Crypto Assets (Virtual Currency): New Assets in the Digital Era

Crypto Asset (Virtual Currency) Essentials

Crypto assets, also known as virtual currencies, are a form of digital asset traded online. This innovative technology began with Bitcoin and has rapidly evolved in recent years, leading to the existence of tens of thousands of crypto assets today. Over the past few years, Bitcoin’s price has surged significantly, at one point exceeding 15 million JPY per coin, and has attracted global attention from investors and technologists alike.

Unlike traditional fiat currencies, crypto assets operate within their own unique value systems and are available for cross-border trading 24/7, 365 days a year. They are powered by blockchain—a groundbreaking technology—which enables them to function as decentralized systems without a central administrator. This decentralization allows for new methods of value exchange and the provision of financial services that were previously unattainable in conventional finance.

Definition and Legal Status of Crypto Assets

In Japan, the Payment Services Act provides a clear definition of crypto assets (virtual currencies). Under this law, a crypto asset must meet the following three requirements:

First, it must be usable for payments with unspecified parties and exchangeable with fiat currencies such as Japanese yen or US dollars. This means crypto assets serve as assets with real economic value, not merely as digital data.

Second, it must be electronically recorded and transferable. Crypto assets use blockchain and similar technologies to securely record and manage data online, allowing for fast transfers worldwide.

Third, it must not be fiat currency or assets denominated in fiat currency, such as prepaid cards or electronic money. This distinction classifies crypto assets as a new asset category, separate from existing financial systems.

In May 2020, Japan amended its regulations, changing the official term from “virtual currency” to “crypto asset” to enhance consistency with global terminology and clarify that these instruments are broader “assets,” not just “currencies.” Despite this, “virtual currency” remains widely used in casual conversation and media coverage.

Key Differences: Crypto Assets vs. Fiat Currency

There are several fundamental differences between crypto assets and fiat currencies (such as JPY, USD, EUR). Understanding these distinctions is critical for assessing both the features and risks of crypto assets.

Issuers and Management Structures

Fiat currencies are issued and managed by central banks or national governments. For example, the Bank of Japan issues the yen, while the US Federal Reserve (FRB) issues the dollar. These institutions adjust currency supply in response to economic conditions, aiming for price stability and economic growth.

Most crypto assets, however, have no designated issuer or central administrator. Take Bitcoin as an example—its issuance and management are handled by a globally distributed network. New Bitcoins are released through a process called mining, following predetermined algorithms.

Value Backing and Volatility

Fiat currencies are backed by the credit of their issuing governments or central banks. These authorities implement monetary policy and currency interventions to maintain stable value, making fiat currencies widely accepted for daily use and value storage.

By contrast, crypto asset values are determined entirely by market supply and demand. With no government or central bank guarantees, prices can be highly volatile, rising or falling dramatically in short periods. This volatility offers both investment opportunities and significant risk.

Usage Scope and Trading Hours

Fiat currencies circulate primarily within their issuing countries, used in everyday transactions and bill payments. International use requires currency conversion, and bank-based transfers or settlements are subject to banking hours and business days.

Crypto assets can be traded anywhere, anytime, as long as there is Internet access—24 hours a day, 365 days a year. Cross-border transfers are faster and more cost-effective than traditional bank transfers. However, their use at physical merchants remains limited compared to fiat currencies.

How Crypto Assets Differ from Electronic Money

While both crypto assets and electronic money exist in digital form and are transacted electronically, their fundamental nature is very different.

Issuers and Value Backing

Electronic money (such as Suica, PASMO, nanaco, Rakuten Edy) is issued and managed by specific companies or organizations. For example, Suica is issued by JR East, and its value is fully backed by Japanese yen—charging 1,000 yen to Suica gives you exactly 1,000 yen in value.

In contrast, most crypto assets have no single issuer and are managed by decentralized networks. Their value is not directly backed by fiat currency, but is determined by market dynamics, technical innovation, and community trust.

Price Stability

Electronic money is always pegged 1:1 to the underlying fiat currency and does not fluctuate in value—1,000 yen in electronic money always equals 1,000 yen, regardless of when it’s used.

Crypto asset prices, however, fluctuate constantly with market trading. A Bitcoin may be worth 1,000,000 yen today, 1,100,000 yen tomorrow, or fall to 900,000 yen. This volatility makes crypto assets appealing as investments but can hinder their use as a payment method.

