Cryptocurrnecy regulation in Japan and India takes a step in the right direction

On Wednesday, the Japan Financial Services Agency (FSA) announced that the cryptocurrency industry would be given a self-regulatory approach. This essentially means that the Japan Virtual Currency Exchange Association (JVCEA) is able to correctly discipline exchanges in the event of a policy violation. An official at the FSA went on to say that because cryptocurrency is such a fast-moving space that industry experts would be more effective at proper regulation.

This is great timing for Japan as there have been several recent incidents of Japanese exchange hacks and fraud.

In September, Japanese exchange Zaif had a security breach which led to 5,966 BTC and some other altcoins totaling over $59 million to be stolen from the exchange. While the funds were a mix of user and company holdings, it’s clear more steps need to be taken to prevent events like this from happening.

After the hack, Zaif arranged a deal withFisco Digital Asset group where the lost user funds(around $44.5 million) would be covered. In exchange for the loan, the digital asset group would be given a majority stake in the company.

In January, Japanese exchange Coincheck (#88 exchange by trade volume) was hacked for a whopping $530 million. It’s not surprising that citizens of Japan and all of the world are losing faith in the cryptocurrency industry.

To help combat these events, the earlier mentioned JVCEA is putting out regulations making it so Japanese exchanges can only store 10%-20% of users funds in hot wallets. The rest must be stored via more secure cold storage methods.

This percentage is still somewhat high and would be a pretty nice payday for any potential hackers. American exchange Coinbase only keeps 2% of all users funds in online wallets. In addition to keeping a large number of funds offline, Coinbase is also privately insured by Lloyds of London. In the event of any security breach or hack, the exchange would be covered.

Regulating cryptocurrency exchanges is a difficult problem as the whole industry is pushing towards decentralization. In a perfect world, cryptocurrency holders would all be responsible for holding their own funds.

Many decentralized exchanges (DEX’s) allow users to trade cryptocurrency from the comfort of their own wallet. These exchanges turn out to not be so decentralized and have even had to block service to certain states. Just recently, “decentralized exchange” IDEX blocked all New York residents from trading on the exchange. This was obviously not IDEXs choice, but due to regulations around cryptocurrency in the United States.

Japan and the United States aren’t the only countries taking a stance on cryptocurrency. Indian officials announced recently that they are considering a ban on private cryptocurrencies. While no exact currencies are named, this most likely implies coins like Monero and Zcash. However, later in the press release, the Indian government stated that they do want to encourage the use of distributed ledger technology.

It will be interesting to see how the increasing amount of regulations will affect the price of cryptocurrencies. The fact that governments haven’t completely ruled out blockchain technology is a great sign.