 So hello and welcome. My name is Fabio Gigi. I'm the chair of the Japan Research Center and it's an honor and pleasure to chair the session for today. I invited Dr Julia Falk who first appeared on my radar as an anthropologist who did research into material culture. She has written very interesting pieces on kimono, on the material quality, on the smell, on how that creates a particular kind of inalienable commodity that can be passed down in particular ways. And so as an anthropologist of Japan, obviously I thought that would be a brilliant topic to continue this lecture theory. Now it turns out that Julia has turned her back on materiality almost entirely and she's now looking at something very exciting and something very new or new at least to me. I hope there's quite a few of you who will be familiar with these new interesting financial instruments. So she is currently a postdoctoral research associate at the King's College's business school working on an ESRC funded project called an ethnographic investigation of crypto assets firms and of course her ethnographic focus has not changed it's still on Japan and the talk today is entitled from early adopter to rigorous regulator the case of cryptocurrency in Japan. Thank you very much over to you. Thank you very much Fabio for that kind introduction. It's a pleasure to be here and to be able to share some of our research with you all and for those of you who might be slightly puzzled by the trajectory of my research in terms of my previous research with the kimono I was also very interested in the kimono as a kind of a specialized market. I was also very much interested as Fabio said in terms of the materiality but it was this focus on specialized markets and specialized economic systems that enabled me to make this transition into the world of cryptocurrency. So without further ado I'll go ahead and share my screen so you can all see my presentation. I'll put it full screen mode and I hope that's all visible and clear for everybody. Great if it's not if something changes do let me know I'll do my best to correct that. So as Fabio currently introduced just now the topic of the talk today is the case of cryptocurrency in Japan and how Japan essentially transitioned from being an early enthusiastic adopter of all things crypto to a very regular regulator that has chosen to do things in quite a specific way when it comes to regulating cryptocurrency that reflects quite an interesting transition. So I'm going to be delving into that today. First of all so this talk is drawn from an ongoing research project at the King's Business School more specifically at the Finwork Futures Research Center and as Fabio just mentioned the project is entitled professional hybridizations and epistemic practices of crypto capital an ethnographic investigation of crypto crypto asset firms. So the project is run by Professor Alexandre Prada and with Dr. Rohan Xu and myself on the team. Dr. Xu in particular looks at cryptocurrency in China and I look at the cryptocurrency landscape in Japan. So in terms of our methodology so for you to have an idea of how we approach what we do you might think that the world of finance the world of cryptocurrency lends itself very much to quantitative investigations the production of statistics and of course you would be right but it also very much lends itself to qualitative investigations. So we're rather than just trying to produce say raw data on rates and you know market volumes and liquidity and so on. We're very much interested in the lived experience of what it means to work in a cryptocurrency firm what it means to be part of a project that is essentially emerging in in the financial landscape and the kinds of professional identities that are forged in that process and also the types of expertise that are being built in this emerging field. So that's really our kind of north star if you will when we approach this project. We're funded by the ESRC very thankful to the ESRC for the funding we receive. As I touched on just now our project is multi-sided which is surprising given that the project is cryptocurrency and this is essentially something of a global project and what's very interesting about it is it looks quite different depending on where you are in the world despite it having this global perspective and that's something that's at the crux of the talk today that I'll be coming back to again and again. We have some partners in Japan who have given us a lot of research support in particular the University of Hitozubashi and Professor Takahira Endo in particular and we've also have partners in the cryptocurrency world in particular the Japan Virtual Currency Exchange Association and the Japan Cryptocurrency Business Association who've been very supportive of our project as well and I'll be talking about them a bit more later on in the talk as well. So a couple of disclaimers first just so you know sort of how we situate our work and of what stage the project is in. So the research project began in 2020. Myself and Dr Shu were recruited onto the project in 2021 and the project is due to conclude in mid 2023 and as you're probably not surprised to find out we've yet to be able to conduct research in Japan due to COVID-19 of course and the associated travel restrictions. As some of you probably know it's currently still quite difficult to get to travel to Japan to get into Japan so we're biding our time and doing some planning for that. I'll talk about that a bit later on in the talk as well. We've done some interviews remotely and we've done some desk research for data as well and we hope to be able to conduct fieldwork in Japan in January, February 2022. So fingers crossed that we're able to do that and we actually get our hands on a little bit more data. So in terms of where this talk is drawn from it's drawn from this preliminary research and this preliminary investigation and it's drawn from the outline of a paper on regulatory frameworks and cryptocurrency exchanges in Japan and the particularities of this system in Japan but it's very much still a work in progress so comments and critiques are very much welcome as a result of this talk. So also in terms of why we are motivated to do this research and why we're motivated specifically to look at Japan it's very topical of course. The current sort of landscape with cryptocurrency something I'm going to mention a bit later obviously seems to be gaining a lot of momentum seems to be growing and it's obviously something that is interesting in terms of how it could potentially transform existing financial infrastructure and the way we understand issues related to money, issues related to value and so on. So very important we believe to have these kind of qualitative perspectives that allow us to see what people are thinking and how they're acting and what they're doing inside of this emerging field and that's why of course we believe in having this qualitative framework rather than pure quantitative analysis and we also currently find that the in terms of academic conversations we hope to be able to produce and contribute to academic conversations in terms of exploring professional the professional identities of people who work in cryptocurrency firms and the types of expertise that they're currently producing in a field that is really quite new and so when it comes to Japan Japan or without giving away too much at the beginning of the talk Japan occupies quite a unique position in the cryptocurrency world so in terms of being able to say more about this and you know explain why Japan is in this position and where they go from here is strategically quite important for the global cryptocurrency perspective. So just a quick overview of the contents of today's talk so we assume when we talk about our project we assume no prior knowledge on the part of our