Usage Scope and Conversion

Electronic money is generally accepted only by affiliated merchants or services. For instance, Suica is used mainly for transit and convenience stores, with limited acceptance. Additionally, most electronic money cannot be converted back to cash once charged.

Crypto assets, by contrast, are potentially usable worldwide wherever exchanges or services accept them, and can be converted to fiat currency at any time (subject to market price and exchange fees).

Technical Foundation

Electronic money is managed using centralized databases operated by the issuing company, which stores transaction records and manages the system.

Crypto assets are managed using blockchain, a distributed ledger. Transaction records are stored across many computers globally, creating a transparent system independent of any single company or organization.

Technology Behind Crypto Assets (Virtual Currency)

The innovative nature of crypto assets is made possible by the technologies underpinning them. Most notably, blockchain technology forms the foundation of crypto assets and is expected to find applications across industries beyond finance.

What Is Blockchain Technology?

Blockchain is a decentralized database system that groups transaction data into “blocks” and links them together in chronological “chains.” First outlined in Satoshi Nakamoto’s 2008 whitepaper as the basis for Bitcoin, blockchain has become the backbone of the crypto asset ecosystem.

Block Structure

Each block contains the following core information:

1. Transaction Data: Multiple transaction records over a given period
2. Timestamp: The date and time the block was created
3. Previous Block Hash: Encrypted information identifying the preceding block
4. Nonce: A value used in the mining process

Because each block contains the preceding block’s hash, all blocks are tightly linked. This design means that altering data in one block requires recalculating all subsequent blocks’ hashes, making unauthorized changes virtually impossible.

Mechanisms for Tamper Resistance

Blockchain’s high tamper resistance is due to these features:

1. Cryptographic Hash Functions: Each block is encrypted using hash functions like SHA-256, which produce completely different outputs even with slight changes to the input.

2. Chain Structure: Because blocks contain prior block hashes, tampering with any block requires recalculating all subsequent blocks.

3. Decentralized Networks: Blockchain copies are distributed across many nodes, so an attacker would need to alter the majority of nodes simultaneously—a practical impossibility.

Transparency and Anonymity

Blockchain’s other major feature is balancing transparency and anonymity. All transaction records are public and verifiable by anyone, but transactions are tied only to encrypted addresses, not directly to individuals. This ensures transparency while preserving privacy.

How Distributed Ledgers Work

The distributed ledger is central to blockchain technology. Unlike traditional centralized systems, data recording and management are handled in a fundamentally different way.

Centralized vs. Distributed Systems

In traditional finance, central institutions like banks or payment companies manage all transaction records. For example, bank balances and histories are stored in the bank’s database, with the bank ensuring accuracy and safety. This model requires users to trust the bank as a third party.

In a distributed ledger, no single entity controls transaction records. Instead, many network nodes each maintain copies of the same ledger. New transactions are broadcast to the network, and each node independently verifies their validity.

Benefits of Distributed Ledgers

1. No Single Point of Failure: Unlike centralized systems, if some nodes fail, others keep the system running, enhancing availability.

2. Censorship Resistance: Specific organizations or governments cannot arbitrarily reject transactions or freeze accounts; approval is determined democratically by the network.

3. Greater Transparency: All transaction records are public, making fraud or double spending easier to detect. Anyone can verify histories with a blockchain explorer.

4. Reduced Trust Costs: In traditional systems, trusted third parties are required to guarantee transactions. Distributed ledgers use cryptographic proofs and network consensus, eliminating the need for intermediaries.

Consensus Mechanisms

In decentralized networks, participants must agree on which transactions to approve and add to the blockchain. This agreement process is called a “consensus mechanism” or “consensus algorithm.”

Major types include:

• Proof of Work (PoW): Used by Bitcoin; the node that first solves a computational puzzle gets to add a new block.

• Proof of Stake (PoS): Used by Ethereum 2.0, among others; nodes that stake more crypto assets have higher chances to approve new blocks.

• Delegated Proof of Stake (DPoS): Holders elect delegates who validate blocks on their behalf.

Each mechanism has trade-offs in security, processing speed, and energy efficiency.

Security and Reliability

Blockchain technology combines cryptography and decentralized architecture to achieve high security and reliability.

