Crypto Assets (Virtual Currency) | New Assets for the Digital Age

Cryptocurrency (Virtual Currency) Fundamentals

What are cryptocurrencies? While names like Bitcoin and Ethereum may sound familiar, many people don’t fully understand what they are. This guide explains the core nature of cryptocurrencies, highlighting their basic characteristics and how they differ from traditional money and electronic payment systems in clear terms.

Definition and Legal Status of Cryptocurrencies

Cryptocurrencies (virtual currencies) are digital assets that can be exchanged over the internet. Under Japan’s Payment Services Act, they are defined by three key points:

1. They may be used for payments at merchants and can be exchanged for legal tender such as yen or US dollars.
2. They are electronically recorded and transferable via devices like computers and smartphones.
3. They are distinct from government-issued legal tender and electronic money.

The term “virtual currency” was previously common, but as of May 2020, legal reforms established “cryptocurrency” as the official term. However, “virtual currency” still frequently appears in news and casual conversation. With this legal framework, cryptocurrencies are now recognized as financial products and as their own unique asset class.

How Cryptocurrencies Differ from Legal Tender

The biggest differences between cryptocurrencies and legal tender (such as the yen or US dollar) lie in who issues them and how their value is backed. Legal tender is issued and guaranteed by governments or central banks. Most cryptocurrencies, on the other hand, have no centralized issuer; their value is set by market supply and demand.

Since cryptocurrencies are not controlled by national governments or financial institutions, they are less susceptible to political or economic intervention. However, they do carry the risk of significant price fluctuations. For example, Bitcoin surpassed 15 million yen in 2025, but the price has remained highly volatile.

How Cryptocurrencies Differ from Electronic Money

Both cryptocurrencies and electronic money are digital payment methods, but they have fundamental differences. Electronic money is issued by specific companies and is fully backed by legal tender, so its value remains stable. Cryptocurrency values fluctuate with market trading and are commonly used for investment as well.

Electronic money such as Suica, PASMO, or nanaco is issued by companies and its value is guaranteed by legal tender. Cryptocurrencies, however, are priced by market supply and demand and are often held for investment. Cryptocurrencies can also be sent across borders, offering new possibilities for international payments.

The Technology Powering Cryptocurrencies

How do cryptocurrencies actually function? The technology behind them is called blockchain, a groundbreaking innovation with surprisingly simple fundamentals. This section explains those basics in straightforward language, minimizing technical jargon.

Understanding Blockchain Technology

Most cryptocurrencies are built on blockchain. A blockchain is a type of distributed database, where transaction records are grouped into “blocks” and linked together in a chain.

Each block contains multiple transactions and information (hash values) from the preceding block. This design makes tampering extremely difficult: to alter a block, you would have to change all subsequent blocks at once, which is virtually impossible.

In essence, blockchain is a system in which multiple participants cross-verify records, greatly enhancing trust. This allows for secure, reliable transaction records without a central administrator.

How Distributed Ledgers Work

Traditional banks centrally manage transaction and balance records. Blockchain, in contrast, uses a distributed ledger system, where many computers (nodes) on the network each maintain a copy of the same record.

Benefits of distributed ledgers include:

• Fault Tolerance: The system keeps working even if some nodes go offline
• Tamper Resistance: It’s extremely hard for anyone to unilaterally alter data
• Transparency: Anyone can verify transaction records for full transparency
• Censorship Resistance: Without a central authority, arbitrary rejection of transactions is difficult

By sharing records among many participants instead of relying on a single administrator, the system becomes safer and more trustworthy. This decentralized structure is one of cryptocurrency’s defining features.

Security and Trust in Blockchain

Blockchain transactions are validated by “consensus algorithms”—rules that allow network participants to agree on the legitimacy of transactions.

Bitcoin, for example, uses Proof of Work (PoW). In PoW, participants solve complex computations to earn the right to add blocks. This process is called “mining,” and successful miners receive newly issued Bitcoin as rewards.

To compromise the system, a bad actor would have to control more than half the network’s computational power—a “51% attack”—which is considered nearly impossible on large networks like Bitcoin’s.

This technology ensures that everyone can safely use the network, even without a central authority. In simple terms, “many participants monitor each other, preventing fraud.”