audience in terms of what sort of cryptocurrency is how it works so I'm going to talk you all through a little bit of the basics and it's an interesting position for us to be in as researchers because with any given audience unless we know for sure that this is people who are specialized in blockchain or cryptocurrency we don't know if I for instance I don't know if some of you for example you may have cryptocurrency you may be interested in their NFTs you may have a wallet you may have all sorts of things that are related to cryptocurrency and then there might be those of you for whom cryptocurrency is just something you see in the news and that is something you're curious about but you don't really have any direct experience so to make sure everyone's on the same page what we like to do is just a little bit of a recap on the kind of fundamentals of blockchain and cryptocurrency and I'll also walk you through the current landscape of cryptocurrency in Japan who the most likely user of cryptocurrency in Japan is and explain how the regulatory framework emerged which is in response to a number of high-profile hacks on cryptocurrency exchanges and how regulation developed the potential issues with regulation and what is at school what I find very interesting anthropologically about this reaction is what it tells us about Japanese attitudes to technology and how the Japanese government in particular perceives technology and this type of technological growth and the potential also the potential risks that it presents and then finally I'll tell you about the next steps for our research and where we hope to go from here so I hope that's that's all clear for everyone. First of all blockchain so blockchain and cryptocurrency tend to go together so it's one of those one of those words that may seem a little opaque and a little difficult to understand at first but it's actually a lot simpler than it seems. The best way to think about blockchain particularly if you're not a technical expert is to think of it as a type of database so if you imagine a normal sort of normal inverted commons database you can imagine it a little bit like an excel spreadsheet so you have as data is entered it's logged in sequence and it looks a little bit like that but instead of being like a spreadsheet blockchain is exactly what it sounds like it's a chain of blocks so what happens is instead of when the data comes in instead of being entered into the cells of a spreadsheet it's stored in blocks that are then chained together so if you imagine the data coming in to a block it turns into a fresh block once this block is filled it's then chained on to the previous block which very importantly creates chronological order that's that's quite a key characteristic it's not especially new technology actually it's been around for a while but it's really with cryptocurrency that it's sort of come into come into its own and this is why it's it's sort of come into its own because the main use that's been found for it is as a ledger for transactions so essentially as recording transactions that have occurred with cryptocurrency and at its heart so one of the things that's very what we think very interesting and quite crucial to remember with the inventions of blockchain and cryptocurrency is these are inventions that are their heart technological rather than financial and it was brought about by people who are very technically and technologically minded and that's what makes it interesting when you try to integrate these things into existing financial infrastructures that may not be necessarily so friendly to them and one of the key elements one of the key things that is part of the whole ideal of cryptocurrency is the blockchains are used to build a decentralized system so the idea behind it is that no single person has control over the blockchain and all users have control over the blockchain and I'll explain in the next in the next slide why that is but the other element to remember as well is that on decentralized blockchains nothing can be entered nothing can be altered sorry once the data is entered so what this means is your ledger for transactions is the transactions are recorded permanently and are viewable to anyone so the idea being that you create a lot of transparency by using a blockchain so this has some interesting repercussions however because it means you have transparency but not necessarily privacy because people can see essentially what has happened and how the transaction occurred so this presents as you can imagine some some some problems when you want to try and integrate that for example into existing financial infrastructure as a lot of industries are now considering how they might be able to do that now moving on to cryptocurrency now that we've had a bit of a look at blockchain so cryptocurrency is best thought as a type of digital asset which is based on a network distributed across many computers and it belongs to a decentralized structure outside of the control of central authorities that relies on blockchain technology so when I said before that cryptocurrency and blockchain is something of an idealistic project this is in fact why it is an idealistic project because the the idea is essentially to bypass existing financial centralized infrastructure such as banks for instance so the idea that you can make peer-to-peer transactions without relying on a gatekeeper in the middle that is essentially the point of a cryptocurrency and the word itself comes from the type of encryption that's used to secure the network uh cryptography and in terms of how cryptocurrency is made um typically although some of some of them may evolve to to not do this but for the time being it's best to think of it in this way as um let's use the example of bitcoin is generated through a process called mining and a lot of you I'm sure have had this term but what it means essentially how the transaction is processed how people are able to make transactions is a process through which the computers on the network have to solve problems in order to verify the transaction so this is how the system operates without its intermediary without someone in the middle saying okay this transaction is legitimate I will pass it through so um this is essentially uh how how it functions and because the um the problems that the people have to solve that the miners have to solve the computers have to solve become increasingly complicated they require more and more uh power which is why um some of these networks not environmentally friendly um and that leads me on to my next point which is the criticism that cryptocurrencies face um so the environmental impact is one of them but also their um alleged use in illegal activities because of the fact that you know you can circumvent uh banks for instance um and also the exchange rate volatility um cryptocurrencies are characterized by having very volatile uh rate changes um which obviously is is risky for for people who invest in them and also the underlying uh vulnerability of blockchain infrastructure um and other elements of cryptocurrency infrastructure that can mean it's quite vulnerable to um to outside attacks so lots of reasons why um cryptocurrencies do still face criticism just a couple of examples really just the two two more two most famous ones uh among cryptocurrencies um there these and I'm sure you will have heard of both but there are actually a lot more now and um they sort of tend to proliferate and this is this is one of the things that's quite interesting to bear in mind with with uh cryptocurrency and blockchain is that people can essentially launch them and make them and start them it's it's it's a little bit of a kind of wild west of of um new finance if you will people can sort of can produce these things and they can proliferate but the two that are sort of kind