Regulation in Japan has taken a long and winding route - the Asian country was the first to recognize Bitcoin as a form of legal tender, but it is also the country where the two biggest hacks in the history of this ecosystem happened; Mt. Gox & Coincheck.
The latter hack, which saw thieves make off with $530 mln in NEM, prompted Japanese regulators to step in and address security concerns at many of the exchanges in the country.
But it is not only the regulators who are reacting to the Coincheck hack. A self-regulatory body has been set up off the backs of the exchanges in order to secure their businesses, as well as to get in line with the tougher regulatory pressures.
This body has had its first press conference on April 23, where it outlined its initial and key areas of concern, areas it will be tackling from the outset. The conference was followed by Cointelegraph.
Nihon Kasotsuka Kokangyo Kyokai
The official name of the body is Nihon Kasotsuka Kokangyo Kyokai (Japan Cryptocurrency Exchange Association) and it currently consists of the 16 exchanges registered with the government’s Financial Services Agency (FSA).
The idea behind this body is for it to set the standards and the expectations of those exchanges that currently are not registered and up to scratch with the FSA. This is because there are still currently a number of exchanges that are operating while still being unregistered.
However, as the crackdown continues, there have been some some exchanges that have decided to shut up shop than bend to the wants of the regulators and prove their security.
The FSA strongly urged cryptocurrency exchanges to establish a unified industry organization and voluntarily work out rules and regulations to create a sound trading environment for customers. This led the the creation of the Japan cryptocurrency exchange association (JCEA).
The 16 in the right
The group that are taking charge of this self-regulatory stance are those that have already been registered with the FSA, some of the more recognisable ones include the following.
Bitbank’s main trading coin is Ripple, which accounts for 75 percent of its volume, followed by Bitcoin, at 14 percent, and Bitcoin Cash at 7 percent. It has a market capitalisation of $180,614,933, or 20,260 BTC. It was founded in May 2014.
Bitflyer primarily operates with Bitcoin, with 98 percent of its $277,779,010 coming from Bitcoin. It was founded in January of 2014.
This exchange only offers Bitcoin trading and has a rather small market cap of $84,399,400, or 9,467 BTC. It was founded in 2014.
Fisco Virtual Currency Exchange (part of Fisco)
This exchange operates mainly with Bitcoin, accounting for 96 percent of volume, but it also allows trade in Mona coin, it’s only other altcoin. It has a market cap of $147,435,081 and was founded in 2016.
Quoine offers many different coins for trade, but primarily sees its volume being made up of Bitcoin, with 88 percent volume coming from that digital currency. Its market cap is $261,973,798 and it was founded in 2014.
Taizen Okuyama, president of Money Partners Co. who assumed the post of chairman, said the goal of the JCEA is to dispel customers’ anxieties and achieve the sound development of the market.
At a press conference held in Tokyo earlier this week, Okuyama said:
“We are preparing self-regulation rules from now on, we want to aim for further development of the industry and generalization of the virtual currency, dispeling anxiety of customers that came about from the case of Choincheck, restoring confidence.”
JBA executive director Yuzo Kano, the vice president of the organization, added:
“The establishment of the association is a meaningful step in the development of the industry and emphasizes that it will develop more speedily and help obtain effective self-regulation.”
"Japan's trend is drawing attention from the world, I would like to work seriously so that it will become a norm for other countries."
Noriyuki Hiromatsu, who is also President of Bitbank, also became Vice chairman and added that he is happy to be cooperating on such a level.
“I am very pleased to be able to unite and cooperate like this, as the industry has not been able to line up very well. I would like to prepare self-regulation early and create an environment that can be used with confidence.”
How it will work
The men at the front of the press conference continued to spell out the inner workings of how the regulatory body would operate. They explained the processes of getting registered, the time frame it would take and how they would handle initial coin offerings (ICOs).
Okuyama explained that the office of the regulatory body is just beginning to be set up, but that they would also be forming an inspection group in order to asses exchanges and their security.
With regard to ICOs, the president explained that the authorities would be judging the coins involved, but the exchange operators will have to make notice when listing new coins, and that registration needs to be accepted by the regulatory body.
Okuyama also explained that there are some exchanges that are not currently part of the regulatory system that are essentially operating in the traditional measures of Japanese law, and he is looking to quickly incorporate them into the self-regulatory system.
Kano also interjected to explain the security measures that are expected from the JCEA in order to get registered.
He said that security is roughly divided between two areas. Firstly, there is that of conventional Internet security, including SSL, firewalls and non-Blockchain related protection. Then there is security unique to the Blockchain. To this end, there needs to be detailed rules and expectations in order to create a security model.
Eventually, Kano wants it to be so clear-cut that a third-party operator would make a call in a certain exchange’s security.
Is this a step in the right direction?
There will be some questioning if this is a good move from Japan, or not. Regulations are such a sticky issue, but this seems to find a middle ground that many can accept.
The battle between governments, banks and the likes, against those vested in the new and unregulated cryptocurrency ecosystem has seen some fierce skirmishes. Those in places like China have been forced out, while those in Australia have struck a balance that works for both parties.
Japan’s move is one that also seems to strike a balance. By having an organization that is run by those involved in cryptocurrencies and that understand the needs of cryptocurrency exchanges, there is room for rules to flourish which do not stifle innovation and growth.
Having a healthy relationship between the FSA in Japan and this new body means that there is communication between the two areas. Security concerns are being addressed, but the rules are not simply being dictated down.
As Kano mentioned in the press conference, the world is indeed watching Japan, and this latest regulatory move could be met with open arms from both sides, across the globe.