By David Drake
Across the globe, cryptocurrencies and blockchain are increasingly gaining popularity. As such, business startups are using blockchain technology to develop services and products. Such companies include HFC Coin that provides blockchain-backed mortgage solutions, URAllowance, the family smart contracts platform, LiveTradr, a portfolio optimization project, Qupon, the digital coupon marketplace, and Gath3r, a digital monetization platform.
Japan is one of the cryptocurrency friendly nations that has adopted a thorough, yet open, approach to cryptocurrency operations. But despite having a somewhat relaxed regulation compared to nations such as China, South Korea and the US, Japan was at the center of a $530 million cryptocurrency theft at the unlicensed Tokyo based Coincheck exchange earlier this year.
The Coincheck heist resulted in a raft of measures by the regulator that included issuing of business operation orders to unlicensed exchanges and spot checks of cryptocurrency businesses.When Nobuchika Mori was at the helm of Japan’s Financial Services Authority (FSA), the cryptocurrency sector in Japan was seen as having a forward thinking approach. This allowed the nation to grow into one of the largest crypto markets in the world. However, after Mori stepped down, it is not yet clear whether the FSA will continue the same approach towards cryptocurrency or not.
Recently, the incumbent commissioner to the FSA, Toshihide Endo, announced that the regulatory agency has no intentions of inventing ‘excessive regulations’ that would curtail the growth of cryptocurrencies. Endo further added that the agency aimed at striking a balance between boosting innovation and protecting consumers in the cryptocurrency space by promoting policies that are not restrictive.
But recent occurences in Japan have seen people question whether these pronouncements by were genuine. In just a span of weeks, the FSA has tightened the screen process for new cryptocurrency exchange applications. The regulatory agency has increased the number of questions in the application process from 100 to 400.
Applicants will also be required to submit executive board minutes to the agency and submit themselves to onsite verification visits thereafter. FSA has also development new guidelines for assessing the financial strength and security of computer systems for exchanges in a bid to protect consumers from losses like the ones experienced in the Coincheck hacking.
A Few Steps Ahead
According to Jack Bensimon, Blockvest, Japan has been at the forefront when it comes to crypto-regulatory guidance and has presented a firm position on crypto exchanges. This has helped in building investor trust and confidence in the purchase and sale of cryptocurrencies in exchanges.
The move by Japan is therefore a major step in the right direction. It will help reduce incidences of exchange hackings and ultimately enhance mass adoption of cryptocurrencies in future. Even so, Bensimon is quick to point out that the risk of hacking will remain real for exchanges.
He says, “No exchange is ever likely to be completely free of hacks or crypto theft. Hacks are likely to get more severe and sophisticated as this industry matures, while proactive measures by exchanges and regulators will also evolve and be enhanced. Like criminals, hackers are usually a few steps ahead of exchanges and regulators.”
At the same time, Simon Cocking, editor in chief of CryptoCoinsNews has a different view. In his opinion, cryptocurrency exchanges should be treated differently from other monetary institutions because the decentralized nature of their technology allows them to operate free from government control.
According to Cocking, efforts by governments to regulate the cryptocurrency space will be futile as it has been proven before that regulation does not necessarily translate to prevention of large scale fraud as in the cases of Madoff, Lehman and flash crashes.
“Blockchain promise is really a different one, that of decentralization, governance by code, making government influence and control unnecessary. The future of exchanges is decentralized, with no institution answering to governments,” he adds.
Disclaimer: David Drake is on the advisory board for most of the firms mentioned or quoted in this article.