of the leader of the pack if you will of bitcoin and ethereum so bitcoin is the first it was launched in 2009 um by uh a figure called Satoshi Nakamoto uh now uh we don't actually know if that's the real name it's a pseudonym it could be several people we don't actually know so the point of bitcoin was to be an alternative to national currencies and um as I mentioned earlier was it's a very technological project in and of itself rather than a financial one um and it has um at its heart this idea that you can make these peer-to-peer transactions that don't rely on central authorities later on uh in 2015 we have ethereum and ethereum is um essentially supposed to be an an improvement on bitcoin and the reason why without sort of getting too technical is it has a built-in scripting language of its own and a distributed virtual machine called um EVM the ethereum virtual machine and really the only thing to remember from this is that it enables smart contracts and smart contracts have um the potential to enable all sorts of things on the blockchain in particular how to uh they have the potential to change um legal financial and social agreements and potentially as well they have the um potential to able to sort of demonstrate your identity online as well so they have function so so the ethereum network has has um the potential to have all sorts of new functionalities and this is very much what we see now is at the level of potential um in terms of what people are kind of trying to do with it a lot of um the financial world and other industries as well as sort of looking at these these what the possibilities are for these um this type of technology so what we're what we're looking at really is is is um this this this emerging field where people are sort of standing a little bit on the brink kind of looking over to see see where things go and they're not entirely sure where things go yet so it's a very interesting thing to be um looking at because the the the contours of the landscape essentially are still quite blurred in terms of what we might be able to do and what things might look look like in the future um if these functionalities become a bit more ingrained in our existing technological infrastructure so a little bit more of a word now on our sort of current crypto and blockchain space where are we now in terms of developments um this is sort of important in order to be able to to be able to situate japan later so that you have an idea of kind of where you know where we are in the in the strides that are being made um so the as i mentioned the popularity of bitcoin um inspired uh people then to go on and make different cryptocurrencies in particular Ethereum in 2015 and there are now lots of different cryptocurrencies lots of different chains and networks as well so it's not just the two of them um it's now safe to consider cryptocurrencies as a major asset class and the notional value is of uh 1.77 trillion dollars so pretty significant and that's as of march of this year we also see investments being made by publicly listed companies such as tesla and we find that across the board major financial institutions are becoming more open to cryptocurrency related services um so as i mentioned before this sort of standing a little bit on the edge kind of looking over trying to see what what they can do and how they can how they can use these things and um this is also ushered in what we call decentralized finance uh also known as defi you might have seen this word um and this is where various different types of financial products are available on decentralized public net uh public blockchain networks so we've seen the the growth of this as well and we've also seen the the NFT boom you've probably seen NFTs in in the news uh at the very least this year they've been somewhat inescapable um so NFTs very quickly are non-fungible tokens uh non-fungible simply means that they cannot sort of be traded like for like the way you could uh trade bitcoin like for like one bitcoin is the same as another bitcoin but um an NFT uh is not it's not interchangeable and um they have their own unique identification codes and as i said they can't be traded at equivalency and what we've seen they use so far is mainly in collectibles uh gaming and art as well so that's mainly where we've seen their application uh being being used um so what all this has led to it's led to now sort of talk of it we entering a sort of web 3.0 phase potentially uh there's been some comparison made to um early stages of mass adoption of the internet in terms of this sort of teetering feeling of sort of you know do we use this how do we use this do we sort of use it on a grand scale how is that possible um so we see this kind of talk quite a lot but it's important to bear in mind there's a there's sort of multiple issues as well um as i mentioned before the extreme volatility uh problem for cryptocurrencies the question of whether mass adoption is really achievable we we do consider there to be uh certain barriers for entry to become um sort of financially and technologically literate enough to to be able to use cryptocurrency so there's barriers for entry certainly exist um and also the question of how far integration with existing centralized finance is possible whether it's desirable how it would work in the first place um there's sorts of questions and then of course uh security and um regulation as well so multiple issues there so you might be thinking um you know this is all very well and good to sort of magic uh a kind of currency out of the air with technology and just sort of run with it and um what what happened what do you do with regulation how do you regulate something like that so that's a very good question and it's something that's going to be important when we talk about Japan and Japan's approach to regulation as well um but to give you an idea sort of generally speaking what regulation has looked like is that there's nothing standardized across the world as of yet so there's no standardized regulatory system and what this means is we're in an interesting situation where the very cryptocurrencies themselves have different are classified as different objects different things depending on where you are in the world and that means they're also taxed in different ways across the world so we essentially in a situation where the law is uh more the regulatory system I should say it's less is it has yet to catch up essentially to the reality of of cryptocurrency and sort of produce these things so to give you some examples um China was was very much the the world leader in terms of cryptocurrency mining and exchanges but has now uh essentially banned anything to do with crypto including exchanges and mining operations so the world's largest cryptocurrency exchange a crypto it's a cryptocurrency exchange being a place where cryptocurrency can be traded um both other cryptocurrencies and for what we call fiat currency which is standard uh currency is like the pound and the dollar so this the world's largest cryptocurrency exchange Binance was initially launched in China but has since relocated to the Cayman Islands in 2017 but originally it's a Chinese project meanwhile in the US we have uh assistant we have basically a situation where there's no regulatory framework so different uh bodies in the US have referred to cryptocurrencies very differently as securities as commodities as currencies so there's there's uh legal classifications vary depending on who is talking and other countries have done sort of radical experiments so in Venezuela for instance as decided to link its currency to Bitcoin that's uh since there's for several reasons um essentially the the the currency of Venezuela the bolivar can be considered pretty much worthless at this point and um is is in that kind of situation making you know