Major Types of Cryptocurrencies

Thousands of cryptocurrencies exist, from Bitcoin and Ethereum to many others. Even if you know the names, their unique traits may be unclear. Here, we outline the major cryptocurrencies and their distinctive features for newcomers.

Bitcoin (BTC)

Bitcoin, the world’s first cryptocurrency, was proposed in 2008 by the pseudonymous Satoshi Nakamoto, with its network launching in 2009. The whitepaper, “Bitcoin: A Peer-to-Peer Electronic Cash System,” described a platform for direct value exchange between individuals without financial intermediaries.

Bitcoin’s key characteristics:

• Maximum Supply: Total issuance is capped at 21 million coins, ensuring rarity
• Block Time: New blocks are created roughly every 10 minutes
• Halving: Block rewards halve about every four years
• Market Capitalization: Largest among cryptocurrencies
• Digital Gold: Considered a store of value, known as “digital gold”

Bitcoin is widely recognized as the flagship cryptocurrency, with increasing institutional and corporate investment. In 2025, it exceeded 15 million yen per coin, capturing widespread attention.

Ethereum (ETH)

Ethereum, launched in 2015 by developer Vitalik Buterin, is a cryptocurrency and blockchain platform. While Bitcoin specializes in value transfer, Ethereum introduced the groundbreaking concept of “smart contracts.”

Smart contracts are agreements that automatically execute when certain conditions are met. This enables not only complex transactions but also the creation of decentralized applications (DApps).

Ethereum’s key characteristics:

• Smart Contracts: Enables automated agreements for a wide range of applications
• DeFi Foundation: Serves as the base for many decentralized finance (DeFi) protocols
• NFT Foundation: Most NFTs are issued on Ethereum
• No Supply Cap: Unlike Bitcoin, Ethereum has no maximum issuance limit
• Market Capitalization: Second largest after Bitcoin

Ethereum goes beyond payments, acting as a platform for decentralized applications and expanding the possibilities of blockchain technology.

Other Major Cryptocurrencies (Altcoins)

All cryptocurrencies other than Bitcoin are collectively called “altcoins,” each with distinct features and purposes. Here are a few notable examples:

• XRP: Developed by Ripple, XRP is designed for international remittances. It’s much faster and cheaper than traditional bank transfers, with transactions settling in seconds or minutes. Its practicality has led to growing adoption among financial institutions.

• Solana: A blockchain platform known for ultra-fast speeds and low fees. Solana can process tens of thousands of transactions per second, addressing scalability challenges. It is rapidly becoming a foundation for DeFi and NFT projects.

• Cardano: A third-generation blockchain built on academic research. Cardano emphasizes security, sustainability, and scalability, with development based on peer-reviewed papers.

• Dogecoin: Originally created as a meme, Dogecoin’s value surged with celebrity endorsement. Its strong community and approachable nature make it popular for micro-payments and tipping.

Each of these coins brings different technologies and use cases, adding diversity to the crypto ecosystem. Understanding their characteristics and risks is essential before investing or using them.

Key Features and Benefits of Cryptocurrencies

What advantages do cryptocurrencies offer compared to government-issued money? This section highlights crypto’s appeal and practical benefits in daily life—some of which are hard to achieve with banks or cash.

Cross-Border Transfers and Payments

One of cryptocurrency’s greatest strengths is the ease of transferring funds internationally. Traditional remittances can involve high fees and days of processing due to multiple financial intermediaries.

With cryptocurrencies, you gain:

• Speed: Transfers settle worldwide in minutes or hours
• Low Fees: Fewer intermediaries mean much lower costs than traditional transfers
• Accessibility: Anyone with internet access—even without a bank account—can use them
• Transparency: Blockchain records all transactions, allowing you to track transfers

These features make cryptocurrencies ideal for remittances and family support. Some stores and online services now accept crypto payments, widening options for global commerce.

24/7/365 Trading

Traditional financial products like stocks and bonds are only traded during exchange hours. Cryptocurrency markets, however, are open 24/7, 365 days a year, accessible from anywhere in the world.

This enables:

• Flexibility: Trade and invest whenever and wherever you choose
• Responsiveness: React instantly to global market events
• Convenience: Trade at times that fit your schedule
• Global Reach: Participate in a truly international market, regardless of time zone

This is a major benefit for international investors and those dealing with different time zones.

