Japan to adopt new safeguards for bitcoin users
TOKYO -- Japan's cabinet approved new regulations Friday governing transactions involving cryptocurrencies such as bitcoin, aiming to improve transparency and protect consumers.
Japan currently has no laws specifically covering cryptocurrencies and effectively treats them as objects. The new regulations designate bitcoin as a legal form of payment fulfilling the functions of currency.
Although the 2014 bankruptcy of Tokyo-based bitcoin exchange operator Mt. Gox had stoked fears about the safety of cryptocurrencies, usage is back on an upswing. Japan now has seven cryptocurrency exchanges and an estimated 50,000 or so bitcoin users. Daily transaction volume has tripled over the past three months to around 600 million yen ($5.26 million). More than 1,000 stores now take payment in bitcoin, including restaurants, dentists and nail salons.
As the currency takes off, safety is increasingly a concern, particularly consumer protection. The failure of Mt. Gox wiped out 8.2 billion yen in customer deposits. While bank deposits are protected by the Deposit Insurance Act, Japan has no rules requiring exchanges -- often run by small or midsize companies -- to set aside funds in case of bankruptcy. And not all exchanges conduct external audits or segregate their own assets from those of customers, a Financial Services Agency official said.
The government plans to bring cryptocurrency exchanges under FSA oversight, require auditing by certified public accountants and impose a minimum capital requirement of 10 million yen. Annual financial reports will be mandatory, allowing exchanges with weak finances to be weeded out naturally as shortcomings come to light. Segregation will also be required, and exchanges will need to disclose information about fees and contracts to users.
These minimal rules to protect consumers still leave safety concerns. Cryptocurrencies have reportedly been used to fund terrorism, Finance Minister Taro Aso said Friday.
"Cryptocurrencies' prices fluctuate sharply, and they're highly speculative," said Motokazu Endo, an attorney well-versed in financial legislation. "Many exchanges have weak financial bases, and should they go bankrupt, it would be tough to protect creditors' assets."