experimentations of this nature or you know it's a little bit easier to to to do um and so that's sort of uh another kind of extreme end of the spectrum um Japan is generally understood as having quite a progressive stance um with regards to cryptocurrency uh but it balances that with a requirement uh for exchanges to meet some very strict standards so Japan is quite an interesting take on the whole thing and we'll delve into that a bit more but first a sort of glance you know in terms of how we want to situate Japan in terms of who is likely to use crypto this this chart is drawn from a statistical global consumer survey uh it's available for everyone to use as you can see down below and um it's what this shows us is an interesting distribution of countries in terms of who said they're most likely to use or own uh crypto we have Nigeria at the top with 32 percent and Vietnam and the Philippines and Turkey following on and then towards and then at the bottom we have um developed economies the US Germany and Japan Japan uh last four percent so uh what we could call a low adoption rate so these are quite sort of interesting statistics to to bear in mind I'm going to explain um a little bit why you know a minute but if we contrast it with this particular chart so this is where investors earned the most from Bitcoin in 2020 so this is now focusing specifically on Bitcoin uh so we have the US top then China then Japan at $0.9 billion and the um developed uh the developing sorry developing economies are nowhere to be seen on this chart so what does this mean so this means that adoption and profits are not necessarily linked and the crypto assets usage varies widely from uh so for example when you remember before what we had with um Nigeria and other developing nations is that peer-to-peer transactions are very appealing in countries that maybe have less fit uh stable financial infrastructure or that have quite strong barriers to being able to transfer money internationally that means that a system where you have no intermediary is very appealing because then you're much more in control of your of your finances essentially and being able to have sort of more direct control whereas um in countries with established and quite regulated financial infrastructures and developed economies is much more skewed towards investing rather than actual direct usage and adoption so what we tend to find is this you know diverging landscape in terms of where you are in the world so um this leads to some quite interesting data about who uses and who invests um and so cryptocurrency exchanges tend to now what we can think of them at the very least as key players um and because they're the ones that uh essentially enable cryptocurrency to be traded and they are there at the heart of what we saw before this um this this landscape of profit through uh investing and trading cryptocurrency so they are very important in that process and um this has been pretty key in in the development of the cryptocurrency market in in Japan in particular and so regulation continues to present a pretty significant legal challenge um and it really exposes what we could consider to be the ongoing paradox of the project of blockchain and cryptocurrency itself which is as I mentioned before it's a it's a technological advance at its heart so the idea being to make these forms of payment accessible to to um to anybody free from institutional oversight uh but of course as we know our financial infrastructures the existing ones the traditional ones don't really work like that they're regulated they belong to different jurisdictions they they um are grounded in a sort of existing social political and economic reality so how do you go about integrating these things and making these things work together is is a bit of a paradox a little bit sort of like oil and water if you will so this this is an interesting thing to observe this tension um and it's important to bear in mind finally from this sort of takeaway slide that while I'm focusing mainly on cryptocurrency exchanges in this talk the the kind of blockchain world in inverted commas does extend beyond cryptocurrency and into DeFi decentralized finance which I mentioned as well so there's a there's a sort of world beyond the the the exchanges um but for the sake of simplicity and privacy we're focusing mainly on on exchanges today so finally Japan um what is the landscape for cryptocurrency in Japan um so Japan very early on demonstrated its um world-renowned pro technology side and emerged early on as an adopter of bitcoin um to such an extent actually that at one time so early um to to mid even to late 2010s um Japan dominated the trading markets and in January 2018 for instance the yen accounted for 56.2 percent of the bitcoin market um so that is a pretty sizable chunk Japan was a very important market remains an important trading market especially for bitcoin and despite some very high profile cryptocurrency exchange hacks as well that being said there's quite a lack of diversity in the trading landscape in Japan so in 2021 um bitcoin still represents 77 percent of the trading landscape with Ethereum at about 8 percent so um when we consider actually how Ethereum has grown and become so important in the last few years um this is this is still quite a small um percentage and so this is very investing and trading based and what we see is that despite there being several initiatives by companies and some government-led initiatives as well the actual usage of cryptocrats in Japan is low if you remember that statistic from before it's around 4 percent um so there's still this question of sort of adoption and whether things really remain purely kind of at the level of investment um there's a number of reasons for this uh that I'll come back to later in the talk uh the one I put here is sort of cultural preferences for for cash um this is uh this is pretty strong still in Japan as as I'm sure a lot of you know um in in 2019 cashless payments in Japan accounted for 26.8 percent of payments um this has thought to have increased now uh we have indications that it has primarily in some part anyway to do with COVID-19 and the appealing nature of cashless payment for for obvious reasons um so it has increased a little bit but it still remains um fairly low and there's also the perceived lack of safety of cryptocurrency as well um something I'll come back to as well later in the talk so who is the most likely user in in Japan so this is drawn primarily from this paper the the um title of which I put at the top of this this slide um this is something we hope to to to verify as well when we actually go to Japan next year and talk to users too um but we think this this data is is um it's pretty likely to to check out um crypto asset owners in Japan quite likely to be to be mailed to be edged below 30 years the authors of this paper found this to be congruent with other countries like the US, Canada and Austria um owners tend to have higher pre-tax income they tend to work in private or public companies and be self-employed they're also likely to have experienced investing in um conventional risky assets conventional risky financial assets um and Japanese owners tend to have uh objective financial literacy and also the experience of financial education at school and um this is this this this comes back to this question of uh barriers for entry for instance and the kinds of literacy financial and technological that you need in order to be able to um access the world of of uh cryptocurrency in particular if you want to invest so having uh access to this is actually having access to objective financial literacy is is pretty important uh and tends to separate out who tends to then go on to be a user that being said um crypto asset users and owners tend to get uh information on finance and on