Cryptographic Security

Blockchain relies on public-key cryptography. Every user has a public and private key pair:

• Public Key: Functions as a receiving address for crypto assets—like a bank account number, it can be shared.

• Private Key: Functions as a password needed to send crypto assets. Only the person with the private key can move assets from the associated address.

To conduct a transaction, the sender uses their private key to create a digital signature, which proves the transaction is authorized. Recipients and third parties can verify the signature with the public key, but the private key remains secret.

51% Attack Resilience

One key security risk is the “51% attack,” where a malicious actor controls over half the network’s computational power (PoW) or stake (PoS), enabling fraudulent transactions or blocking valid ones.

In large networks like Bitcoin, the cost and resources required make such attacks impractical. For example, controlling 51% of Bitcoin’s network would require a multi-billion-dollar investment, which would likely devalue the network and the attacker’s holdings.

Smaller crypto networks, however, are more vulnerable to 51% attacks, and such incidents have occurred with lesser-known assets, resulting in stolen funds.

Smart Contract Security

Smart contracts—self-executing programs on platforms like Ethereum—introduce new security challenges. Once deployed, smart contract code cannot be changed. While this immutability increases trust, it also makes fixing bugs or vulnerabilities difficult. Attacks exploiting smart contract flaws have resulted in the loss of hundreds of millions of yen, highlighting the importance of security audits during development.

Balancing Privacy and Traceability

Blockchain’s transparency enhances security and trust but raises privacy concerns, as all transactions are public and can be traced. Some crypto assets address this with privacy technologies:

• Monero: Uses ring signatures and stealth addresses to hide sender, recipient, and amount.

• Zcash: Uses zero-knowledge proofs to validate transactions without revealing details.

However, privacy-focused crypto assets are sometimes used for illicit activities and are subject to regulation in some jurisdictions.

Major Types of Crypto Assets (Virtual Currency)

There are tens of thousands of crypto assets in existence. Here are some of the most significant and influential, each with unique technology and objectives, contributing to the ecosystem’s diversity.

Bitcoin (BTC)

Bitcoin, the world’s first decentralized crypto asset, was proposed in the 2008 whitepaper “Bitcoin: A Peer-to-Peer Electronic Cash System” by the pseudonymous Satoshi Nakamoto. The first block (genesis block) was mined on January 3, 2009, marking the beginning of crypto asset history.

Bitcoin: Key Technical Features

1. Fixed Supply: Bitcoin’s total supply is capped at 21 million BTC, a scarcity that has earned it the nickname “digital gold.”

2. Block Time: A new block is produced approximately every 10 minutes, maintained by a network difficulty adjustment mechanism.

3. Halving: Every four years, the mining reward is halved. The initial reward was 50 BTC per block; currently it’s 6.25 BTC. After the next halving in 2024, it will drop to 3.125 BTC.

4. Proof of Work: Bitcoin uses PoW, where miners solve complex problems to add new blocks.

Bitcoin’s Value and Role

While Bitcoin was originally conceived as an electronic payment system, it is now seen primarily as a “store of value.” This is due to:

• Scarcity: Fixed supply limits inflation risk
• Decentralization: Not tied to any country or entity, reducing political risk
• Liquidity: Highly liquid, traded globally
• Recognition: The most recognized crypto asset, with rising institutional adoption

Some countries and companies have adopted Bitcoin as legal tender or a payment method—El Salvador made it legal tender in 2021, drawing worldwide attention.

Challenges for Bitcoin

Despite its innovations, Bitcoin faces several challenges:

• Scalability: Limited to about 7 transactions per second; network congestion can drive up fees
• Energy Use: PoW mining consumes vast energy, raising environmental concerns
• Price Volatility: High volatility makes it difficult to use as a daily payment method

Layer 2 solutions like the Lightning Network are being developed to address these issues.

Ethereum (ETH)

Ethereum is a blockchain platform with smart contract capabilities, launched in July 2015 by then-19-year-old programmer Vitalik Buterin. Designed not just as a crypto asset, Ethereum is the foundation for decentralized applications (DApps).

Smart Contract Innovation

Ethereum’s most significant feature is the smart contract—self-executing agreements. Smart contracts automatically perform actions when pre-set conditions are met (“If condition A is met, execute action B”).

