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7.23 Rather Enabling Environment
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Japan is one of the world's centers of the blockchain industry and accumulates about 36% of all cryptocurrency-related businesses. The cryptocurrency market is rapidly developing: bitcoin transactions increased 50 times to reach $4.25 bln in 2016, and in 2017, Japan ranked first in the world by the volume of bitcoin transactions (more than 50% of transactions). Cryptocurrency market development is a remarkable source of economic growth; in 2017, bitcoin rate growth could account for up to 0.3% of Japan's GDP growth. The number of people involved in cryptocurrency trading reaches 3.5 million.
On April 1, 2017 a new version of the Payment Services Act entered into force, what in fact leads to the legalization of cryptocurrencies and introduces a licensing procedure for cryptocurrency exchanges. The number of applications reaches 160 by the beginning of 2018, but only 16 of them are approved.
The Financial Services Agency issued an official alert in October 2017 about the risks of ICOs and token sales, highlighting token price volatility and fraud risks. At the same time, ICOs are not prohibited in Japan and are regulated by Japanese legislation in case an ICO has characteristics of an investment.
Overall, Japan makes an active use of the blockchain technology and cryptocurrencies in various segments of the economy and public administration; cryptocurrencies are widely accepted as a means of payment (retail networks, hotels, airlines, etc.).
Rather Enabling Political Environment
The political environment for the development of projects related to the blockchain and cryptocurrencies in Japan is enabling. The main political actors are rather supportive towards the development of distributed lager technologies. The blockchain is mentioned in a number of strategic documents of the Japanese government.
The country has a consensus of political institutions concerning the importance of supporting the development of distributed ledger technologies and cryptocurrencies. And this consensus is positive. The political environment is stable and enabling for the development of businesses associated with blockchain and cryptocurrencies.
Neutral Legal Environment
Regulatory Convergence The Japanese legislation is not comprehensive, but most of the issues are regulated by the Payment Services Act. Japanese regulators take a rather positive approach to blockchain development issues, including facilitating various fintech solutions. These issues are covered by general national strategic documents, whereas the legal positions of various state agencies contain no contradictions.
Definiteness of Legal Regulation Despite the lack of comprehensive regulation of blockchain and cryptocurrency, legislative regulation is quite definite. But some issues have not received detailed regulation: ICOs, mining, providing cryptocurrency wallets that are not related to trading cryptocurrencies, smart contracts, some taxation issues.
One of the important features characteristic of the actions of Japanese legislators is the incorporation of the international rules on combating money laundering and terrorism financing into the national legislation. ICOs are not prohibited in Japan, although the legislation lacks clear rules for their holding.
Stability of Legal Regulation The legislation has not changed since the Japanese legislation regarding virtual currencies was amended in 2016-2017. But we consider, that some revision of Japanese legislation is possible because of the remained unregulated issues and hacking attack at Coincheck in January 2018, that entailed mass checks of cryptocurrency exchanges by the Financial Services Agency.
Adequacy of Legal Regulation In general, Japanese regulation sets an adequate regulatory framework. Regulators do not seek to prohibit or restrict the development of blockchain and cryptocurrencies. The Financial Services Agency applies the regulatory sandbox practice, gathers statistics of registered cryptocurrency exchanges, and supports fintech startups on a regular basis.
Situation with the Rule of Law Japan has high scores in the Rule of Law Index and is ranked 19th out of 113 countries. The conditions of the legal regulation of blockchain and cryptocurrencies are rather favorable, and since the values of the sub-criterion of the rule of law are high (0.79), the amount of the difference between weighted (multiplied by Rule of Law Index score) and unweighted assessments are not significant. This indicates low risks associated with the general conditions of compliance with legal safeguards in Japan.
Enabling Infrastructure Environment
There is a highly developed E-Government infrastructure, telecommunications infrastructure and online services in Japan. Japan ranks 11th among 193 countries in the UN GlobalE-Government Development Index.
Japan also has relatively high business environment development indicators ranking 34th in the world.