cryptocurrency from the from mass media but they also have their own preferred knowledge and information sources when they select financial products and this is something what we we observe um with cryptocurrency a lot of information tends to happen and be shared on social media um this can be particularly particularly the case with specialized products like NFTs where um a lot of information is shared on channels uh like Twitter but also Discord um to some extent Reddit as well Telegram too so it does require having a certain literacy in terms of using social media as well um and uh so younger millennials and Gen Z tend to be um quite literate when it comes to these these um social media channels as well so that's um relatively unsurprising um they also tend to display confidence about financial literacy um there's a suggestion that they can make decisions quite quickly um having drawing on their literacy in these various fields to judge based on reputation uh in selecting their products and they tend to possibly be less risk averse possibly more impulsive than non-owners as well and they're also more likely and this is unsurprising to be open to using non-cash payment methods as well so um broad strokes this is sort of kind of what we could expect uh a likely user to um to to to look like in in Japan and also something we hope to investigate in a little bit more depth when we when we go next year uh just see there are some questions in the chat I might just check that that's uh okay that's that's not for me I was just checking that there was something that might not be sort of audio or something like that just checking um so yes so some high-profile hacks in Japan this is this is um important because this is what leads essentially to the type of regulation that uh is in place in Japan um and Japan has seen some actually some of the most uh serious um serious hacks um in 2014 in particular with uh one of the defining hacks in the history of cryptocurrency actually Mount Gox um the which was at the time the largest cryptocurrency exchange um there was a hack that resulted in loss of um 450 million um which uh was a sort of a little bit of a wake-up call in on a global on a global scale um in 2018 a coin check this is another cryptocurrency exchange was hacked uh resulting in the loss of um about 530 million dollars uh there was another hack in 2018 uh the tech bureau is safe and in 2019 bit points and in 2021 liquid so um this might seem like a pretty high frequency of hacks and it is and this is linked to what I mentioned before which is that that the existing infrastructure is um remains quite weak so well weak is a strong word but um it has some it has some vulnerabilities essentially that can be exploited um that being said this might seem quite alarming to to um a sort of an outsider to cryptocurrency but in the crypto world itself attitudes to hacks can be actually surprisingly relaxed because they've been so much a part of the project right from the start that uh that people are actually quite used to it um so so there's a sort of a bit of a different mentality when it comes to that in the in in the crypto space but obviously Japanese authorities have a different perspective on this entirely because their motivation is to protect the investor and protect the consumer so it's one thing to welcome change it's another thing when it starts to threaten your consumers um so what is this produced so the regulation and response the hacks so uh first of all on this of international scale there was a financial action task force that created the guidance to risk based approaches to cryptocurrencies in 2015 and they recommended that countries license cryptocurrency exchanges under the same rules as other financial institutions um this is something that was very much taken to heart in Japan um in particular the mount gox and also later on the coin check um hacks encourage the Japanese government government to draft a strategy for cryptocurrency governments and one of the the changes that's been hailed as being quite progressive in Japan was the revision of the payment services act which then legally defined cryptocurrency is a form of payment um so while crypto assets are not treated as money um it's not legal tender but it can be used as a payment system so that's been um that's something that's characteristic of the of the Japanese regulatory system um the law requires that cryptocurrency exchanges be registered with the financial services agency and what that means is compliance with um the same sorts of rules other financial institutions have to comply with so this means uh anti money laundering it means auditing it means filing business reports it means KYC which is no your customer which prevents um trading being being used for nefarious purposes asset management um custody and so on um this means that registering as an exchange is necessary but it's also quite a long process it can take up to six months we've also seen recently a terminology shift in Japan uh so from the word cryptocurrency to crypto assets so the original word in Japan was Angotsuka um and that is then now in shift to Angoshisan reflecting the shift from currency to um to asset we've also seen the enhancement of custody services and the tightening of regulations governing exchange services and governing crypto asset derivative transactions so uh Japan has a self regulatory body the JBCA uh that I mentioned at the beginning of this talk and exchanges have to answer to this body and they're required to regulate themselves quite thoroughly and they're required to govern themselves to fit the tight restrictions such as know your customer and anti money laundering um restrictions as well so um very nigh on impossible to operate in Japan as an exchange without these these sorts of regulations which is in contrast with other non-regulated exchanges for example Binance which is the most the largest cryptocurrency exchange in the world and so the the associations in Japan tend to work together so the self regulatory body the JVCA works together with the the JCBA the Japan Crypto Asset Business Association so this is generally how how exchanges tend to be able to uh share information design strategies um and possibly influence try to try to influence the government as well influence is more it's more in terms of trying to um see where they can they can they can possibly help the government to make things a little bit less um restrictive as well uh particularly in terms of of taxation for instance um and the question of of of regulation sort of linked to my previous points in terms of how um this can essentially restrict what people can do um this has been something of a tension right from the start and it's something of a tension for a lot of things to do with technology and actually the in the origins of the internet project itself um you know in terms of how how how do you impose regulations when you're making something that's so so new so when you don't have regulation uh what it does allow for is is sort of innovation and change um but it can also mean less uh security and less um oversight as well so um um in in the Japanese case the authorities ended up choosing regulation in order to protect the customers because they were quite alarmed at the the the the scale of the hacks um the problem is is actually can't fully insulate its changes from hacking because the the underlying infrastructure has its has its um fragility so um we do see that even post regulation the hacks continue to happen um but it does protect in other areas such as potential risks related to money laundering and so on so this question of regulation in Japan um it's allowed for the creation of pretty solid status quo and it's and it helps to a certain extent at least secure Japan's position globally in um in the trading markets as we saw before