Consumers, retailers and the Japanese government are all committed to the widespread adoption of virtual currencies – although concerns linger that the craze for virtual cash may pass. Julian Ryall reports from Tokyo.
Hundreds of Japanese investors have seen their virtual currency savings wiped out by hackers. Experts warn that more cryptocurrency heists are “inevitable” in the future, prices have fluctuated wildly and change in the sector is happening at an ever-increasing pace – yet the nation’s taste for digital money remains undiminished.
On Tuesday, Tokyo-based Coincheck Inc. allowed users of the digital currency exchange to start making withdrawals once again, more than two weeks after the exchange was shut down after suffering the largest theft of digital currency in history. The thieves – who some experts have claimed are hackers working for the North Korean government – got away with 58 billion yen (€436.54 million) in NEM currency.
Japan’s Financial Services Agency has ordered the company to carry out a thorough investigation to determine the weaknesses in its system that the hackers were able to exploit, while an on-site inspection conducted on February 2 examined whether the exchange had a functioning risk management system in place.
Second major theft
The scale of the theft shocked Japan’s cryptocurrency industry, but suggests that operators have not learned previous lessons. In February 2014, for example, the Mt. Gox bitcoin exchange suffered a similar hacking attack that netted the criminals 850,000 bitcoins, valued at €380.48 million.
Yet more exchanges and virtual currencies are still emerging in a country that has long been considered on the cutting edge of new technologies.
“There is still a lot of confidence and a lot of energy in the development of cryptocurrencies and blockchain technologies here,” said Scott Gentry, founder of FreeAbound, a cryptocurrency development consultancy in Tokyo.
“This currency theft gives people an opportunity to dig deeper into just what the exchanges they are dealing with have in terms of security and I do not think it will change things over the longer term,” he told DW.
“It has been reported that the founder of Coincheck had been told to install multi-signature security protocols, but he told the authorities that he ‘never got around to it’ – and that is simply a dereliction of duty to his clients,” Gentry said.
“Yes, there will always be some cowboys in any business, but there are also a lot of very good people in this sector, so it will definitely grow.”
There are, at present, 16 digital currency exchanges in Japan and a further 16 awaiting approval to begin operations by the FSA. Those approvals have slowed down after the Coincheck robbery, but Gentry estimates that as many as 100 more companies are preparing to leap into Japan’s cryptocurrency business.
Read more: Bitcoin drops below $10,000 threshold
Companies sign up to virtual cash
Japanese companies are also making it easier for consumers to use their virtual cash, with upwards of 10,000 firms accepting bitcoin. Those companies include high-street electronics retailer Bic Camera and Peach, Japan’s largest low-cost airline. In addition, Mitsubishi UFJ Financial Group, the eighth largest bank in the world, is reportedly developing its own cryptocurrency.
And all this is going on with the blessing – and even the encouragement – of the Japanese government.
In contrast to China, where the government has outlawed cryptocurrency exchanges, and South Korea, which has banned anonymous transactions, Japan has embraced the opportunity to take the lead in the Asia-Pacific cryptocurrency race.
Tokyo believes virtual currencies will drive economic growth and create a new source of tax revenue. One suggestion has been that the evolving industry could earn the Japanese government an additional 1 trillion yen (€7.41 billion) a year.
“There are plenty of foreign investors who want to come to Japan to operate and I have two contacts – an American from Silicon Valley and an investor from Dubai – who have teamed up and are looking to put $100 million into their own exchange in Japan,” said Gentry.
“They believe it has huge potential, but also the computing technology here is second-to-none, and that is what they need.”
At the moment, the majority of Japanese who are buying cryptocurrencies are investors who see their virtual savings as a nest-egg for the future.
“I got my first Bitcoin Cash in January after a Japanese friend showed me just how easy it is to use the system, to transfer money around and, potentially, how easy it is to make a lot of money,” said Chris Dunn, an Australian businessman who lives in Japan.
Dunn’s investment has coincided with the value of Bitcoin and other currencies declining – he estimates that his holdings are now worth around half of their peak value – and he admits to being concerned about what is essentially a new and poorly regulated system of payments.
“I can see there are some huge advantages – it is quick, it cuts out banks and their charges and it can increase in value a lot – but the volatility of these new currencies is a big concern,” he said.
“And yes, Japan is a society that always gets excited about new technologies and the ‘next big trend,’ but I have my doubts about cryptocurrencies catching on over the longer terms in what is essentially a cash-based society and a nation with a growing number of old people who are often averse to change,” he added.
Yet others disagree and see Japan as the perfect place for modern society to go completely cashless.
“I believe Japan has the potential to become a cashless society,” said Hikaru Kusaka, joint founder of Blockhive OU, an Estonia-based blockchain developer, pointing out that it makes “”no sense” to produce coins with a face value of 500 yen (€3.77) when it costs more than that to manufacture them.