With their values fluctuating wildly, virtual currencies have become something more like targets of speculative trading in expectation of price rises, than being used as means of payment for shopping. The policy line of the Financial Services Agency, which has prioritized promoting the diffusion of virtual currencies, will be called into question.
There has been mounting confusion around virtual currencies. Virtual currency exchange operator Coincheck Inc., which was hacked through the internet and robbed of its customers' cryptocurrency assets worth 58 billion yen, submitted a business improvement plan to the FSA on Tuesday.
Coincheck must sincerely grapple with the tasks of implementing measures to prevent the recurrence of similar incidents and strengthen its management stance.
The aggregate market value of virtual currencies now in circulation worldwide has swollen to 400 billion dollars (about 44 trillion yen).
The FSA defined virtual currencies anew in the revised law on fund settlements, which came into force in April last year. This has helped spread the impression that the government has given its seal of approval to its value of virtual currencies, leading to a rapid increase in its trading within Japan.
In the case of Bitcoin, a leading digital currency, about 40 percent of total trading in the latter half of last year was in Japanese yen. This is equivalent to the proportion of Bitcoin trading conducted in U.S. dollars.
For virtual currency exchange operators, the FSA has adopted a registration system, which makes it relatively easier for them to establish their business, instead of a licensing system, which would require stringent screening for market entry. The agency's move has set a precedent in the world, but there seem to be some problems with the agency's decision.
It is important for the FSA to make efforts to make the actual state of virtual currency trading known widely among the public.
Failing the 'currency' test
Virtual currencies had initially drawn attention for their convenience as digital currencies going beyond national borders, with the advantage of being transferable across the world at a low cost.
Among central banks around the world, including the Bank of Japan, studies began one after another on topics such as the impact of digital currencies on the financial system.
The present state of things, however, is that the virtual currencies have hardly fulfilled their role as "currency," while their being called by that term may also cause misunderstanding.
It is considered that currencies are primarily required to fulfill three functions: a "medium of exchange" to be used for payment, a "yardstick of value" for measuring prices, and a "means of storage of value" to preserve assets.
The present virtual currencies can be considered extremely insufficient in meeting any one of these functions.
It was reasonable that Bank of Japan Gov. Haruhiko Kuroda pointed out, at the House of Representatives Budget Committee session on Tuesday, "Some people say they should be described as crypto-assets, not cryptocurrencies."
In the fundamental technologies for virtual currencies, there is a data management method called "blockchain technology," which does not rely on any specific mainframe computer.
Blockchain technology is such that a multiple number of computers will jointly keep records of the trading and manage the data. It is said to have the strong point of being able to exchange a massive amount of data without requiring a sizable investment in equipment.
This can be applicable to a wide range of fields, such as bank remittances and medical information exchange. Practical application of the technology should be accelerated through cooperation between the public and private sectors.
(From The Yomiuri Shimbun, Feb. 14, 2018)
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