Smart contract applications include:

• DeFi (Decentralized Finance): Lending, trading, and insurance without intermediaries
• NFTs (Non-Fungible Tokens): Certifying digital art and collectibles ownership
• DAOs (Decentralized Autonomous Organizations): Decentralized, community-driven organizations
• Supply Chain Management: Transparent tracking from production to distribution

Ethereum’s Technical Evolution

Ethereum is continuously evolving. The most significant recent upgrade, “The Merge,” took place in September 2022, moving from PoW to PoS. Key benefits include:

1. Energy Efficiency: Reduced energy use by about 99.95%
2. Stronger Security: Increased network safety through higher attack costs
3. Scalability Foundation: Enables future upgrades like sharding

Ethereum Ecosystem

Thousands of DApps run on Ethereum, creating a vibrant ecosystem. Major categories include:

• DeFi Protocols: Uniswap, Aave, Compound, etc.
• NFT Marketplaces: OpenSea, Rarible, etc.
• Stablecoins: USDC, DAI, etc.
• Layer 2 Solutions: Polygon, Arbitrum, Optimism, etc.

Ethereum ranks second after Bitcoin by market capitalization and is central to the crypto asset ecosystem.

Other Major Cryptocurrencies (Altcoins)

Crypto assets other than Bitcoin and Ethereum are broadly called “altcoins.” Each has unique technologies and goals, adding diversity to the market.

XRP

XRP, developed by Ripple Labs, is designed for international money transfers. Traditional systems like SWIFT involve multiple banks, resulting in delays and high fees.

XRP’s key features include:

• Fast Settlement: Transfers complete in about 3–5 seconds
• Low Fees: Transaction fees are less than 1 JPY
• Scalability: Handles about 1,500 transactions per second
• Centralized Aspects: Ripple holds much of XRP, raising decentralization debates

Ripple works with major financial institutions globally, building the RippleNet international remittance network. In Japan, SBI Holdings and other major firms use Ripple technology.

Solana

Launched in 2020, Solana is a high-speed, low-cost blockchain platform. Known as an “Ethereum killer,” it is rapidly growing in DeFi and NFT markets.

Solana’s key features:

• Ultra-Fast Processing: Theoretically processes over 65,000 transactions per second
• Low Fees: Fees are less than 1 JPY per transaction
• Proof of History (PoH): Unique consensus for high-speed processing
• Active Ecosystem: Numerous DeFi, NFT, and Web3 projects

Popular projects on Solana include NFT marketplace Magic Eden and DEXs like Serum and Raydium.

Cardano

Cardano is a “third-generation” blockchain developed by Charles Hoskinson, a co-founder of Ethereum.

Cardano’s strengths include:

• Academic Development: Based on peer-reviewed research
• Layered Architecture: Separates settlement and computation for flexibility and security
• Energy Efficiency: Uses PoS for lower environmental impact
• Phased Rollout: Implements features through five stages: Byron, Shelley, Goguen, Basho, and Voltaire

Cardano focuses on blockchain adoption in developing countries, including projects with Ethiopia’s education system.

Dogecoin

Dogecoin was created in 2013 as an Internet meme by Billy Markus and Jackson Palmer, featuring the Shiba Inu “Doge” as its logo.

Main features of Dogecoin:

• Community Focus: Friendly, welcoming community
• Inflationary Model: No supply cap; new coins issued annually
• Low Price: Suitable for small payments and tipping
• Celebrity Endorsement: Boosted by mentions from figures like Elon Musk

Although initially a joke, Dogecoin is now used by some businesses for payments.

Other Notable Altcoins

• Polkadot (DOT): Enables interoperability between different blockchains
• Avalanche (AVAX): Ethereum-compatible, high-speed, low-cost platform
• Chainlink (LINK): Decentralized oracle network for smart contracts
• Polygon (MATIC): Layer 2 scaling solution for Ethereum

Each altcoin brings distinct technologies and goals, advancing the crypto ecosystem as a whole.

Crypto Asset (Virtual Currency) Features and Advantages

Crypto assets offer unique features compared to traditional finance, delivering a range of benefits. Here’s a closer look at their main features and advantages.

Cross-Border Payments and Settlement

One of crypto assets’ most innovative aspects is enabling fast, low-cost cross-border payments and settlements.

