Japan Remains Intent on Crypto Domination Despite Hack Woes

Unfazed by the CoinCheck heist and price woes, Japan persists in its ambition to become a dominant player in the regional cryptocurrency space.

With a projected annual income of $9.2 billion (1 trillion yen) from cryptocurrency trading taxes, the Japanese government refuses to let go of the ambition to lead the digital currency space in Asia and thus push the country’s economy forward, according to observers in the region. The intention remains despite the recent attack on Tokyo-based crypto exchange CoinCheck, which fell victim to the biggest coin heist on record after losing an estimated $530 million in NEM tokens to hackers two weeks ago.

Ken Kawai, government cryptocurrency adviser and partner at law firm Anderson Mori & Tomotsune, was quoted as saying:

“Innovation has been so fast that the government and bureaucrats until recently did not understand the functions of the blockchain or what a ‘cold wallet’ or a ‘hot wallet’ is. Japan's financial regulators are traditionally very conservative and never the first to move, but that has changed, and Japan wants to be friendly to fintech. It is just that nobody expected it to happen this fast.”

The CoinCheck heist highlighted the lax security at cryptocurrency exchanges, but regulators are now quickly catching up. In CoinCheck’s case, the exchange has been blamed for storing the NEM coins in a “hot wallet” instead of a “cold wallet,” which is more secure because it operates on a protocol that is disconnected from the Internet. The operator also failed to implement a multi-signature system for an added layer of security.

Japanese regulator to pay surprise visits to crypto exchanges

Last week, the Financial Services Agency (FSA) of Japan said it would conduct surprise on-site inspections at several digital currency exchange operators to check their security systems against hackers.

The announcement followed the raid by FSA inspectors in the offices of CoinCheck to monitor the operator’s ability to respond to a real-time crypto heist and inspected its security governance policies.

The agency also demanded that the remaining 31 crypto exchange operators in Japan file reports on their system risk management and virtual currency storage.

Japan snatches top spot in crypto space

Last month, data from Coinhills.com showed that Japan had emerged as the top global player in cryptocurrency market development, with the Japanese yen accounting for 56.2% of Bitcoin (BTC) as of January 15. The US dollar came in a distant second with 28.4%, while the rest of the digital currencies accounted for only 15.4%.

Midori Kanemitsu, CFO of Japan’s largest cryptocurrency exchange operator, bitFlyer,  commented:

“Effectively, Japan is the first and only country that has a proper legal system regulating cryptocurrency trading. That’s a big deal. Before the law regulating cryptocurrencies, people worried what would happen to their money if an exchange were to go bust.”