Cryptocurrency (Virtual Currency) │ New Assets for the Digital Age

Cryptocurrency Basics

What are cryptocurrencies? While names like Bitcoin and Ethereum are now widely recognized, many people still aren't sure what these assets actually are or how they function.

With rapid advances in digital technology, cryptocurrencies have emerged as a new type of asset and attracted global attention. In recent years, Bitcoin has shown dramatic price swings. Between 2024 and 2025, its price exceeded 15 million yen, making it a particularly notable investment.

This guide explains the key characteristics of cryptocurrencies and clarifies how they differ from traditional money and electronic payment systems. By mastering these core concepts, you'll be able to better understand the real value and unique features of cryptocurrencies.

Definition and Legal Status of Cryptocurrencies

Cryptocurrencies are digital assets that can be exchanged online and function similarly to money. Under Japan’s Payment Services Act, cryptocurrencies are defined by three main criteria:

1. They can be used for payments and exchanged for fiat currencies like yen or dollars
2. They are recorded and transferred electronically, via computers or smartphones
3. They are distinct from government-issued money and electronic money

Originally referred to as "virtual currencies," the legal term was updated to "cryptocurrencies" in May 2020 to align with global standards and clarify their asset-like properties. However, the term "virtual currency" is still often used in the media and everyday conversation.

Legally, cryptocurrencies are considered digital assets with monetary value rather than currency. As a result, their taxation and regulatory treatment for transactions and holdings differ from those of traditional fiat currencies.

Cryptocurrencies vs. Fiat Currency

The primary differences between cryptocurrencies and traditional fiat currencies are the nature of their issuance and the way their value is guaranteed.

Because cryptocurrencies are not managed by governments or banks, they are less subject to direct political or economic influence. For instance, inflation in one country does not directly impact cryptocurrency value. However, because their prices are set by market supply and demand, cryptocurrencies can experience significant volatility and risk.

Fiat currencies are backed by the full faith and credit of a nation. In contrast, cryptocurrencies derive their value from the trust of network participants and the underlying technology. This fundamental distinction shapes their respective characteristics.

Cryptocurrencies vs. Electronic Money

Both cryptocurrencies and electronic money are digital forms of value, but their underlying characteristics are quite different.

Electronic money—such as Suica, PASMO, or nanaco—is issued by specific companies and always retains a constant value pegged to the yen or other fiat currency. For example, 1,000 yen loaded onto electronic money always remains worth 1,000 yen.

With cryptocurrencies, value fluctuates based on market demand and supply, so the value at purchase may differ from the value at sale. This volatility attracts many investors. Electronic money is mainly limited to participating domestic merchants, while cryptocurrencies can potentially be used for cross-border payments and remittances.

The Technology Behind Cryptocurrencies

What makes cryptocurrencies work? Their foundation is “blockchain,” an innovative technology that, while complex in design, is conceptually straightforward.

Blockchain is not only essential for cryptocurrencies but is also expected to revolutionize many industries. It allows highly reliable transaction records to be maintained without a central authority.

This section demystifies the key technologies supporting cryptocurrencies in plain language, with minimal jargon. Understanding these foundations clarifies why cryptocurrencies are considered so innovative.

What Is Blockchain Technology?

Most cryptocurrencies are built on blockchain technology, a type of database that stores transaction records in “blocks” linked together like a chain.

Each block contains multiple transactions and information from the preceding block. This structure makes tampering with past records virtually impossible, as altering one block would require simultaneously rewriting all subsequent blocks.

Here’s how blockchain works in simple terms:

1. Multiple transactions are grouped into a single block
2. Each block contains the previous block’s hash value (a unique identifier)
3. Once a new block is validated, it is added to the chain
4. All participants share the same ledger

In essence, blockchain is “a system where everyone checks the record, creating trust.” This enables secure, reliable transactions without a central administrator like a bank.

How Distributed Ledgers Work

Traditional banks centrally manage transaction and balance records. Blockchains, by contrast, use a “distributed ledger” system where thousands or tens of thousands of computers (nodes) worldwide maintain identical records.

When a new transaction occurs, the information propagates across the network, is validated by many nodes, and is added to the ledger on every node.