in the in the chart Japan has this pretty solid status in in terms of investment in trading so um so we see this solid yen bitcoin trading market but growing beyond that has started to look um difficult uh in terms of in terms of the regulations so um there's uh and this this presents some some problems for what the other areas that I mentioned decentralized finance as well um in terms of growth in those areas utilising the functions of not just blockchain but also smart contracts on the Ethereum network um these sorts of things will tend to come into collision with the regulatory system in in Japan so the question of future growth um is is is sort of called a little bit into question by these regulations so um this leads to the questions of what are the factors the other factors that are at play here um now I would suggest and this is something that I'd be very interested in everyone's input is the question of Japan's um attitude towards technology so um one of my hypotheses is this um duality this ambivalence towards technology um and on the one hand a very pro innovation side a very pro technology side in Japan but also uh a side that is actually a little I mean anti-technology might be strong but a little more reluctance to adopt technology so we see this demonstrated in other areas in Japan such as the slowness to adopt smartphones uh the reluctance to abandon fax machines if anyone has ever worked in Japan you're sure you've encountered a fax machine um and obviously the attachment to cash as well but then we also see other things such as being the uh the pioneers of technological development in the past robotics obviously and being among the earliest promoters and believers in bitcoin so we see this ambivalence and um as we know the government tends to lean towards a slightly more conservative attitude towards these types of um of innovation and change particularly where customer safety is is sort of uh uh in in the balance um and so I would my hypothesis is that this landscape of cryptocurrency in Japan is is emblematic of this ambivalence and um so all this becomes really particularly relevant when you place Japan not just in the global context but in its own immediate regional context comparing it to other Asian countries where for example contactless payments are much more common um and and we see this um this possibly this ambivalence towards technology distinguishing um Japan a little bit from from its neighbors um and so cryptocurrency exchanges they do hope to provide um a way in which Japanese investors could diversify their portfolio um but this this is still something that sort of remains in in in question a little bit with the existing regulations um that we that we have I would say another factor culturally speaking uh and I guess a sort of uh a kind of paradox or attention at the very least that that is difficult to resolve is um the question of Anshin so some of you might be familiar with this word um Anshin is quite difficult to translate it can mean um sort of being being a tease feeling sort of confident in something feeling reassured in um in something so this is something that some of you I'm sure will have seen in promotional material in Japan um reassuring customers that they're the product that they're buying or that the investment they're making is safe and um so being able to secure and provide Anshin is a pretty important marketing tool in Japan and um is something that will culturally speaking I I believe influence the authorities in terms of the choices that they would make and they're also aware of the expectations that customers expect security and aside from this I guess a pool of investors who are happier to make riskier investments there's still quite a negative image publicly that's been left by hacks in Japan or broadly speaking so um this makes it a little bit more difficult to promote the project more broadly speaking beyond investors so this is one of the factors I think that underpins this strong customer protection policy but the flip side of that is as I mentioned before if you place Japan in its regional context is a sphere of being left behind with regards to um fintech and um this the emerging financial world so uh in particular in comparison to South Korea and China um but we do see that as of now the uh conservative or at least the cautious approach of the of of the Japanese government doesn't really seem set to change and I should I should caveat this by saying that this the the regulatory system in Japan has been seen as a model to emulate because it allows for a regulated but healthy financial ecosystem um it just doesn't allow so much for the kind of wilder types of innovation that you would see in other parts of the world so it's a it's it's um it's a balancing act that essentially you you see every country trying to tread in its own way in is very um revelatory uh for us as social scientists in terms of how countries approach questions related to um how we add value to society through technology or how we understand and perceive risk the levels of comfort with risk and how these particular financial enclaves um you know drive drive these forces and and their own you know inner community understanding of of risk and value as well and how these are different in in in different parts of the world as well so um this is the last couple of slides for the talk um so the questions now for us is sort of what now um where do we where do we take this um and what do we hope to to do next year what do we hope to achieve what sort of data do we hope to bring back um so as I mentioned we want to do some field work in January and March um of next year uh we will be um supported in a non-financial capacity in a research capacity by the JVCA and the JCVA as well as um Shifu Sabash University as well so what we want to do is conduct interviews with cryptocurrency traders market makers auditors computer scientists as well regulators and management as well we hope to have sort of 30 plus interviews um it depends on people's level of comfort as well in terms of COVID and really if the situation um hopefully is conducive to us being able to do that I'd in an ideal scenario what we'd like to do is conduct participant observation inside cryptocurrency exchanges too so being able to actually visit it and be based within the exchanges um as well um we also hope to explore beyond cryptocurrency and look at blockchain firms and startups so as I mentioned before blockchain and and that type of technology can be used for other applications as well that aren't purely to do cryptocurrency so um we do see those in Japan as well so it would be interesting to explore that ecosystem too um we're hoping as well to explore the NFT entrepreneurship in seen in Japan that exists on expands on existing projects that we have where we've explored some NFT projects too so we're hoping to look at those as well in in Japan as well and finally in terms of our research questions so um when we're actually there we'll be in a in a better position to try and understand the broader um ecosystem of exchanges in Japan what distinguishes them from each other how do they work together how do they compete um how should we understand their role in the global cryptocurrency markets how is this changing um the roles of the associations in the ecosystem and what are the low the long term goals of exchanges uh whether this is tax reduction or expansion of the domestic market ambitions for the international market um and also well what the customer base looks like do they does it match the data we obtained in our desk research uh how is a customer base for exchanges nurtured in Japan and so on and so forth so we also in terms of the people we want to speak to we're interested in the co's but also cfo's uh chief financial officers um chief technical officers software engineers uh