Decentralized, No Central Administrator

Traditional finance relies on central banks and governments to issue currency, and on banks and payment processors to handle transactions. Cryptocurrencies, in contrast, use decentralized networks without central authorities.

Benefits of decentralization include:

• Independence: Less susceptible to direct government or financial institution intervention
• Censorship Resistance: Harder for authorities to censor transactions or freeze assets
• Fault Tolerance: The system remains functional even if part of the network fails
• Transparency: Public transaction records can be verified by anyone

This is especially valuable in regions with unstable financial systems or where government asset freezes are a risk.

Lower Transaction Costs

Because cryptocurrencies allow direct transactions without intermediaries, transaction costs can be lower than with traditional financial services.

Specific examples:

• International Transfer Fees: Substantially lower than bank wires
• Payment Processing Costs: Merchants pay lower fees than with credit card payments
• Management Costs: No central administrator reduces system overhead
• Intermediary Fees: Fewer middlemen mean lower total charges

However, network congestion can lead to high transaction (gas) fees, especially for major cryptocurrencies like Bitcoin and Ethereum. Cost efficiency depends on timing and the currency used.

Risks and Considerations in Cryptocurrency

While crypto offers many benefits, it also presents real risks. Be especially wary of “guaranteed profit” claims. Here are important points to consider when investing in or using cryptocurrencies—understanding the risks is essential for safety.

Price Volatility

Cryptocurrency prices are highly volatile, with rapid swings both up and down. This volatility is one of the main risks in crypto investing.

Major factors driving volatility include:

• Market Size: Smaller than stock markets, making them sensitive to large trades
• Regulatory Changes: Policy shifts in major countries can dramatically impact prices
• Technical Incidents: Hacks or system failures can trigger price declines
• Speculation: Investor mood and sentiment often drive market swings
• Liquidity: Low trading volume increases price swings for some coins

Only invest what you can afford to lose and prepare for steep price drops. Diversification is key to managing risk.

Security Risks: Hacks and More

Despite their technical strength, cryptocurrencies are vulnerable to hacks at exchanges and in personal wallets. There have been multiple high-profile losses due to major exchange breaches.

Main security threats include:

• Exchange Hacks: Systems are breached and funds stolen
• Phishing: Fake sites or emails steal login credentials
• Malware: Viruses steal wallet private keys
• Lost Private Keys: Lose your keys, lose your assets
• Social Engineering: Attacks that exploit human behavior

To protect yourself:

• Enable two-factor authentication (2FA)
• Use strong passwords
• Store large sums offline in hardware or cold wallets
• Keep security software updated
• Only download apps from official sites

Regulatory Changes

Crypto regulations vary widely and change often. Some countries have banned trading or ownership outright.

Examples:

• China: Banned crypto mining and trading in 2021
• Japan: Changed legal terminology and tightened regulation in 2020
• United States: SEC strengthening oversight
• EU: Implementing unified MiCA regulation

Regulatory changes can have major effects on prices and usage. Always check local and relevant international regulations and monitor trends before investing.

Fraud and Scam Risks

Crypto’s popularity has attracted scams and fraudulent schemes. Investment scams via social media and dating apps are on the rise, with increasing losses reported.

Common types of fraud include:

• Exaggerated Claims: Promises of “guaranteed profit” or “sure-fire gains”
• Ponzi Schemes: Payouts funded by new investor deposits
• Fake Cryptocurrency: Promoting investments in non-existent coins
• Withdrawal Fraud: Demanding repeated fees for withdrawals that never arrive
• Fake ICOs: Soliciting funds for non-existent projects

To protect yourself:

• Distrust any “guaranteed profit” offers
• Avoid unregistered operators
• Make your own investment decisions
• Ignore suspicious solicitations and contact authorities if needed
• Research projects and teams before investing

Cryptocurrency Regulations and Future Prospects

How are cryptocurrencies regulated globally, and what does the future hold? This section reviews regulatory practices in Japan and worldwide and explores future possibilities. The technology’s applications are expanding well beyond payments.

Japan’s Regulatory Environment

Japan leads in legal frameworks for crypto. The revised Payment Services Act, effective since April 2017, introduced mandatory registration for exchange operators. The 2020 amendments changed the legal term and imposed stricter asset management requirements.

