The ruling Liberal Democratic Party in Japan and private and public sector initiatives have proposed promoting investment in and the growth of a globally competitive Web3 business environment in Japan.
While only limited reforms have been implemented so far, there is an expectation that relevant regulations will be revised in 2023 and beyond to address existing laws that hinder the adoption and use of cryptocurrency, NFTs, DAOs, and other Web3 technologies.
These reforms will likely focus on amending tax codes related to cryptocurrency holdings, simplifying processes for listing cryptocurrencies on public exchanges, promoting the use of stablecoins, and legally recognizing DAOs.
In December of last year, Japan’s ruling Liberal Democratic Party published an interim proposal outlining the country’s commitment to promoting the expansion of Web3 businesses. This announcement is similar to those made by other nations.
The proposal includes various measures to re-evaluate and modify existing regulations to encourage more significant investment and accelerate the development of a globally competitive Web3 business environment in Japan.
Web3, in contrast to the current centralized and intermediary-heavy Web2, seeks to eliminate intermediaries by utilizing decentralized applications such as cryptocurrencies and NFTs, smart contracts, DAOs, and other blockchain technologies to facilitate online transactions.
Challenges Faced
As a recognized leader in innovation and technology on the global stage, Japan was among the first to embrace cryptocurrencies and other Web3 technologies. However, several challenges hindered its ability to leverage these emerging technologies fully.
In 2014, Mt. Gox, the largest Bitcoin exchange at the time, fell victim to a hack resulting in the loss of roughly four hundred and seventy million dollars in value. The Mt. Gox hack had a profound impact on Bitcoin’s reputation and that of other cryptocurrencies in Japan.
Consequently, many regulators and lawmakers in Japan began to doubt the security and reliability of cryptocurrencies. This situation resulted in increased regulatory scrutiny of the cryptocurrency industry.
In 2018, Coincheck, a Japan-based cryptocurrency exchange, was also hacked, losing around five hundred and thirty million dollars in value, making it one of the most significant cryptocurrency hacks in history.
Due to the Coincheck hack, Japan’s Financial Services Agency implemented more stringent regulations on cryptocurrency exchanges. The situation made Japan a much less significant player in the global cryptocurrency market.
Japan’s regulatory modifications have made it a less attractive destination for investors and startups, particularly since the country’s regulations governing the registration of exchanges within its borders necessitated a time-consuming application process and were subject to various other requirements that substantially restricted exchanges’ ability to expand and develop.
Nonetheless, Japan’s more rigorous regulatory framework has enabled it to weather recent cryptocurrency market disruptions, such as the FTX crash, with relative ease. Despite other countries struggling to cope with recent cryptocurrency market developments, Japan again positions itself as a leader in Web3 technologies and actively promotes its growth as part of its national strategy to establish a decentralized digital society.
In early February, Japanese Prime Minister Fumio Kishida stated that using DAOs and NFTs in Japan could bolster its efforts to attract investment and expand its economy. As Japan looks to embrace a Web3 future, it is developing policies and guidelines for NFTs and other Web3 technologies.
We will briefly examine some of these policies and initiatives below, starting with the proposal and then discussing a few more initiatives to drive growth in this sector.