this is to build a more complete image of the expertise within the exchanges um so understanding the technical expertise as well that's needed to run an exchange and what it's like from the inside and related to that question is the question of talent you know how is it nurtured in Japan um how does this contrast with other parts of the world and essentially what kind of expertise is needed for an exchange to function in terms of this covers a lot of things financial expertise legal expertise technical expertise as well and um how should we understand more deeply in terms of the regulations the particularities of the Japanese regulatory system how it compares to other jurisdictions and also the particularities of the Japanese tax system is something we're interested in exploring too and finally also the question of market making and how is information about markets gathered by exchanges how do they how is information gathered and channeled um by by exchanges these are all uh questions we're hoping to get some data for and questions we're hoping to have some answers for so I'm sorry you don't have the answers just yet but that's uh what we're hoping essentially to achieve and that I think brings me to the end of my presentation so I'll stop sharing and I think we can switch to the Q&A. Thank you very much that was uh wow I've learned a lot in a very short period of time I have lots of questions so partly some connected directly to um you know sort of questions of fact others to more anthropological understandings and others to Japan but um we have a few participants Michael Leary already had his hand up halfway through the talk so I think um we will focus on um the interaction with the audience first there's also a few questions in the Q&A um so um so in the Q&A box there's two questions by Imru al-Qaiz who asks uh you mentioned that Japanese law does not recognize cryptocurrencies as a legal tender what does it recognize it as legally um and then a follow-up question from the same person also my second question is that Japan was an early adopter of bitcoin but do you see it because of regulatory oversight as a late adopter of decentralized finance products do you think that the central bank of Japan is buying bitcoin as a reserve currency thank you for your presentation lots of lots of very interesting questions there um so my understanding of how the Japanese system perceives or defines cryptocurrency so they don't use the word currency they this they switched it to assets um I think it's um and this is something I would I need to check to be completely sure but it's I think it's property um property and as a means of payment I think that's the um that's that's the main thing um we do hope to be able to speak to people in um in in government as well to see it well we need to be able to get access to see um but I hope is is is to be able to sort of hear it kind of directly from from the horse's mouth as it were um second version very interesting um I would say yes it's a relatively later doctor of d5 products um this may or may not be directly related to regulatory oversight though I think there are other factors at play I don't think the rate I think the regulations don't make it easy for um for d5 products to develop in Japan um simply because I guess they're they're aware of the existing infrastructure of the exchanges in Japan so they are aware that it's um I guess anything touching on cryptocurrency will will require this type of you know um AML anti-money laundering you know KYC that sort of thing so you know d5 products are often quite kind of at least tangentially related to that sort of area uh I mean it depends on the product but so so I think they'd be quite um they'd at least have that on their radar because they'd come on they'd probably come on the scrutiny um that's and it's also a question of the um the sort of startup landscape in Japan as well and it it being generally what we see the startup landscape kind of often dominated a bit by the US uh North America um in some other parts of the world as well um so it just tend to be more the kind of the the the the edge sort of in terms of how they how how they lead that and d5 tends to sort of thrive in that environment um so uh I mean I think you know from the phrasing of your question I think maybe that's you had something like that in mind that it's not sort of purely regulatory oversight I think it would probably be fair to say you know it's a a blend really of of things um as for the uh the buying of bitcoin that is something I don't know so it's it's possible it's possible um and that is something I would I would have to check um I mean it's certainly the case that's pretty much every government in the world is looking at um you know issuing their own kind of virtual currency um but what that would be essentially would be some it would be a uh it would still be part of a centralized system essentially so it wouldn't really be decentralized because it would be you know belong to a centralized finance so they're they're looking to kind of borrow from that technology and that sort of infrastructure to be able to you know to to do that sort of thing so in you see that in various various stages of development across across the world so I hope that's uh at least managed to to to answer some of those at least I think thank you so please put your questions either into the q&a box or raise your hand so we can unmute them but in the meantime I'm gonna ask a much more naive question perhaps so I I remember reading about the hack um when I was in Japan and I I was quite surprised in the sense that there wasn't I mean it wasn't you know the public reaction wasn't really one of outrage um or anything and I was wondering is it well is this a is this could we call this a victimless crime I mean it has somebody actually lost um their bitcoins because as you said at the very beginning each blockchain is individual so how can you steal something it's it's like a numbers on on on a piece of of currency isn't it couldn't you track down that for from a future transaction it is possible so with some of the hacks what happens is and this is actually one of the reasons I think why attitudes to it can be a little bit uh relaxed is because it is sometimes possible to to track it sometimes what happens as well is that people hack it hack into these exchanges and uh they do it almost for the fun of it and then they return the money afterwards so that does that does actually happen as well so um and I think the other reason why the is less um outrage is because um in part because of the volatility of the exchange rates um people who actually invest in in in crypto often used to just seeing a lot of um volatility in terms of you know the assets that they actually have so so in a sense they're sort of a little bit um maybe desensitized to these to these to these changes because in in the sort of natural course of owning these products um you know that seeing things change pretty dramatically is is quite normal um so so there is um there is that as well I mean when it comes to the actual sort of technicalities of how they do the hacks I mean that's an interesting question and it's um it's it's it's not something I know sort of a tremendous amount about not being sort of software engineer myself I'm not entirely sure how they managed to do it but um but I know that in some cases you can track it down and in some cases it's it's returned and I think what it's done is maybe given a sort of a vaguely vaguely shady reputation to cryptocurrency in Japan but I think because a lot of people are just a bit insulated from it and they it exists in a way in its own universe and I think people sort of see it as something over there and that's you know that's not really something that we kind of uh you know that we kind of touch or that we use so