Key points:

• Registration: Exchanges must register with the Financial Services Agency and local bureaus
• AML: Strict KYC and suspicious transaction reporting
• Asset Segregation: Customer assets must be stored offline
• Taxation: Crypto gains are taxed as miscellaneous income (up to ~55%)
• Advertising: Prohibition of exaggerated or false claims

Recent proposals would formally recognize crypto as a distinct asset class within financial instruments law, enhancing investor protection and market growth.

Global Regulatory Approaches

Regulatory responses differ by country, based on economics, financial policy, and openness to innovation.

• United States: Agencies such as SEC, CFTC, and FinCEN oversee the industry. Bitcoin ETFs are being approved, boosting institutional adoption.

• EU: MiCA regulations will unify rules and allow licensed crypto businesses to operate EU-wide.

• China: All crypto trading and mining are banned, but the government is launching a digital yuan CBDC.

• El Salvador: Became the first country to make Bitcoin legal tender, launching the Chivo wallet.

• Singapore: Maintains a crypto-friendly environment and actively attracts blockchain companies.

Priorities such as consumer protection, financial stability, anti-money laundering, and innovation drive these diverse regulatory paths.

Innovation: Web3, DeFi, and Beyond

Cryptocurrency’s role is expanding from payments and investments to powering the new digital economy. Major areas of innovation include:

• Web3: Shifting from centralized Web2 platforms to a decentralized internet. Web3 empowers users to control their data and value, using blockchain for direct peer-to-peer interactions.

• DeFi (Decentralized Finance): Automated, open financial services—lending, trading, insurance—without traditional banks, powered by smart contracts for transparency and accessibility.

• NFTs (Non-Fungible Tokens): Certify ownership of digital art, music, in-game items, or real assets. NFTs provide creators with new revenue models and guarantee digital scarcity and ownership.

• DAOs (Decentralized Autonomous Organizations): Community-run organizations where token holders vote on governance. DAOs enable transparent, democratic management, unlike traditional corporate structures.

These innovations are poised to transform industries from finance to entertainment, real estate, and supply chains, driving new waves of disruption and growth.

Conclusion

Cryptocurrency is an evolving asset class with the power to reshape the financial landscape. Its innovative features bring both opportunity and risk, including volatility, security challenges, and regulatory changes.

If you’re considering investing in or using crypto, it’s vital to understand both the technology and the risks, and to act responsibly. Stay informed with reliable sources and be alert to scams and fraud.

The crypto space—including Web3, DeFi, and NFTs—is rapidly expanding into new areas. These technologies promise safer, more convenient financial services and new models for value creation, offering the potential to greatly enrich our lives.

FAQ

What are cryptocurrencies, and how are they different from traditional money?

Cryptocurrencies are digital assets traded online, with no central issuer. Unlike traditional money, they use blockchain for management, allowing peer-to-peer transactions without financial institutions. Their value is set by supply and demand.

How did cryptocurrencies like Bitcoin and Ethereum start, and how do they function?

Bitcoin was introduced in 2009, based on Satoshi Nakamoto’s whitepaper. Blockchain allows every node in a decentralized network to maintain and verify the same ledger, ensuring trust. Ethereum uses this model as well for its own crypto ecosystem.

How do I buy cryptocurrencies? Where should beginners start?

Open an account with a registered exchange and complete identity verification. Deposit yen, choose the cryptocurrency and amount, then confirm the purchase. For beginners, exchanges with intuitive apps are recommended.

What risks are involved in crypto investing? How can I invest safely?

Crypto is highly volatile, and exchanges carry operational risk. To invest safely, diversify, use long-term strategies, choose reputable platforms, and focus on risk management and education.

What else is blockchain used for beyond cryptocurrencies?

Blockchain is used for supply chain tracking, food and pharmaceutical traceability, logistics, real estate, and education data management. Enterprise blockchains improve transparency and equal access to information.

Will cryptocurrencies become mainstream payment methods?

Yes, cryptocurrencies could become mainstream. Major companies like Mercari and Bic Camera are already accepting crypto payments, and fintech and platform adoption are accelerating. As platform-based coins like Mercoin spread, crypto’s practicality for payments will increase.