Key advantages include:

• High resilience: The system remains operational even if some nodes fail
• Tamper resistance: It’s extremely difficult for any single party to alter records
• Transparency: Anyone can verify transaction records
• Censorship resistance: No central authority can freeze or block transactions

Sharing records among many participants creates a safer, more trustworthy system. This decentralized architecture is blockchain’s core innovation.

Security and Trust

Blockchain transactions are validated through “consensus algorithms” that enable network participants to agree on transaction legitimacy.

For example, Bitcoin uses Proof of Work (PoW), where participants solve complex computational puzzles to earn the right to create new blocks—a process called “mining.” Successful miners are rewarded with new bitcoins.

This system makes it nearly impossible for bad actors to take control. Gaining majority control (a “51% attack”) would require more computing power than the rest of the network combined, which is cost-prohibitive for large networks.

Ethereum and other cryptocurrencies use Proof of Stake (PoS), where those holding large amounts of cryptocurrency validate transactions, reducing energy consumption.

These mechanisms ensure that even without a central authority, the network remains secure and trustworthy. In short: “Widespread oversight prevents fraud.”

Major Types of Cryptocurrencies

There are now tens of thousands of cryptocurrencies beyond Bitcoin and Ethereum. Even if you’ve heard the names, their individual features may not be clear.

Each cryptocurrency is designed for different purposes and uses distinct technologies. For instance, Bitcoin aims to be “digital gold,” while Ethereum introduced smart contracts as the basis for decentralized applications (DApps).

This section highlights the features and differences of leading cryptocurrencies. Understanding them helps clarify the overall structure and direction of the crypto market.

Bitcoin (BTC)

Bitcoin was introduced in 2008 by a person or group under the name Satoshi Nakamoto, and launched in 2009 as the world’s first cryptocurrency. The whitepaper “Bitcoin: A Peer-to-Peer Electronic Cash System” proposed direct money transfers without banks.

The whitepaper was published after the 2008 financial crisis and was motivated by distrust in centralized financial systems. Satoshi Nakamoto’s identity remains unknown, but their technical legacy is profound.

Key features of Bitcoin:

• Total supply capped at 21 million coins, ensuring scarcity
• New blocks created roughly every 10 minutes
• Block rewards are halved about every four years (“halving”)
• Most widely recognized and largest by market capitalization
• Uses Proof of Work (PoW) mining

Bitcoin is often called “digital gold” due to its scarcity and decentralized nature, making it a popular hedge against inflation. In recent years, institutional investment has solidified its standing as an asset class.

Ethereum (ETH)

Ethereum, launched in 2015 by developer Vitalik Buterin, is both a cryptocurrency and a platform. Unlike Bitcoin, which is focused on simple payments, Ethereum introduced the groundbreaking concept of smart contracts.

Smart contracts are self-executing agreements that automatically perform actions when certain conditions are met (“if A, then B”). This enables complex transactions to run without intermediaries.

For example, a real estate sale could use a smart contract to automatically transfer ownership once payment is received—eliminating the need for brokers or complicated paperwork.

Key features of Ethereum:

• Enables diverse app development through smart contracts
• Foundation for DeFi (decentralized finance) and NFTs (digital ownership certificates)
• No supply cap, and issuance varies
• Second largest by market capitalization
• Recently transitioned to Proof of Stake (PoS) for improved energy efficiency

Ethereum is more than a currency—it’s a platform for developing and running decentralized applications, sometimes called the “world computer.”

Other Major Cryptocurrencies (Altcoins)

All cryptocurrencies other than Bitcoin are collectively called “altcoins.” Each has its own unique features and objectives.

XRP: Developed by Ripple, XRP is specialized for international remittances. It enables much faster and cheaper transfers than traditional banking, often completing in seconds to minutes. XRP is designed as a “bridge currency” for cross-currency transfers and is being tested or adopted by several banks and payment providers.

Solana: Solana is a high-speed, low-fee blockchain platform capable of processing tens of thousands of transactions per second. Its unique Proof of History (PoH) mechanism enables rapid, affordable transactions. Solana is growing quickly as a base for DeFi and NFT projects.

