In 2014, the largest cryptocurrency exchange of the time, Mt.. Gox was shaken by the theft of almost half a billion dollars, and regulators in Japan began to take action on cryptocurrencies and exchanges.
The goal of the regulators was to both protect investors and allow a promising industry to grow.. The regulators thought they had taken care of the regulations that would enable them to achieve these goals last April.
The national system to oversee the cryptocurrency trade in Japan was the first in the world, and the regulators of other countries were still making a decision on how to intervene in the cryptocurrency industry. they had not arrived. According to the regulations in Japan, some exchanges were able to provide services even though they were not approved yet.
One of them was the Coincheck exchange.. Close to $500 million was stolen from Tokyo-based exchange Coincheck last month, and this theft was claimed by Mt.. Gox was said to be even bigger than what was done.
The theft of Coincheck exposed flaws in regulations implemented in Japan. Some experts even said that Japan should not have been involved in cryptocurrency exchanges in the first place, or should have followed a similar path to the regulations implemented by South Korea and China. As far as we can tell from interviews with some of the names, the regulations implemented in Japan allow the sector to grow, but while allowing growth, it also allows some problems to arise.
Although Japan’s Financial Services Authority (FSA) refused to comment on the subject. Supporters of the implemented regulations say there is no connection between the hack attack on Coincheck and the regulations.
Former IT Deputy Minister Mineyuki Fukuda: “To say that the FSA or corporate design was loose because of just one hack is a bit of a stretch. it runs too much” commented. During his tenure, Fukuda was a supporter of the regulation of cryptocurrencies.
“Not Money”
Mt. With Gox bankrupt, Japan didn’t know what to think about Bitcoin or who should be responsible for it.
A few days after the stock market crashed, Finance Minister Taro Aso said that Bitcoin was “not money”.. Aso stated that no government institution had authority over Bitcoin at that time and asked: “Does the Financial Services Authority have authority? of the Ministry of Finance? Consumer Relations Agency? The Ministry of Economy, Trade and Industry?” He wanted the money industry to create a body to regulate itself.
In line with this request, the Japan Digital Assets Authority (JADA) was established, which includes Blockchain and crypto money startups and entrepreneurs.
Read More the FSA was subsequently asked to regulate cryptocurrencies, and the FSA turned to JADA for help in this regard.. The FSA and JADA, which met to regulate, set rules that would benefit startups, such as low capital requirements. So Saito, general adviser of JBA), said that they “contact regularly with the FSA and offer technical information and ideas.”
However, there was no proper rule or regulation regarding the storage of digital assets.. For example, if the customers of the exchange were not too bothered by this practice, the exchanges were supposed to keep the encrypted keys that provide access to digital assets in “hardware wallets” such as USB wallets that are not connected to the internet.
The rules used in this regard are very strict. There was no reason for Coincheck not to keep nearly $500 million worth of NEM tokens in the online wallet, as the only hurdle was customer inconvenience.. Coincheck kept these tokens in a digital file stored on a server, and these tokens were stolen from there.
The CFO of the cryptocurrency exchange in Japan said that “FSA has been pretty calm about protecting customers from hardware and online wallets.”
Japan Against the World
Regulators in many parts of the world have not made very clear decisions about how to deal with cryptocurrencies. Many of these regulators are still hesitant or suspicious of digital currency trading.
In some countries, serious developments are taking place and steps are being taken.
The US Securities and Exchange Commission ( The head of the SEC recently said that regulators in the US must apply to Congress to regulate cryptocurrencies.. The heads of the SEC and CFTC attended a panel discussion on cryptocurrencies and Blockchain a few days ago and made some very positive comments.. You can read the comments made during the panel discussion in the article below:
When we look at Asia, South Korea wants to strictly control the cryptocurrency trade, and some authorities in South Korea even want local cryptocurrency exchanges to be closed.. Concerned about economic stability, China decided to close stock markets and ban ICOs last year.. India, on the other hand, wants to regulate the use of cryptocurrencies wholesale by March 31.
The usage statistics of cryptocurrencies are not very clear because cryptocurrencies are still not regulated in many countries.. But we do know that Japan is responsible for almost half of the global Bitcoin trade.. Japan’s share in the global market has increased after the decisions taken by the regulators.
When Japan enacted these regulations last April, the stock exchanges in the country had a period of 6 months to register.
Approval. Coincheck was among the exchanges that failed to. Coincheck submitted its application in mid-September, and Bitcoin was then moving towards the $20,000 record it reached in December.. They moved from an office in the ‘back streets’ to a brand new center. At that time when trade was booming, Coincheck’s share of Bitcoin trading in Japan was as high as 55%, up from 7% just a year ago.
Coincheck’s business development manager Kaga Kawabata last year Reuters He downplayed the regulations the FSA would implement in an interview with .. Every year someone takes action and it’s very difficult to train them.”
The FSA told Coincheck last week that part of the reason it didn’t approve was because of weaknesses in the exchange’s systems, but didn’t say anything about other reasons.. Despite these weaknesses in the system, the FSA allowed Coincheck to continue serving and wanted the weaknesses in the system to be fixed without giving a clear time frame.
According to some names in the industry, it would not be right to blame the FSA directly here.. The FSA let Coincheck survive despite knowing it was weak, but according to some names, the FSA had to turn a blind eye to Coincheck. Because Coincheck had become so big that the FSA could not put an end to Coincheck’s services.
Masakazu Masujima, lawyer and consultant of the Japan Cryptocurrency Affairs Association, one of the bodies of the sector, spoke about the subject as follows:
“Consumers wouldn’t be satisfied. Closing Coincheck was politically difficult. That’s why (FSA) kept asking Coincheck to improve their systems.”
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