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Japan’s separate rules for crypto could be the answer

; London (Jun 7, 2018).

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Coinbase is finally entering the Japanese cryptocurrency market, but history suggests the move will be anything but easy

Coinbase has entered the Japanese cryptocurrency market after a six-year wait, one of only a handful of companies allowed to operate in the country.

The move comes at the same time the country’s regulator, the Japanese Financial Services Authority (JFSA), is keen to strengthen investor protection after the record-breaking hack on cryptocurrency exchange Coincheck in January and Mt. Gox’s bankruptcy in 2014. Tokyo-based exchange Mt. Gox filed for bankruptcy after almost 750,000 of its customers bitcoins, and 100,000 of the company’s own, were stolen in an online attack. Four years later, hackers made off with nearly $500 million in digital tokens from Coincheck.

George Morris, partner at Simmons & Simmons, said the Coincheck hack brings into focus whether regulation can fix problems. “Exchanges that operate under less regulation have actually not had problems of this kind,” he said.

Cracking down

The JFSA banned private or anonymous cryptocurrencies, following the Coincheck hack – the biggest yet for cryptocurrencies. Unlike bitcoin which is pseudonymous, not completely anonymous, cryptocurrencies like Zcash and Monero cannot be tracked by law enforcement. While there is no market for these private coins in the UK, because they are widely regarded as an unreliable investment, Japan seems to place more importance on these.

The changes will not only have a big impact on exchange but also on investors. The JFSA also introduced the concept of cold storage, storing coins in offline wallets. This means that to conduct a trade, coins need to be transferred first into a hot wallet – one that is online – and only then can a transaction can take place. This increases transaction time and reduces liquidity in a market that regards its biggest selling points as...