Challenges with Traditional International Transfers

Conventional international transfers face several hurdles:

1. High Fees: Multiple intermediaries drive up costs, often totaling thousands to tens of thousands of yen.

2. Slow Processing: Transfers may take 3–5 business days, or even longer.

3. Opaque Exchange Rates: Banks may use non-market exchange rates.

4. Limited Hours: Banks operate only during business hours and on business days.

5. Transfer Limits: Maximum transfer amounts may be restricted.

Advantages of Crypto-Based International Transfers

Crypto asset transfers solve many of these issues:

1. Low Cost: Fewer intermediaries result in much lower fees—typically several hundred yen for Bitcoin and less than 1 JPY for XRP.

2. Fast Settlement: Bitcoin transfers settle in roughly 10 minutes to an hour; XRP settles in 3–5 seconds.

3. 24/7/365 Access: Transfers can be made anytime, regardless of time or day.

4. Transparency: Transfer status is publicly trackable via blockchain.

5. No Technical Limit on Amounts: There are no built-in limits on transfer sizes (though exchanges may impose restrictions).

Use Case Examples

Crypto-based international payments are used for:

• Remittances: Migrant workers can send money home faster and cheaper
• International Business: Companies can reduce settlement time and costs
• Humanitarian Aid: Funds can be sent quickly in crisis situations
• Unbanked Populations: Anyone with a smartphone can receive crypto assets

The World Bank estimates the annual remittance market at about 70 trillion JPY, with average fees around 6%. Crypto assets could dramatically reduce costs in this sector.

24/7/365 Trading

The crypto asset market never closes—it operates 24 hours a day, 365 days a year, unlike traditional financial markets.

Limitations in Traditional Markets

Traditional markets (stocks, bonds, etc.) have strict operating hours:

• Limited Trading Times: For example, the Tokyo Stock Exchange runs weekdays from 9:00 to 15:00 (with a lunch break)
• Closed on Holidays: No trading on weekends or public holidays
• Region-Specific Hours: Each country’s market trades only during local business hours

Crypto Market Flexibility

Crypto assets are free from such limits:

1. Anytime Access: Trade at your convenience, day or night

2. No Weekend/Holiday Restrictions: Markets are always open

3. Global Synchronization: Trading occurs simultaneously worldwide

4. Immediate Response: React instantly to global news or events

Benefits and Use Cases

• Fits Any Schedule: Trade when it’s most convenient for you
• Immediate Reaction: Respond to breaking news in real time
• Arbitrage: Exploit price differences between exchanges
• Emergency Access: Move assets, even on weekends

Points of Caution

• Constant Volatility Exposure: Prices can swing while you’re asleep or away
• Risk of Overtrading: The ability to trade non-stop may encourage impulsive behavior
• No Downtime: Monitoring markets continuously can be exhausting

Risk management tools like automated trading and stop-loss orders are recommended.

Decentralization: No Central Administrator

One of crypto assets’ core features is decentralization—the absence of a central controlling entity. This is a fundamental difference from traditional finance.

Centralized System Characteristics

• Central Banks: Manage currency and monetary policy
• Commercial Banks: Handle deposits and loans
• Payment Companies: Process payments and settlements
• Regulatory Authorities: Oversee and regulate the system

These central institutions ensure reliability but also present challenges:

1. Single Point of Failure: Outages affect the entire system
2. Censorship Risks: Governments or banks can freeze accounts or block transactions
3. Lack of Privacy: Central entities can access all transaction data
4. Higher Costs: Intermediaries add layers of fees

Advantages of Decentralization

1. Fault Tolerance: The system remains functional even if some nodes go down. The Bitcoin network has never halted since launch in 2009.

2. Censorship Resistance: It’s difficult for any authority to arbitrarily restrict transactions, which is vital in politically unstable regions or where access to finance is limited.

3. Transparency: All transactions are public and verifiable, making fraud easier to detect.

4. Self-Sovereignty: Users control their assets without relying on third parties

5. Open Innovation: Anyone can build new applications and services

Use Cases

• Financial Inclusion: About 1.7 billion people globally without bank accounts can use crypto assets with just a smartphone
• Political Freedom: Protect and move assets under restrictive governments
• Programmable Money: Automate complex transactions with smart contracts

Challenges and Limitations

• Scalability: Decentralization can slow processing speeds
• Governance: Achieving consensus can be difficult
• Regulatory Ambiguity: Lack of central administrator complicates oversight
• Accountability: Responsibility may be unclear in case of problems

The crypto community continues to address these challenges while maximizing decentralization’s benefits.

