Japan may become the first country to certify Bitcoin as “legal tender.” The governing Liberal Democratic Party plans to submit legislation reclassifying virtual currencies, which are currently considered commodities in Japan and the United States, to Japan’s Parliament by June. The new designation would likely bring government controls to the often-shady world of virtual money, opening the door to certified exchanges as well as taxation for popular currencies like Bitcoin, Dogecoin, and Litecoin.
“There is a long way to go,” Tomonori Kanda, an official in the financial affairs section at the party’s headquarters, told The Guardian. “But we have discussed reform and believe it is the right way to go.”
The new proposal would set virtual currencies “a medium of exchange, meaning that they can be used to purchase goods and services,” according to Japanese news outlet Nikkei. “They are now recognized as objects but are not treated on a par with their more established counterparts.”
Exactly what it would mean to have virtual currencies “fulfilling the functions of currency” remains unclear. The legislation would require virtual currencies be available for “purchases or trades with an unspecified partner,” suggesting exchanges would have to register with the government. Major regulatory action could bring stability to Bitcoin markets, which have fallen in value since their height in early 2014. But government oversight would also undermine some of the appeal of these currencies and even doom many of the most prominent reasons to use them.
Japan’s interest in stabilizing virtual currencies likely relates to the collapse of Mt. Gox, then the world’s largest Bitcoin exchange, in 2014. Mark Karpelés, the founder of the exchange, remains in the custody of Japanese authorities after allegedly embezzling a lot of money from the service, which was based in Japan. The collapse initiated a broader discussion in Japan about regulating virtual currencies, and the new proposal appears to be the culmination of this work.
Financial Services Agency members have previously spoken about the necessity of government involvement with blockchain currencies. That vision will apparently be realized sooner rather than later.