Cryptocurrencies and blockchain technology are parts of a rapidly expanding space hoovering up significant amounts of investment, talent and hopeful speculation.
For those who may be scratching their heads: in short, cryptocurrency is a secure digital currency. It is not backed by any government, meaning that its value lies in the people’s trust in using it. When you trade or make a transaction with cryptocurrency, data is protected to ensure the transaction isn’t faked. That secure information is stored in a register or folder called a “blockchain.” However, the data within a blockchain cannot be deleted. You can only add to the “chain” of blocks via transactions.
In the hype period towards the end of 2017, Bitcoin came close to hitting US$20,000 (¥2,283,560). As of autumn 2021, the price is way up on those 2017 highs and indicators are bullish (according to some seasoned observers, although not everyone agrees). The cycle is said to be a pattern that repeats every four years, heating up in the fourth quarter of that cycle’s final fiscal year. We’ll see in the next few months whether history repeats or at least rhymes.
If you’re not already invested, you may be wondering whether to dip a toe into the world of cryptocurrency. So let’s consider the fundamentals and how a foreign resident in Japan can get on board.
- Access to cryptocurrency in Japan
- Cyptocurrency exchangess in Japan
- Cryptocurrency taxes in Japan
- Cryptocurrency categories
- Using a wallet
- Attitudes in Japan
To access cryptocurrencies in Japan (or elsewhere) you’ll need to use an exchange. The biggest Japanese cryptocurrency exchange is BitFlyer. There’s also Coincheck, based in Tokyo. The largest exchange in the United States, Coinbase, launched in Japan in 2021 in collaboration with Mitsubishi UFJ.
However, Coinbase users based in Japan reported in August being notified that in order to continue using Coinbase, it was necessary to fulfill certain criteria, including needing to be a Japanese national and not taxable in the U.S.
There is some confusion around this issue, as not all users have reported the same problems. At this point, it’s worth trying, but you may have to pursue the other options.
Be aware that all exchanges have their own procedures and rules. American citizens, in particular, can have problems caused by regulatory complications.
If you are rejected at one exchange, do not assume that will be the case everywhere. Instead, apply to any you can. Moreover, if you don’t make it through an online identity confirmation, then check whether there’s a postal option instead.
While your mileage may vary depending on your nationality, your visa status and even on specifics such as whether you have a Japanese driver’s license, these are the cryptocurrency exchanges foreigners in Japan tend to have the most luck with:
* Among other rules, users must be Japanese nationals and must not be taxable in the U.S.
Should you want to cash out, you can sell your cryptocurrency for yen (or another legal tender) on your registered exchange and withdraw that to your debit or credit card as well as to your bank account.
In Japan, cryptocurrency gains are taxed differently from stock profits. Cryptocurrency mining, lending and trading are all grouped together and classified as “miscellaneous income.”
In the highest tax bracket, which would mean earning ¥40 million or above per year, you’d be taxed 45% on your cryptocurrency gains (not including your 10% local inhabitants’ tax). That’s quite a hit, but taxes will be significantly lower for the vast majority of people.
For more information about cryptocurrency taxes in Japan, read this detailed post by TokenTax.
For the uninitiated, here is a quick rundown of popular cryptocurrencies and innovations.
Launched in 2009, Bitcoin was created by an unknown person or persons known pseudonymously as Satoshi Nakamoto. There will only ever be 21 million bitcoins in existence, although each unit is divisible into 100 million sats (Satoshis, after its creator.)
The No. 2 cryptocurrency by both market cap and adoption. Active since 2015, Ethereum created a blockchain-based platform on which decentralized applications can be developed. The fuel that powers it all is Ether (ETH), the asset actually bought and sold.
Some people say ETH is still an altcoin, despite its size. And yes, strictly, altcoin refers to cryptocurrencies that came after bitcoin. There are over 12,000 altcoins, including established, innovative systems worthy of investment, and some riskier hidden gems if you look closely.
Essentially, these are joke projects, the most famous of which are named after dogs. Except they function, are traded, and build online communities hunting out major gains. If informed gambling is your thing, then feel free to throw some yen at a memecoin.