Cardano: Cardano is a “third-generation” blockchain developed through academic research, prioritizing security and sustainability. It relies on peer-reviewed papers and uses Proof of Stake (PoS) for energy efficiency. Cardano also supports smart contracts for decentralized app development.

Dogecoin: Originally created as an internet meme, Dogecoin has gained value through community support and endorsements by figures like Elon Musk. It has no supply cap and very low transaction fees, making it suitable for tipping and micro-payments. Dogecoin’s culture is approachable and playful.

Each of these cryptocurrencies brings unique features and goals, contributing to the diversity of the crypto ecosystem. Before investing or using them, it’s important to carefully research their technology, purpose, and development teams.

Key Features and Advantages of Cryptocurrencies

What makes cryptocurrencies appealing compared to regular money? Here, we explore their practical advantages for daily life.

Certain functions that are difficult with banks or cash—especially international transfers or 24/7 trading—are much easier with cryptocurrencies.

Understanding these advantages explains why so many people are interested in the future of cryptocurrencies. Of course, each benefit comes with its own risks.

Cross-Border Payments and Transfers

One of the greatest advantages of cryptocurrencies is easy cross-border transfers. Traditional international remittances often involve multiple banks, high fees, and can take several days to complete.

For example, sending 100,000 yen from Japan to the Philippines via a bank can cost thousands of yen in fees and take three to five business days. The recipient may also face additional charges.

In contrast, cryptocurrency transfers offer:

• Global transfers completed in minutes to hours
• Lower fees due to fewer intermediaries (though network congestion can affect costs)
• Accessibility for anyone with a smartphone, even without a bank account
• Relatively fixed fees regardless of amount

These features make cryptocurrencies useful for remittances and supporting family abroad. In developing nations, they can provide crucial financial access for the unbanked.

Some merchants and online services now accept cryptocurrencies, and major companies are increasingly adding crypto payment options.

24/7 Trading

Traditional financial products like stocks and bonds are limited to set trading hours. For example, Japanese equities trade only from 9 a.m. to 3 p.m. on weekdays. Cryptocurrencies, by contrast, are traded 24/7/365, globally.

This allows for:

• Flexible investing unconstrained by time or location
• Immediate response to global market news
• Trading to fit any schedule
• Continuous trading on weekends and holidays

Busy professionals can trade at night or on weekends. Investors can react instantly to breaking news anywhere in the world.

However, constant trading also means constant volatility. This is both an opportunity and a risk, making effective risk management essential.

Decentralized Systems Without Central Control

Traditional financial systems rely on central banks and governments to manage currency, with banks and payment processors acting as intermediaries. Cryptocurrencies run on decentralized networks without a central authority.

Benefits include:

• Reduced direct impact from government or financial institution policy changes
• Lower risk of censorship or asset freezes
• Greater resilience to system outages
• No reliance on any specific country or entity

Even if banks shut down due to political instability, cryptocurrency transactions can continue. Asset freezes and censorship are less likely.

This decentralized nature is especially valuable in countries with unstable financial systems or strict regulations. However, it also creates challenges for regulators combating abuse and financial crime.

Lower Transaction Costs

Because cryptocurrencies enable direct, peer-to-peer transactions, they can reduce costs compared to traditional financial services.

Examples include:

• Lower international remittance fees (from thousands to hundreds of yen)
• Reduced payment infrastructure expenses
• Lower transaction record management and verification costs
• Reduced or eliminated intermediary fees

Traditional finance involves many intermediaries for each transaction, each charging their own fees. Blockchain allows direct transfers, significantly reducing these middleman costs.

However, transaction fees can spike when networks are congested, especially on major chains like Bitcoin or Ethereum. As usage increases, competition for block space can raise fees.

Solutions like the Lightning Network (for Bitcoin) and Layer 2 scaling (for Ethereum) are in development to enable faster, lower-cost transactions.

Risks and Precautions for Cryptocurrencies

While cryptocurrencies offer many benefits, there are important risks to consider. Be especially cautious about promises of “guaranteed profit.” Understanding potential pitfalls is critical before investing or using crypto.

Scams and fraudulent schemes have increased, and technical risks such as price volatility and hacking remain significant.

