Demand for new ways of value storage is often connected to economic happenings and times of crisis. In recent years, many people have been turning to cryptocurrency to counter hyperinflation and thus, loss of currency value. Nevertheless, global players with strong economies are still often seen at the forefront of cryptocurrency adoption.

What benefits can cryptocurrency provide to economically strong countries that aren’t necessarily in immediate times of crisis, and how can digital asset adoption offer real, long-lasting change that improves the lives of citizens worldwide?

From Tradition to Tech & Finance Superpower: A Look at Japan

Japan has been known as a high-tech powerhouse since the 1990s and established itself as an epicentre for Fintech and Finance development in recent years. At the forefront of many tech innovations such as the walkman or bullet trains, the East Asian country has continuously built up an impressive portfolio of innovations now being used worldwide.

Many state that Japan was one of the first countries to understand the real benefits of technology and thus invested in technological innovation early on. Inventions were successful because they focused closely on providing solutions to problems the country and its citizens were facing at the time, such as air pollution, extreme weather like earthquakes and tsunamis, or lack of infrastructure between cities. Japan is to this day cited as one of the most influential tech giants in the world, working on innovations that value traditions, bring benefits to citizens and strengthen their economy.

As of 2022, Japan is the third-largest economy in the world. With more than 800,000 active forex accounts, Japan is also one of the leading markets in the world, with 35% of all traded volume around the globe. On top of that, around 93.3% of the Japanese population is familiar with and uses technology. The tech curiosity and drive for innovation no doubt opened up a path of constant learning and openness to adopting new ways of finance.

Tokyo’s governor Yuriko Koike is convinced that continuous tech and finance advancements can bring benefits to the city and the rest of the country and has big plans for the future: “We will make Tokyo Asia’s number-one global financial and economic centre, which continues to attract people, goods, money, and information from around the world.” (coinmap.org).

Japan knows that being at the forefront of innovation will bring countless benefits to the country, its businesses and citizens alike. Its position as a technological leader and its tech-savvy population was undoubtedly crucial in building the foundation of cryptocurrency adoption throughout the country.

How Japan Became a Global Leader in Cryptocurrency Adoption

Japan’s path toward cryptocurrency adoption started off rocky. After years of neglect and inadequate leadership, the Tokyo-based exchange Mt. Gox was shut down in February 2014 after a hack led to the loss of 850,000 Bitcoin. Lawsuits are going on to this day, and many believe the people responsible were inherently corrupt and misusing customer funds beforehand.

Mt. Gox was the largest crypto exchange at the time and processed over 70% of all global Bitcoin transactions. Its crash sent a shockwave through the cryptocurrency space and destroyed investors’ confidence worldwide.

The Mt. Gox hack scandalised Japan’s relatively new crypto industry. It laid open the lack of security measures, and the dangers non-regulation of exchanges can pose to both authorities and investors.

While many were devastated, the event forced Japan to rethink crypto regulation. Soon after, a registration system for digital currency was introduced. All crypto-asset transactions also had to comply with anti-money laundering regulations, and systems were created to protect investors and businesses.

In 2016, Japan officially recognised Bitcoin and cryptocurrency as legal tender and stated that digital currency exchange platforms would from now on have to register with authorities. This marked a huge step towards cryptocurrency adoption in the country and showed to many that Japan had learned from the 2014 Mt. Gox incident and wanted to create a safer and more reliable cryptocurrency space going forward.

Investors’ confidence rose, and regulators started to feel positive about the framework put in place. Only two years later, another shockwave was sent through the cryptocurrency space; in January 2018, the Japanese exchange Coincheck suffered the biggest hack of all time, with over $500 million in assets stolen.

Japan reacted to the uncertainty by creating the Japanese Virtual Currency Exchange Association to help review regulations and rebuild trust in local exchanges. The country announced it would tighten its existing registration review process for cryptocurrency exchanges to help restore the industry.

The past years have shown Japan’s innovative approach to cryptocurrency regulation and its willingness to learn from hacks and other scandals. Instead of simply banning cryptocurrencies after encountering struggles, leaders saw the potential of digital currencies and continued to develop regulations accordingly. There is no doubt that this innovation-focused, hands-on approach helped the Japanese cryptocurrency industry survive and prosper.

Cryptocurrency in Japan Today

Four years after the 2018 Coincheck debacle and the resulting tighter cryptocurrency regulations in the country, Japan is re-inventing and innovating its framework again. In October 2022, the Japan Virtual and Crypto Assets Exchange Association released a statement wanting to ease cryptocurrency laws to help revitalise the country’s crypto assets market.

Japan’s Prime Minister Fumio Kishida also stated in a speech that the country plans on investing in digital transformation, including NFTs and metaverse applications. The Liberal Democratic party outlined plans to improve the national strategy on Web3 earlier this year, calling it the ‘new frontier of the digital economy’ (coindesk.com).

According to Finder’s 2022 Cryptocurrency Adoption Index, only about 7.8 million citizens currently own cryptocurrency, making up only 7% of the Japanese population. The global average is 15%. Those aged 18–34 in Japan lead the way in terms of the crypto split, making up 40% of crypto owners (finder.com). This shows that while citizens are tech-savvy and open to new ways of finance, the past hacks and scandals are not forgotten, and many remain cautious.

Another hurdle in the way to mainstream adoption is Japan’s relatively strict tax regulations. Crypto earnings are labelled ‘miscellaneous income’, meaning they can be taxed at rates up to 55%. Considering that the country taxes stock profits at a flat rate of 20%, its current crypto tax rates are extremely high. Japanese companies that issue crypto also have to pay a mandatory 30% corporate tax rate on any holdings, even if no profits were realised through a sale.

It wouldn’t be Japan if the country weren’t already rethinking current tax regulations. The Liberal Democratic Party’s tax committee approved a proposal on December 15 which will remove the obligation for crypto companies to pay taxes on gains from digital assets they have issued or held. This new tax framework is expected to be taken into parliament in January and go into effect for the new financial year starting on April 1, 2023.

Japan has no doubt played an important role in the early days of cryptocurrency with its positive outlook on digital blockchain-based currencies and drive for innovation. We believe that solid regulations and the tech-savvy population will continue to place Japan as a global leader in cryptocurrency adoption in the world in the foreseeable future. Still, we are hoping to see more citizens adopt cryptocurrency as use cases grow and Japan can provide a safer and more secure crypto space.

(By Tina)