Lower Transaction Costs

Crypto assets can significantly reduce transaction costs compared to traditional financial services.

Traditional Cost Structures

1. Intermediary Fees: Banks, payment processors, and brokers each add fees
2. Infrastructure Costs: Physical branches, ATMs, and systems are costly to maintain
3. Compliance Costs: Regulatory compliance adds labor and system expenses
4. Foreign Exchange Fees: Cross-border transactions incur extra charges

These costs are ultimately borne by end users.

How Crypto Assets Reduce Costs

1. Cutting Out Intermediaries: Peer-to-peer transactions require fewer middlemen

2. Automation: Smart contracts automate processes and reduce labor costs

3. Digital-Only Infrastructure: No need for branches or ATMs

4. Global Currencies: Eliminates the need for currency conversion (though exchange fees may still apply)

Cost Comparison Examples

• Traditional bank transfer: 3,000–5,000 JPY fee, 3–5 days
• Bitcoin transfer: Several hundred JPY, 10 minutes–1 hour
• XRP transfer: Under 1 JPY, 3–5 seconds

• Credit card processing: 3–5% merchant fee
• Crypto payment: ~1% or less (via processors)

DeFi for Even Lower Costs

• Lending: Direct P2P lending means lower rates for borrowers and higher returns for lenders

• DEXs (Decentralized Exchanges): Lower fees, no need to deposit assets with the exchange

• Stablecoin Transfers: Low-cost transfers with price stability

Points to Note

• Network Congestion: Fees can spike during periods of high usage

• Exchange Fees: Converting between crypto and fiat incurs exchange fees

• Slippage: Illiquid markets may lead to unfavorable execution prices

Layer 2 and new blockchain protocols are being developed to address these challenges.

Crypto Asset (Virtual Currency) Risks and Precautions

Crypto assets offer many benefits, but they also carry risks. Users and investors should fully understand these risks and take appropriate precautions.

Price Volatility

Crypto assets are highly volatile compared to traditional assets like stocks or bonds. Large price swings are common.

Examples of Volatility

• Bitcoin reached about 2.2 million JPY in December 2017, then fell to around 400,000 JPY a year later (an 80% drop)
• It hit an all-time high of around 7.7 million JPY in November 2021, then dropped to 2.3 million JPY in November 2022 (a 70% drop)
• Double-digit percentage swings in a day are not unusual

Causes of Volatility

1. Small Market Size: Large trades can move prices significantly

2. Regulatory Changes: Policy shifts or new laws can impact prices

3. Technical Issues: Hacks, bugs, and forks can cause sharp declines

4. Market Sentiment: News, social media, and celebrity statements can move prices

5. Speculation: Speculative trading amplifies swings

6. Liquidity Issues: Especially in smaller assets, low liquidity increases volatility

Risk Management Strategies

1. Invest Only What You Can Afford to Lose

2. Diversify: Across multiple crypto assets and other asset classes

3. Long-Term Perspective: Don’t overreact to short-term moves

4. Dollar-Cost Averaging: Invest a fixed amount regularly to smooth entry points

5. Use Stop-Loss Orders: Set automatic sell orders to limit losses

6. Use Stablecoins: For those wanting to avoid volatility, consider stablecoins

Security Risks (Hacking, etc.)

Although blockchain is highly secure, exchanges and personal wallets may still be targeted by hackers.

Major Security Incidents

• Mt. Gox (2014): 850,000 BTC (worth about 47 billion JPY at the time) stolen from what was then the world’s largest exchange

• Coincheck (2018): 58 billion JPY in NEM stolen from a major Japanese exchange

• Poly Network (2021): $600 million in assets temporarily stolen from a DeFi protocol

These incidents exploited vulnerabilities in exchange and protocol security.