This section covers the main risks and how to manage them. Awareness and preparation are essential for safe participation in crypto.

Price Volatility

Crypto markets are highly volatile, with prices that can swing dramatically in a short time—one of their defining features.

For example, Bitcoin has seen daily price changes exceeding 10%. In 2024–2025, its price topped 15 million yen, but continued to fluctuate sharply thereafter.

Key factors driving volatility include:

• Smaller market size, making prices sensitive to large trades
• Sharp reactions to regulatory or technical news
• High speculation and strong influence from investor sentiment
• Institutional capital flows
• Impact from news and social media

Important investment precautions:

• Invest only surplus funds you can afford to lose
• Be prepared for sharp declines; never invest more than you can tolerate losing
• Diversify your portfolio
• Maintain a long-term perspective; don’t be swayed by short-term swings

Beginners are particularly prone to “FOMO” (Fear of Missing Out) during price surges, but rational decision-making is critical.

Security Risks: Hacking and More

Despite robust underlying technology, cryptocurrency exchanges and personal wallets remain targets for hackers. There have been major breaches resulting in significant losses for users.

Primary risks include:

• Exchange hacks resulting in asset loss
• Phishing scams stealing login credentials
• Malware stealing wallet private keys
• Social engineering attacks
• Exploiting smart contract vulnerabilities

Security best practices include:

Basic Steps:

• Always enable two-factor authentication (2FA)
• Use strong, regularly updated passwords
• Verify official URLs and use bookmarks to access exchange sites
• Never click links in suspicious emails or messages

Asset Management:

• For significant holdings, use offline storage such as hardware wallets
• Write down and securely store private keys and recovery phrases
• Distribute assets across multiple wallets
• Choose reputable exchanges with strong security practices

If you lose your private key, you lose access to your assets forever, so backup is essential. However, if someone else obtains your backup, they can steal your funds—so manage backups securely.

Regulatory Changes

Cryptocurrency regulations vary widely by country and are constantly evolving. Some nations have banned crypto outright, and regulatory changes can significantly impact the market.

Examples include:

• China’s cryptocurrency mining ban (2021)
• Japan’s Payment Services Act revisions (2020)
• Tax code updates in various countries
• EU’s MiCA regulation rollout
• Stricter SEC oversight in the US

Such regulatory changes can dramatically affect prices and the availability of cryptocurrencies. For instance, Bitcoin’s price fell sharply after China’s mining ban.

Regulatory risk management:

• Stay up to date on local regulations
• Use only registered, licensed exchanges
• Understand and comply with tax obligations
• Consider regulatory changes when making investment decisions

Japan continues to strengthen legal protections and user safeguards, but further regulatory developments are likely. Stay informed to remain compliant.

Fraud and Scams

The rapid growth of crypto has fueled an increase in scams and fraudulent schemes, especially via social media and dating apps.

Common scam tactics include:

Exaggerated or False Claims:

• “Guaranteed profits” or “will definitely go up”
• “Principal guaranteed” or “high returns promised”
• Fake celebrity or expert endorsements

Ponzi Schemes:

• Payouts to earlier investors funded by new investors
• Initial returns paid to build trust
• Operators eventually disappear with the money

Fake Cryptocurrencies or ICOs:

• Pitches for non-existent digital assets
• Tokens sold for projects with no substance
• Whitepapers full of false or exaggerated claims

Withdrawal Scams:

• Repeatedly demanding extra fees for withdrawals
• Requests for additional deposits labeled as “taxes” or “fees”
• Funds are never released

How to avoid scams:

• Be skeptical of “guaranteed profits”—no investment is risk-free
• Ignore unregistered or suspicious promoters
• Do not trust unsolicited messages from strangers
• Make your own investment decisions; do not delegate responsibility
• Check official sources and verify information from multiple channels

If you fall victim or suspect a scam, contact law enforcement or your local consumer protection agency immediately. Quick action helps limit losses.

Regulation and the Future of Cryptocurrencies

How are cryptocurrencies regulated worldwide, and what lies ahead? Here’s an overview of key rules in Japan and globally, plus an outlook on future developments.