These are tokens whose value is pegged to a reference asset. One of the most commonly used is Tether, which consistently retains a value of US$1. They are useful for trading quickly from crypto to a reliable fiat equivalent, without cashing out of the crypto ecosystem.
Although there is likely much more to come (keep an eye on gaming), the primary use case for NFTs (non-fungible tokens) has been, so far, for artists to create work stored on a blockchain, the ownership of which can then be bought and sold. This is where crypto meets curation, and it’s a vibrant, financially explosive marketplace.
This means decentralized finance. A financial system with no central authorities or chains of intermediaries, DeFi enables peer-to-peer, permissionless finance. It’s a level playing field on which you can lend, borrow, and trade and it runs on smart contracts.
Unless you’re actively trading, it’s a good idea to take your cryptocurrency off the exchange and store it in a digital cryptocurrency wallet, giving you a better level of control and security. Cryptocurrency wallets secure your assets off of vulnerable trading platforms. You create a private passcode or key that grants you alone access and, in theory, will allow you to make transactions and safely move assets from the wallet to an exchange—regardless if you’re based in Japan or not.
You can only make transactions with your private passcode. And when you create a wallet, a seed phrase is generated. This is like a series of passwords and secures ownership of your digital assets, so you should write it down and never lose it.
A cryptocurrency wallet can be an online app such as BitFler’s wallet app or Coinbase Wallet. However, you can take your assets completely offline using a hardware wallet, such as a USB stick. Trezor and Ledger make the most popular tried and tested hardware wallets.
Cryptocurrency trading in Japan continues to grow. In 2021, trading volume exceeded the previous year’s levels.
Types of wallets include:
- Paper wallet: Your passcode is written on literal paper and stored in a secured location. Since your crypto assets are offline, you can’t use them until you enter the passcode on whichever platform you’re using and bring them back on the internet.
- Online wallet/hot wallet: Keys are stored in apps and other software. You’ll want to use two-step verification. While online wallets make transactions easy and convenient, they are the most vulnerable to hackers.
- Hardware wallet/cold storage: Keys are stored on a USB stick device. The USB is connected to your computer only when you need to access your crypto assets.
However, when you’re planning to withdraw fiat money (currency that is not backed by a country’s government) to your bank account, you’ll need to transfer your cryptocurrency back to the exchange linked to that account.Some online wallets we recommend are:
- Exodus: An excellent wallet for beginners. It’s free, extremely user-friendly and supports a vast range of cryptocurrencies. However, it’s an online wallet, meaning it can never be guaranteed 100% security. The in-wallet exchange service also charges high fees.
- Electrum: Specifically for Bitcoin. Although another hot wallet, it has a higher level of security due to two separate levels of encryption.
- MetaMask: For if you’re planning to get into DeFi, NFTs or Etherum.
However, while these apps are great, I strongly recommend cold storage if you’re planning to store large amounts of cryptocurrency.
It remains to be seen how the adoption of cryptocurrencies will progress in Japan. There is still a looming aging population, and many people continue to rely on cash transactions for even relatively large payments.
However, there is a widespread use of cashless payments for transport and small purchases. You can see this at train stations and convenience stores across Japan every day. Furthermore, in 2021, the Rakuten Group announced that customers could use some cryptocurrencies to charge their Rakuten Pay and Rakuten Point digital payment wallets.
Moreover, cryptocurrency trading in Japan continues to grow. In 2021, trading volume exceeded the previous year’s levels. The U.S. also saw the first bitcoin futures exchange-traded fund launch, indicating a global trend towards mainstream adoption.
At this point, cryptocurrencies and blockchain are still emerging technologies, and investment decisions should be based on a broader view of the direction in which economies and behaviors are heading.
The case in favor of cryptocurrency states that we’re not witnessing a bubble: we’re part of an adoption curve.
What do you think? Is this all still just a digital pipedream? Have you bought cryptocurrency in Japan? What platform have you had the most luck with it? Let us know in the comments!