Yuzo Kano is the CEO for BitFlyer, one of Japan’s largest cryptocurrency exchanges. He previously worked at Goldman Sachs developing settlement systems, and later on equities derivatives and convertible bonds.
The following article is an exclusive contribution to CoinDesk’s 2017 in Review.
No matter what negative news rocked the community, what hard fork happened or what skeptics stated, bitcoin held strong in 2017.
This is due in no small part to Japan. While the wider community is what breathes life into any coin, Japan is now bitcoin’s heart; the country that is at the center of its support. There used to be a concern about the longevity of bitcoin, the safety of using such a novel new invention.
2017 is the year that fear died – and Japan is a big part of that reason.
Where other countries have had knee-jerk responses to bitcoin and blockchain technology, Japan’s Financial Services Agency (FSA) expertly analyzed the technology and developed clear and fair laws to regulate virtual currency exchanges. This is no small matter – bitcoin exchanges are the onboard ramp to both bitcoin adoption as well as the future of virtual currencies.
With all the positive news this year from Japan, it’s only appropriate to acknowledge the country’s deep history with cryptocurrency. While we may never know for sure if he (or she) is (or was) Japanese, Satoshi Nakamoto is a Japanese name. Japan is bitcoin’s home.
But though bitcoin has always had strong roots in Japan, it was also the center of its biggest controversy.
Some say that Mt. Gox’s implosion, now nearly four years removed, was the worst event to ever happen to bitcoin. The numbers were staggering. 650,000 bitcoins, worth around $437 million at the time, were lost when the exchange abruptly closed. The company filed for bankruptcy. This affected over 127,000 customers around the world. Today, those lost bitcoins are worth nearly $9 billion.
Still, this event, while terrible, forced the Japanese regulators to step in and protect consumers.
That disruption, that explosion, is why Japan has become the most forward thinking jurisdiction for bitcoin and virtual currencies. The FSA’s understanding of the technology, regardless of the bad or inexperienced actors early in the space, helped lay the foundation on which the rest of the world can begin to understand and fully accept bitcoin and other virtual currencies.
Starting on April 1 of this year, the Japanese government enacted an amendment to the Payment Services Act. These amendments, which BitFlyer helped establish, have been referred to as the Virtual Currency Act and alongside additional tax reform have provided three main pieces of regulation in 2017:
1: Legal clarification of bitcoin
The Virtual Currency Act described and identified what a virtual currency is, clarified that bitcoin is considered an asset and that bitcoin can be considered a payment method.
That act, however, did not declare bitcoin as a legal currency, as some have mistakenly professed.
2: Virtual currency exchange regulation
The Japan Financial Services Authority was granted the ability to both regulate, as well as issue licenses, to virtual currency exchanges in Japan. This cemented bitcoin as an established market in Japan, where the rules are clear and consumers can be protected.
BitFlyer was proud to be granted one of the first licenses of this sort earlier this year in September.
3: One additional piece of regulation from a different act
Lastly, while not part of the Virtual Currency Act, tax reform was pushed forward on July 1, which removed a consumption tax that dissuaded foreign investors from purchasing bitcoins on Japan’s market. This opened up Japan’s markets to international investors.
Expanding bitcoin and blockchain usage
But while Japan has led the way, the rest of the world should learn from the regulations and research that has resulted.
Here, BitFlyer has been able to work closely with government organizations to provide research and information about the usability of bitcoin and blockchain technology. The research, just like bitcoin, is borderless and publicly available. BitFlyer has also been hard at work researching and developing a world-class enterprise blockchain called “miyabi.” With a top speed of over 4,000 transactions per second, miyabi guarantees immutability, finality, Byzantine fault tolerance, low latency and has no single point of failure.
This work has not gone unnoticed.
The largest interbank clearing network in Japan has selected bitFlyer to demonstrate a proof of concept, utilizing miyabi to show how blockchain can be used to revolutionize the banking industry and create a much faster settlement platform. If adopted, the largest banks in Japan will be connected through blockchain and demonstrate to the world that enterprise blockchain can be implemented securely, creating a better and more united financial world.
These developments are why we believe 2018 will be another spectacular year for bitcoin.
Volume has been growing steadily through 2017, the price has been skyrocketing throughout the year, but most importantly, the last pieces for institutional investors to get involved with bitcoin are close at hand.
Even if a bitcoin ETF doesn’t gain approval in 2018, the creation of futures products for bitcoin will allow for much more liquidity to enter the markets. Past just conventional derivatives, dozens of trading firms have sprung up over the last year to allow for boutique hedge funds, family offices, or even large-sized individual traders to access the virtual currency markets.
With all of these developments, bitFlyer has realized an incredible opportunity to harness all the liquidity in Japan to fuel these new marketplaces and service new traders. BitFlyer’s bitcoin trade volume (including leveraged trading) is the largest in the world. Regardless of the massive inflow of volume institutional firms can bring through derivatives, trading firms will need to trade actual bitcoin for delivery.
BitFlyer’s global expansion (such as the recently launched bitFlyer US exchange) seeks to service these markets directly, by providing institutions and individuals everywhere with the ability to participate with the largest source of bitcoin liquidity in the world: Japan.
Disclosure: CoinDesk is a subsidiary of Digital Currency Group, which has an ownership stake in bitFlyer.
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