The crypto landscape is changing fast, with new technologies and services emerging as regulations evolve. Cryptocurrency technology is expanding beyond payments to influence a wide range of industries and could reshape society itself.

This section summarizes the current regulatory environment and future trends.

Current Regulatory Landscape in Japan

Japan is a global leader in cryptocurrency regulation. The revised Payment Services Act, effective April 2017, required crypto exchanges to register with the Financial Services Agency.

The 2020 amendment formally changed “virtual currency” to “cryptocurrency” and tightened client asset protection rules. The aim is to protect users and ensure healthy market growth.

Key Japanese regulations include:

Exchange Regulation:

• Mandatory registration for crypto exchanges (overseen by the FSA and Finance Bureau)
• Financial statement submissions and regular reporting
• User information disclosure requirements
• Advertising restrictions (no exaggerated claims)

Customer Asset Protection:

• Mandatory cold wallet (offline) storage for customer funds
• Segregation of customer and company assets
• Compensation systems for asset leaks

Anti-Money Laundering (AML):

• Strict customer identity verification (KYC)
• Mandatory reporting of suspicious transactions
• Transaction record-keeping

Taxation:

• Cryptocurrency gains taxed as miscellaneous income
• Tax filing required for annual gains over 200,000 yen
• Maximum tax rate can reach about 55% (including local taxes)

Future regulation will likely integrate cryptocurrencies into the Financial Instruments and Exchange Act while recognizing them as a distinct asset class. New guidelines are also in development for stablecoins and NFTs.

Global Regulatory Approaches

Policies on cryptocurrencies differ greatly from country to country, ranging from acceptance to outright bans.

United States: Regulatory oversight is shared among agencies such as the SEC and CFTC. Recent progress on crypto ETFs has accelerated institutional adoption and bridged traditional and crypto markets. Regulatory differences exist across states, with frameworks like New York’s BitLicense.

European Union: The MiCA regulation is creating a unified regulatory framework, scheduled for phased rollout from 2024. Harmonized rules are expected to boost legal certainty and market development.

China: China has banned crypto trading and mining since 2021, but is actively developing a central bank digital currency (CDBC). These policies have had a major impact on the global crypto market.

El Salvador: El Salvador adopted Bitcoin as legal tender in 2021, launching the “Chivo” wallet to promote adoption. The move is closely watched internationally, though opinions differ on its impact.

Other Countries:

• Singapore: Encourages innovation with prudent regulation
• Switzerland: “Crypto Valley,” highly friendly to crypto businesses
• India: Regulatory stance remains unclear
• Russia: Recently shifting toward partial acceptance

Regulatory priorities vary—consumer protection, financial stability, innovation, and tax revenue all play roles. International regulatory harmonization is likely to become more important in the years ahead.

Web3, DeFi, and New Frontiers

Cryptocurrency technology is evolving beyond payments and investment to underpin a new digital economy. Blockchain applications are expanding rapidly across industries.

Web3: Web3 aims to shift the internet from centralized (Web2) to decentralized, restoring data ownership to users and enabling new types of decentralized services. Web3 emphasizes privacy, security, and token-driven economies.

Key Web3 features:

• User data ownership
• Decentralized services
• New economic models via tokens
• Improved privacy and security

DeFi (Decentralized Finance): DeFi delivers financial services like lending, trading, and insurance without intermediaries. Powered by smart contracts, DeFi is transparent, global, and accessible to anyone.

Major DeFi services include:

• Decentralized exchanges (DEXs)
• Lending and borrowing platforms
• Staking for rewards
• Yield farming
• Decentralized insurance

DeFi has grown rapidly but remains vulnerable to smart contract exploits, making security improvements essential.

NFTs (Non-Fungible Tokens): NFTs prove ownership of unique digital assets—art, music, in-game items, and more. They guarantee authenticity and scarcity.

Key NFT use cases:

• Direct sales and royalties for digital artists
• Music and event tickets as NFTs
• Gaming assets traded as NFTs
• Real estate tokenization
• Membership and access rights management

NFTs have created new revenue models for creators, but the market is still volatile and sustainable business models are under development.

