be used, and creating a legal framework is not an easy task.
The bitcoin issue dominated a Financial System Council meeting in November. "Do we have measures against money laundering [involving bitcoin]?" one member asked. There is global concern on this issue as well as on keeping cryptocurrencies from becoming a tool helping terrorists operate in the shadows. Bitcoin issues will likely be on the agenda at the Group of Seven summit meeting, to be held in Japan in May.
In Japan, bitcoin scams are already rampant, with the elderly being the primary target of unlicensed brokers. The number of such cases rose about fivefold in 2015 from a year before to over 200. With the collapse in 2014 of Mt. Gox, the world's largest bitcoin exchange at the time, and the subsequent arrest of its top executive, any similar incident that harms the bitcoin community could jeopardize the virtual currency's future.
This is financial regulators' conundrum -- to allow the cryptocurrency to prosper while safeguarding users and society.