Reasons Why Bitcoin Use Will Likely Not Spread in Japan

2017/12/01

News about Bitcoin is increasing, and public attention is rising. While venture companies involved in cryptocurrencies like Bitcoin seem to be emerging, I believe the possibility of Bitcoin spreading in Japan as a substitute for currency is extremely low.

As the name suggests, Bitcoin can be used like a currency. However, it is not a currency guaranteed by a government or central bank like the yen or the dollar. A country establishes legal tender, and that currency possesses the "right to be used as a means of payment." The yen, or Bank of Japan notes, is stipulated by the Bank of Japan Act to circulate without limit as legal tender,

and possesses legal tender power. Settlement using money granted legal tender power is recognized as final settlement to the extent of the value expressed at face value, and the receiving party cannot refuse it. In other words, Bank of Japan notes can be used without restriction within Japan. Conversely, for items without legal tender power, settlement can be refused.

The major difference between the yen, Japan's currency, and cryptocurrencies like Bitcoin is the presence or absence of this legal tender power. Furthermore, currencies protected by legal tender power have guaranteed exchangeability. In other words, liquidity is guaranteed. In contrast, cryptocurrencies like Bitcoin have no such guarantee of exchangeability.

Bitcoin's existence is backed by mechanisms like mining and blockchain, but its value is not guaranteed by a country or similar entity. Conversely, there is a need for Bitcoin as a currency substitute in cases where a country's creditworthiness is problematic, in countries where currency value has plummeted due to hyperinflation, or in countries with significant restrictions on taking currency out. In that sense, it has aspects similar to gold or the US dollar. The US dollar can be used for transactions with countries worldwide. Bitcoin maintains such advantages.

Remitting money overseas incurs considerable fees and is cumbersome. Bitcoin is convenient in that regard, but it seems that Japanese megabanks and others will conduct experiments with electronic currencies using blockchain technology for that purpose. However, these megabank electronic currencies differ from Bitcoin in that they are linked to the yen. When using a megabank's electronic currency domestically, there is almost no price fluctuation risk, just like with the yen.

The Bank of Japan (BOJ) is the one maintaining the value of the yen. The purpose of the BOJ, which issues BOJ notes, is to maintain the value of the currency. Article 2 of the Bank of Japan Act states, "The Bank of Japan's currency and monetary control shall be aimed at achieving price stability, thereby contributing to the sound development of the national economy." This is intended to avoid a sharp drop in monetary value due to extreme inflation or other factors.

In Japan, the BOJ maintains the value of the yen not only through monetary policy but also through the development of infrastructure. When Japanese citizens use the yen domestically, the BOJ makes adjustments to ensure its value does not fluctuate significantly as much as possible.

In contrast, Bitcoin has no organization to back such credit. Furthermore, because Bitcoin's market size is small, its price fluctuates greatly due to speculative movements. As long as one uses the yen domestically, one rarely feels fluctuations in its value, but with cryptocurrencies like Bitcoin, the currency value can differ greatly between today and yesterday, making it inconvenient in countries where currency value is stable.

If Bitcoin, which is not protected by law, and the yen, which is legal tender, were to have similar utility value, it would likely be a situation where Japanese citizens no longer comply with the law or where trust in the country that enacts the laws has declined extremely.

It is also necessary to note that fees are incurred when using cryptocurrencies like Bitcoin. Naturally, if you try to use a 10,000 yen bill, no fee is required at that time.

At present, there is no incentive for Japanese citizens to use cryptocurrencies like Bitcoin as currency, and there is no purpose for use other than as a means for some overseas remittances. For this reason, the purpose of Bitcoin transactions at present can be said to be primarily speculative, given the magnitude of its price movements. However, if trust in the yen were to collapse significantly for some reason, the need for cryptocurrencies like Bitcoin might increase.

Applications are expected for the mechanisms like blockchain that back Bitcoin. It is expected that using this mechanism will make it easy to perform overseas remittances and the like in the future. Applications to real estate registration also seem to be expected. Rather than as a currency, it seems we should pay attention to the application of the technology behind cryptocurrencies like Bitcoin.

*Affiliations and titles are as of the time of publication.