DAOs (Decentralized Autonomous Organizations): DAOs are organizations governed collectively by participants with no central authority. Governance is exercised by token holders, and rules are enforced automatically by smart contracts.

DAO features:

• Transparent, democratic decision-making
• Token-based governance
• Global collaboration
• Automated operations

DAOs are redefining how communities, projects, and even investment funds are organized.

Other Innovations:

• Metaverse economies powered by crypto
• Central bank digital currencies (CBDCs)
• Tokenization of real-world assets
• Layer 2 solutions for blockchain scalability

These technologies have the potential to transform finance, entertainment, real estate, supply chain management, and more. However, technical challenges, regulatory uncertainty, and user experience improvements remain ongoing priorities.

Summary

Cryptocurrencies are innovative, blockchain-based digital assets with features fundamentally different from traditional financial systems. They offer cross-border payments, round-the-clock trading, and decentralized operation—but also present risks like volatility, security threats, regulatory changes, and fraud.

The crypto market has grown rapidly, with institutional investment and ETF approvals helping to establish its place in global finance. Regulatory frameworks are evolving, with a focus on user protection and market integrity.

Crypto technology is moving beyond payments and investments to form the backbone of Web3, DeFi, NFTs, DAOs, and the broader digital economy. These innovations have the potential to reshape industries and society itself.

When considering crypto investment or usage, it’s critical to understand how the technology and markets work, and to act responsibly. Keep these best practices in mind:

For Investing and Use:

• Invest only with surplus funds
• Diversify—don’t concentrate on a single asset
• Maintain a long-term perspective
• Continue learning and stay updated
• Be vigilant against fraud and scams

Security:

• Always use two-factor authentication
• Store private keys and recovery phrases safely
• Choose reputable platforms
• Store large amounts of crypto offline

Compliance:

• Understand and follow local laws and regulations
• Report taxes accurately
• Use registered, legitimate service providers

Cryptocurrencies are a new and evolving asset class with the power to disrupt traditional finance, but they also bring new risks. Approach this technology with knowledge and caution.

As regulations mature and technical hurdles are solved, cryptocurrencies are expected to become safer and more accessible. The application of blockchain technology will likely expand, transforming how we live and work.

The crypto world is still in its early stages, with major changes ahead. Understanding and adapting to these changes is essential for success in the digital age.

FAQ

What are cryptocurrencies? How are they different from traditional currencies?

Cryptocurrencies are digital assets managed via blockchain technology. Unlike traditional currencies, they are not issued by central banks and are maintained by decentralized networks. Transactions are transparent, fast, and can cross borders seamlessly.

How do cryptocurrencies work? What role does blockchain technology play?

Cryptocurrencies are decentralized assets managed by blockchain, which records transactions in linked blocks to ensure transparency and security. This allows for validation and 24/7 trading without a central authority.

What are the benefits, drawbacks, and risks of buying and holding cryptocurrencies?

Benefits include 24/7 trading, easy global transfers, the potential for short-term gains, and blockchain-backed reliability. Drawbacks include risks of hacking and fraud, high volatility, and less favorable tax treatment in some jurisdictions.

How do Bitcoin and altcoins differ?

Bitcoin is the original cryptocurrency, designed primarily as “digital gold” for value storage, with the largest market cap and relative stability. Altcoins refer to all other cryptocurrencies, many of which offer advanced features like smart contracts and higher growth potential, but also greater volatility and risk. Learn more about Bitcoin’s history.

What are the safest ways to store cryptocurrencies?

Hardware wallets and cold storage (offline wallets) are the most secure options. By keeping private keys offline, you minimize security risks. Two-factor authentication is also strongly recommended.

How can cryptocurrencies be used in everyday life?

Cryptocurrencies can be used for online shopping, international remittances, purchasing services, or as investment assets. They also offer a new alternative for digital payments.

What factors drive cryptocurrency price changes?

Cryptocurrency prices fluctuate based on supply and demand, market sentiment, changes in regulation, technological developments, and especially trading volume and investor psychology.

What should beginners know before investing in cryptocurrency?

Start with surplus funds and small amounts. Prioritize strong security—use complex passwords and two-factor authentication. Be wary of suspicious offers, and always make trades based on calm, rational judgment.