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Bitcoin’s reputation badly hit in Japan

While different countries took different stance on bitcoin, Japan dealt with it quite differently. Last year in March, Japan ruled the digital currency would not be officially treated as a bond or a currency. Moreover, any company that sells bitcoin would be charged 8 percent "Consumption Tax", while individuals who trade bitcoins would not be so taxed.

In a more surprising development, Japan allowed the Bitcoin community to form a self-regulatory authority, called Japan Authority of Digital Assets (JADA), supported by Liberal Democratic Party of Japan (LDP)'s Information Technology committee.

However, the perception about bitcoin is undergoing a major change in the country due to the rising instances of fraud cases attached to it.

The biggest shock came when Mt Gox, bitcoin's biggest and most important exchange suddenly disappeared. Last week, police re-arrested Mark Karpeles, the CEO of the failed bitcoin exchange Mt Gox, suspecting he misappropriated ¥321m ($2.6m) of customer deposits into other personal projects. He was arrested earlier on August 1 over allegations that he had manipulated data to artificially create nearly $1 million worth of Bitcoin.

Other than Mt Gox, several other fraud cases like Mycoin, Silk Road, GAW Miners etc. have shaken the bitcoin community time and again.

As international calls grow for tightening control of cybermoney due to the risk of their abuse for money laundering and terrorist financing, the Japanese government is considering the legal regulation of virtual currencies such as bitcoin.

According to Japantimes, Finance Minister Taro Aso said the government would consider new regulations on virtual currencies such as the introduction of a registration or license system for operators of cryptocurrency exchanges. The Finance Ministry, the Financial Services Agency and the National Police Agency are expected to work with other relevant authorities to amend the anti-money laundering law and possibly the law on transaction in financial products, with a view to submitting related bills to the regular Diet session next year.

Japan's government is exploring new regulations on virtual currencies in response to a report in June by the Financial Action Task Force (FATF), entitled, "Guidance for a risk-based approach to virtual currencies" that recommended all exchanges be registered and licensed so that they would be subject to the same kinds of scrutiny as other financial services and money transfer businesses, and urged governments to require operators of cryptocurrency exchanges to confirm the identity of clients, keep digital records of transactions and report any suspicious transactions to authorities, the report said.

As some countries have started imposing regulations on virtual currencies, the Japanese government will need to coordinate its planned regulations with other countries' moves. These regulations should not only aim at preventing the misuse of the digital currency transactions for money laundering and criminal purposes, but also to protect the interests of cryptocurrency users.

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