Bitcoin in Japan: attractions and risks

Most people would know by now that Bitcoin is an online "virtual currency" (cryptocurrency), but not many people have actually bought Bitcoins or used them in a transaction.

But the number of shops and websites which accept payment in Bitcoins is on the increase worldwide. The price of Bitcoin in Japan was 30,000 yen in spring 2015, and is now around 103,000 yen. According to Bitcoin’s Japanese information site, there are now around 130 shops in Japan which accept Bitcoin, including mail-order sales. Considering Bitcoin has been in the market for almost a decade now, the takeup rate is still pretty low. 

The question remains: can Bitcoin be trusted?

There are plenty of familiar excuses given for not buying Bitcoins or not wanting to try it out. “I feel slightly uneasy about it”, or “How safe is it?” A quick search on its security will lead you to the issue of Mt. Gox. Mt. Gox was the most active Bitcoin exchange globally at one point. However, the site was the victim of a number of hacking attacks, and its CEO was charged with embezzlement and data manipulation. These incidents gave Mt. Gox a bad image in Japan.

However, this is an isolated case directly correlated to the security of an exchange rather than the currency itself, and not of other Bitcoin exchanges in general. In a number of countries, in fact, Bitcoin has full government approval and confidence in the currency is on the rise again. Coinbase, a major US exchange where Bitcoins can be traded, has received official government approval in 24 states in the US, including New York and California.

Bitcoin’s attractions

Source: Pixabay

The benefits of using Bitcoin include low transaction fees and transparency. In terms of commission, when you try to remit money abroad (say 100,000 yen) from a bank in Japan, the commission is usually a few thousand yen. If you remit cash to emerging market countries, the fee is typically 20-40% of the remittance amount. However, if you remit using Bitcoin, commission is virtually free or only a few yen if any fees are imposed at all.

In terms of transparency, Bitcoin works without a central repository or single administrator. Transactions are recorded in the Blockchain (digital ledger in which transactions made in Bitcoins or other cryptocurrencies are recorded chronologically and publicly). The full transaction history for the currency since the start of 2009 is publicly available on the internet. 

The system is highly transparent so cannot be tampered with or altered. In this sense, it is reliable. Settlement and remittance via Bitcoin is instantaneous, so there is no limit to the amount of money that can be sent. Although it depends on the transaction partner, it can be used anywhere in the world, with no need to actually exchange money to make a transaction.

Using Bitcoin is remarkably easy

Source: Pixabay

Let's take a look at transactions with Bitcoin. Using Bitcoin is not difficult. All you have to do is create an account or open an e-wallet. You can purchase Bitcoins starting from 100 yen (or whichever currency is applicable to your country) upwards. Once you decide which exchange you are using, you authenticate the account with your email address or phone number. You pay in whatever currency you wish to purchase Bitcoins.

The normal purchase unit is called a BTC. The rate as of the beginning of December 2016 was about 1 BTC = 85,000 yen. The hard part is choosing an exchange. Even though Bitcoin itself is transparent and secure, incidents like Mt. Gox can happen if the exchanges themselves are unreliable or poorly managed.

One important point to keep in mind is whether the Bitcoin exchange you use segregates customer assets (manages these assets separately from the company’s own assets). When we invest in stocks, we deposit money in an account with a brokerage, but these funds are maintained separately from the brokerage’s own funds. So even if the brokerage company fails, the money in the account is ring-fenced. Also, the investing process for stocks is made easier by the different ways in which you can place an order: market orders, limit orders, stop loss and so on.

But Bitcoin exchanges tend not to be structured like this. Few exchanges have management systems in place which match the standards and levels of securities businesses. Bitpoint, however, does have a policy of segregating and ring-fencing client funds. Were the exchange to go bankrupt, depositary receipts would be returned via the beneficiary owner’s representative attorney.  

Another cryptocurrency project is Ethereum. You can buy Ethereum 24 hours a day, 7 days a week (excluding 16: 00-16:10 on transaction days). There is no holding limit, and transaction size is not limited by the amount you have on deposit. The transaction delivery date is the next business day after the contract date.

In Japan, Bitcoin is still in its very early stages, but the number of sites and outlets which use and accept payment in Bitcoin are on the rise as more people are willing to accept it as a currency to transact in. As a new form of currency, Bitcoin is not tied to any particular state or country or bank. It certainly warrants careful consideration before including it in any investment portfolio.

(By ZUU Japan)

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