Japan aims to become crypto island nation

Written by

Despite its embrace of advanced technology, Japan is a country that likes cash, settling 80% of transactions with paper bills and metal coins.  It is not uncommon to find restaurants and bars in the capital city of Tokyo - the world's largest metropolitan area - that do not accept any other form of payment. If the shop is small and family owned, don't expect to pay with a credit card.

At first blush then, Japan might not seem poised for a cryptocurrency revolution. If the population has never embraced cashless payments, why start now? Well, that's just it. Credit cards have been around in Japan for decades, but they haven't achieved strong penetration.

Yet if the incentives are strong, people might just be persuaded to adopt virtual currency. It's a question of switching over from cash, rather than switching from one cashless system to another (and that can be tricky, if users are happy with the legacy system). Why should I use WeChat Wallet, Apple Pay or Bitcoin if my credit card has no foreign transaction fees and helps me accumulate free hotel nights or airline miles?

Meanwhile, the Japanese population is technologically literate, fond of crypto trading and the country's regulators have a strong understanding of blockchain. Will Japan skip over legacy electronic payment systems - and go straight to the blockchain?

It's certainly possible. Some independent retailers in Japan have long accepted Bitcoin to attract tech-literate customers and distinguish themselves from the big chains. Japan is the only major country in the world that recognizes virtual currency as legal tender. Prime Minister Shinzo Abe is aiming for 40% cashless payments by 2025. One reason for that goal is to reduce the financial burden of carting so much cash around - which adds up to about $18 billion annually, according to a Jan. 22 report in MIT Technology Review. The government will offer tax breaks and subsidies to companies that go cashless.

In the short term, the Japanese government wants the country better equipped for the 2020 Olympics, when hundreds of thousands of foreign visitors will arrive in Tokyo. Mitsubishi UFJ Financial Group (MUFG), the biggest Japanese bank, is working with the U.S. internet firm Akamai to roll out a blockchain-based consumer payment network ahead of the Olympics. The companies say that the system could eventually execute 10 million transactions per second, which would make it the world's fastest consumer payment system.