Designing virtual currency regulation in Japan: Lessons from the MT GOx case

Abstract

Almost two years after the commencement of bankruptcy proceedings against the Mt Gox bitcoin exchange, Japan has finally introduced its first regulation addressing virtual currencies with an amendment to the Payment Services Act. The new rules concerning virtual currency exchange service providers and the definition of virtual currencies can certainly be considered as a step towards better regulation; however, several kinds of problems concerning virtual currencies that have arisen during the course of debate remain unsolved. First, there is the question of the nature of virtual currencies and their legal status. Secondly, the regulations applicable to financial actors operating in virtual currencies must be examined. Thirdly, issues regarding customer/user protection, which came to light as a result of the Mt Gox case, must be taken into consideration. Some have also pointed out the threat virtual currencies may pose to monetary policy. Regulatory issues that have arisen from the discussion on virtual currency regulation have already shown that whatever virtual currencies may prove to be, the effects they are causing and those affected by them are far from virtual.