Key Security Risks

1. Exchange Hacking: Attackers target exchange infrastructure

2. Phishing: Fake sites and emails steal user credentials or private keys

3. Malware: Malicious software targets wallet keys

4. SIM Swapping: Attackers hijack phone numbers to bypass two-factor authentication

5. Smart Contract Bugs: Vulnerabilities in smart contract code can be exploited

How to Stay Safe

1. Use Trusted Exchanges: Choose those registered with the Financial Services Agency (FSA) and check for strong security measures

2. Enable Two-Factor Authentication: Prefer authentication apps over SMS

3. Use Hardware Wallets: For large holdings, use offline devices like Ledger or Trezor

4. Safeguard Private Keys: Store keys and recovery phrases offline, not digitally

5. Beware of Phishing: Always check URLs and bookmark official sites

6. Keep Software Updated

7. Diversify Storage: Don’t keep all assets in one place

8. Monitor Accounts: Regularly check for suspicious activity

Regulatory Changes

Crypto asset regulations are evolving rapidly worldwide and can have major impacts on prices and availability.

Recent Regulatory Shifts

1. China (2021): Banned crypto mining and trading, causing market shocks

2. Japan (2020): Changed the official term to “crypto asset,” tightened asset management rules

3. USA (SEC): Treats many crypto assets as securities and has filed lawsuits against major exchanges

4. EU (MiCA): Introducing a unified regulatory framework

5. El Salvador (2021): Made Bitcoin legal tender

Regulatory Impacts

1. Market Prices: Stricter regulation can depress prices; clearer or relaxed rules may boost them

2. User Access: Some countries may restrict or ban crypto asset usage

3. Taxation: Tax rules for crypto profits may change; in Japan, profits are generally taxed as miscellaneous income (up to 55%)

4. Compliance Costs: Tighter rules may increase business (and user) costs

How to Manage Regulatory Risk

1. Stay Informed: Regularly check FSA and other official sources

2. File Taxes Properly: Declare and pay taxes as required; consult a tax professional if unsure

3. Use Registered Operators: Use only FSA-registered exchanges for greater protection

4. Monitor International Developments: Crypto assets are global; keep an eye on major countries' policies

Fraud and Scams

The rise of crypto assets has brought an increase in scams and fraudulent solicitations, with many reported cases to consumer protection agencies.

Common Scam Tactics

1. Ponzi Schemes: Promise guaranteed or high returns, using new investor funds to pay earlier participants, ultimately collapsing

2. Fake Asset Investments: Solicit investments in non-existent or worthless crypto assets

3. Fake ICOs: Claim to be launching a new coin and disappear with investors’ money

4. SNS/Dating App Scams: Build trust via social media, then direct victims to fraudulent investment platforms

5. Phishing: Impersonate exchanges or projects to steal credentials or keys

6. Airdrop Scams: Offer “free” crypto in exchange for private keys or personal data

How to Spot a Scam

• Guaranteed profits or “sure to rise” claims
• Promises of principal or high-return guarantees
• Urgency (“limited time,” “act now”)
• Complex schemes with vague explanations
• Unregistered or unknown operators
• Referral bonuses for bringing in friends (may be pyramid schemes)
• Demands for extra fees or taxes at withdrawal

How to Avoid Scams

1. Don’t Expect Miracles: High returns always mean high risk

2. Check Registration: Confirm exchanges are registered with the FSA

3. Do Your Own Research: Review official sites, whitepapers, teams, and community feedback

4. Get a Second Opinion: Consult friends, family, or professionals

5. Don’t Rush: Take your time, especially if pressured

6. Start Small: Test new opportunities with small amounts

7. Protect Personal Data: Never share private keys or sensitive information

If You’re a Victim

• Contact the police (cybercrime division)
• Contact the consumer hotline (188)
• Consult a lawyer
• Notify the exchange (if applicable)

Take swift action—don’t hesitate to seek official help.

Crypto Asset (Virtual Currency) Regulation and Outlook

Crypto assets are rapidly evolving, both technologically and institutionally. Governments are developing regulatory frameworks, while new technologies and services continue to emerge.

Legal Framework in Japan

Japan is one of the world’s most advanced countries in terms of crypto asset legislation.

Key Regulatory Milestones

1. April 2017 – Amended Payment Services Act:

   • Legally defined crypto assets (then called “virtual currency”)
   • Introduced mandatory registration for exchanges
   • Implemented user protection regulations

2. May 2020 – Amended Payment Services and Financial Instruments and Exchange Acts:

   • Changed official terminology to “crypto asset”
   • Strengthened customer asset management rules (requiring cold wallet storage)
   • Regulated custody services
   • Tightened rules for crypto asset derivatives

Current Key Regulations

1. Registration of Crypto Asset Exchanges: