Payment Related

[Cryptocurrency assets] Reasons why it is expected to be money in the future and why it is not so popular

Cryptocurrency assets such as Bitcoin are said to be the money of the future due to the innovation that makes full use of IT and the fairness that can be used according to the universal standard. The Bank of Japan is working on research on digital currencies that are closely related to crypto assets (* 1).

However, although it has been a long time since crypto assets have been talked about, many people may feel that they have permeated their daily lives.

In this article, we will discuss the advantages and serious challenges of crypto assets.


The value of crypto assets recognized by the government and even the Bank of Japan

Cryptocurrencies (then called cryptocurrencies) were first enacted by the 2016 amendment of the Funds Settlement Act. Under the law, companies that provide services for exchanging yen (currency) for crypto assets must be registered with the Financial Services Agency as “cryptographic asset exchange companies”.

This means that the country has tightened regulations on the crypto asset business, and that crypto assets have become a major influence on the country’s monetary policy (* 2, 3).



Differences from the digital currencies studied by the Bank of Japan

In order to understand crypto assets correctly, let’s compare it with the digital currency that the Bank of Japan started researching.

Both crypto assets and digital currencies are the same in that they handle payment data on computers connected to the Internet and proceed with financial business. Settlement is to settle debts and debts with money, and if you buy rice balls at a convenience store and pay 100 yen, you will be settled.

Cryptocurrency assets such as Bitcoin and Ethereum are not denominated in legal tender such as yen and dollars. “Fat currency denominated” means “with national backing.”

For example, a 10,000-yen bill can eat 10,000 yen because the Bank of Japan and the Government of Japan guarantee that “a paper called a 10,000-yen bill is worth 10,000 yen.” The fact that crypto assets are not denominated in legal tender means that neither the Bank of Japan nor the Government of Japan backs Bitcoin.

On the other hand, the “Central Bank Digital Currency” researched by the Bank of Japan is denominated in legal tender (* 4). The above can be summarized as follows.

● Cryptocurrencies and digital currencies are the same in that they are digitized currencies, that is, data worth money.
● Central banks and governments guarantee the value of central bank digital currencies, but crypto assets are not.

However, the lack of guarantees from the Bank of Japan and the Government of Japan does not reduce the value of crypto assets. Rather, it is of great value that crypto assets have something similar to the system studied by the Bank of Japan.


The power to make you think that it will be the money of the future

Cryptocurrency is said to be future-oriented because it uses a computer technology called blockchain.

Smartphone payments, e-commerce, and credit cards use digital technology and IT, but blockchain is not. Systems such as smartphone payments are also quite sophisticated and quite excellent, but the blockchain of crypto assets is a different dimension.

For example, if you charge 10,000 yen for electronic money, you can buy 10,000 yen. This can be thought of as simply rewriting the transaction of shopping for 10,000 yen with a 10,000 yen bill into digital data. With e-commerce, 10,000 yen bills always move when you charge or shop.

However, the 10,000 yen bill does not appear on the blockchain. The power of blockchain is that it enables finance and settlement.

The 10,000 yen bill does not move on the blockchain

Cryptocurrency also has a unit of currency. For example, in the case of Bitcoin, BTC (read as Bitcoin) is the currency unit. However, there are no 1BTC bills or coins in Bitcoin. All that exists is the invisible data in your computer.

For example, assuming 1 BTC is worth 3 million yen, you can buy a 3 million yen car for 1 BTC. At this time, there are two things that happen between the purchaser and the car dealer.

● 1 BTC of data in the purchaser’s computer is transferred to the
car dealer’s computer
● 1 BTC of data is transferred to the car dealer’s computer from the purchaser’s computer

At this time, none of the 10,000 yen bills issued by the Bank of Japan will move.

However, since data can be rewritten on a normal computer, there remains anxiety that “1 BTC of the purchaser really moved to the car dealership”. If you buy a car in yen, 300 10,000-yen bills, which are physical objects, will move from the purchaser to the car dealer, so there is no such anxiety.

Therefore, blockchain is used for crypto assets. With blockchain, you can be assured that “one BTC of the buyer really moved to the car dealership”.

Data in transaction ledger is distributed and saved in blocks

Blockchain is a new computer system.

All transactions of crypto assets are recorded in a “transaction ledger” on your computer. However, since all transactions are written to the transaction ledger, the data is huge and cannot be stored on one computer.

Therefore, crypto assets store transaction ledger data in multiple blocks and store them on multiple computers. Multiple computers are connected via the Internet. Then, multiple blocks are connected like a chain.

By doing this, you can create a transaction ledger of crypto assets on a small computer that you usually use without having to prepare a huge computer. This system is a blockchain.

The great thing about blockchain is that it doesn’t require a huge computer. When you need a huge computer, you have to create an organization to manage it. With blockchain, you don’t need an organization to manage it.

If a part of the transaction details is illegally rewritten in one block (computer) in the transaction ledger, the block connected to it will immediately detect the change. With blockchain, you can monitor transactions unattended.

Therefore, if 1 BTC of the person who bought the car moves to the car dealer, the blockchain can guarantee that “the 1 BTC of the purchaser really moved to the car dealer”.

Difficult to use as currency because it is bought and sold for speculative purposes

Blockchain is considered a breakthrough invention in the computer world. Cryptocurrency assets such as Bitcoin are already in operation all over the world because of the excellent blockchain function.

However, crypto assets are not pervasive in everyday life for their high profile. The reason why crypto assets are not easily available to the general public is that there is a problem with the formation of crypto assets.

Need to be prepared to lose everything?

The biggest feature of crypto assets is that there is no government or central bank backing. Therefore, crypto assets can be used by people all over the world with one rule without being bound by the frame of the country or region.

Considering that the yen bound by the frame of Japan can only be used in Japan, you can see the high degree of freedom of crypto assets.

However, the lack of government and central bank backing is hampering the spread of crypto assets. In 2021, the Monetary Policy Authority, which is responsible for UK monetary policy, warned about investing in crypto assets, saying, “We must be prepared to lose all our funds” (* 5).

Bitcoin, the most famous crypto asset, was initially worth only about 1,000 yen per BTC, but in 2021 it soared to 6.5 million yen per BTC.

Due to these extreme movements, more and more people think that buying and storing Bitcoin in currencies such as yen and dollars will increase the value, and crypto assets are being invested. The concern of the UK Financial Conduct Authority is that investments in crypto assets are not covered by the government’s investor protection scheme.

Some investments are protected by investor protection schemes such as the government. Japan also has an investor protection system, for example, even if a bank goes bankrupt, depositors’ deposits can be protected up to 10 million yen. In addition, even in the case of stock investment, a mechanism has been created to prevent investors from making a “big loss”, and national institutions monitor fraudulent activities.

However, crypto assets do not protect investors because those who agree with the idea of ​​crypto assets are only exchanging data “on their own”.


Who determines the value of crypto assets

The value of crypto assets is determined by those who use the crypto asset mechanism. The more people buy crypto assets, the higher the value, and the more people sell crypto assets, the lower the value.

The value of fiat currencies such as the yen and the dollar is determined by the way of thinking of the government and central banks and the economic situation. Adjustments work from different angles, so surges and crashes rarely occur.

However, crypto assets will skyrocket when more people think they are “valued” and will plummet when fewer people think they are “worthless”. That’s why the British Financial Conduct Authority “may lose everything.”

Trouble never ceases

Japanese government agencies are also wary of troubles related to crypto assets. In 2017, the Financial Services Agency, Consumer Affairs Agency, and National Police Agency jointly called for “Please be careful about troubles related to crypto assets!” (* 6).

He points out that there are the following problems with cryptocurrency assets.

  • I am in trouble because I cannot withdraw the money deposited at the crypto asset exchange.
  • I was invited to multi-transaction of crypto assets and participated in a loan transaction from consumer finance, but the trader went bankrupt and only the debt remained.
  • When I made a contract to invest in a crypto asset issuing business that says “it will increase 2.5 times in 4 months”, there is no dividend, no refund is given even if the contract is canceled, and the business operator cannot be contacted.
  • Cryptocurrency assets can fluctuate in price and can plummet and lose money
    Increasing consultations on crypto assets and fraudulent coins

Please be careful about delicious stories.


Summary-Let’s stay interested

Introduced the light and dark of crypto assets.

Cryptocurrency assets operated using blockchain, a breakthrough technology in computer history, have the potential to become money in the future. On the other hand, crypto assets that have become huge without proper rules and regulations run the risk of causing serious trouble.

Regarding crypto assets, it seems that it is not a good idea to think that it has nothing to do with you and keep it away, or to immerse yourself in “it seems that you can make a lot of money”.

It may be better to stay interested and stay interested.