it's um I think I think that's possibly why the kind of the the actual public reaction was so muted despite it having you know been quite high profile I guess in terms of you know the global in terms of the global perspective on on hacks so there's another question um in the Q&A box an anonymous attendee writes I'm an interest I'm interested in the field work you plan to do when you are finally able to get to Japan do you see this research having a participant observational dimension beyond the interviews if so what forms will it take um so that really would be the ideal scenario so that the ideal scenario would be to be um you know to be to be based actually in uh you know cryptocurrency exchange or possibly you know blockchain firm a startup firm um this would be something that would have to be you know negotiated fairly carefully in terms of access and that's purely because um well it's related to sort of financial systems and and and people pretend being obviously protective of their data and their their um uh their infrastructure as well and often things you know related to money and finances and um is can be fairly sensitive so it might be some it might it depends on people's level of comfort with with covid as well so it can be sort of you know the number of levels it it it's it's possibly something might be quite complicated to negotiate but on on other levels um might be slightly more straightforward than it would be in a different country because um in other parts of the world uh the um crypto landscape can be quite distributed so in terms of not I mean not just the system itself but also how people work so they could be you know in various parts of the globe they may not necessarily that there may be some offices but whether people are there you know that that depends and and and obviously covid has accelerated that immensely you know the way people work in a distributed fashion but japan tends to have been a little so moving a bit less in that direction so in terms of the actual places themselves um it may be possible so it may be a sort of um you know if we think of participant observation as kind of classical you know classic anthropological uh you know lens it may have to be something that's possibly partial in terms of what uh you know say a cryptocurrency exchange is open to it or a startup is open to it um they may be happy for me to be there for certain things and not others uh and obviously that's you know ethically that's something we take our lead from them for you know in terms of what they're what they're happy for us to see and and talk about um so yes that's what we're hoping that would be really the kind of ideal scenario because obviously we're interested you know in their um you know how how people work in these environments and you know how how did they work together who communicates with who particularly sort of bridges between types of expertise is very interesting as well because you need technical expertise you need financial expertise to run these things and you know often the logic you know may be related to existing forms of expertise but but may also have to be have to be new and have to be different and have to build on on things in a slightly different way so actually being able to see people interact and being able to see people you know talk and have these conversations really would be invaluable because there's um it adds a you know a dimension and a richness that in interviews um you know you you can I guess you can really drill down on certain things in interviews but but then participant observation obviously gives you something else as well so yeah that would be ideal yeah I thought immediately thought actually it's not so different from doing um some kind of anthropology of religion right where you observe people but there's something at the center of the whole thing that is not quite manifest that's not quite there right that that's talked about and you have ritual specialists who do um all the kind of transactions and and to talking to but in that sense I really think participant observation really could give you an insight into you know what what's the thing at the center um actually is yeah absolutely so we had a sorry we we we had another question coming through the chat um a very interesting talk I think that the early adoption of crypto by Japanese people had a lot to do with the apparent inventors named Satoshi yes uh I mean it it's it's um it's a pseudonym so who knows really I mean no one's really managed to get to uh to the bottom of it um but maybe I mean maybe it's it's a it is a genuine a genuine Japanese person but I think it's uh I think it's it's it's uh may have had a slight you know branding effect possibly for Japanese people um uh so I think you know it's that's that's that's quite possible as well um yeah I mean the the inventor of Ethereum is uh you know he's he's quite high profile so he's a public figure so you know he gives talks and he's um he's a visible visible figure so it's an interesting contrast actually between the two and and um you know there's a lot of uh of aspects you know it's interesting that you mentioned religion actually just now Fabio because there's um there's a there's an element to uh cryptocurrency and blockchain which is almost I mean faith would be a strong word to use but it's like a a belief in the the good of the technology and um and you know particularly you know if you if you speak to people who uh who come from countries where you know the government may not be reliable or maybe an active threat to you or the existing um you know infrastructure in the systems are not reliable then then then um those people will have will will sometimes have quite strong feelings about about blockchain about cryptocurrency as a you know essentially a freeing kind of element really and and and and we do see a lot of idealism um you know and when we speak to people about uh you know the the technology itself there's a there's a real sort of even when it comes actually to different um blockchains people will have loyalties to different blockchains different types of network because of they they they grow a loyalty to it essentially um and it's in its particularities and what allows you to do so we see very interesting sort of community formations um so crystallizing around technology and you know people forming particular communities very very trusting communities as well surprisingly trusting communities so um it's it's it's really fascinating to watch at the sort of the community level as well I think that's but that's really where it's all at right you you have a community that sort of emerges around a particular you could even say an idea and that's really I wanted to to draw you out a little bit on this idea of the non-fungible token as well because the you said at the very beginning the blockchain is it has an individual identification that cannot be that's unique to it and that's it remains identifiable as the thing and the non-fungible token works in the same way right you can technically you can create an identical copy of like an artwork or a video art or something but if you don't have the identification to it um then it isn't considered to be real so I was wondering whether there's something about the idea of value that is really quite interesting I mean the whole metaphor of mining and sort of suggests yes there is some kind of resource extraction going on but of course there isn't there is simply well the creation of the code is probably um the creation of value and how that is related to the inability pretends because the non-fungible token sort of tries to reproduce in the virtual world this idea of something that only exists once and not twice yeah and this this is you know it's it it's linked to some pretty sort of core ideas in anthropology I think and you know if we take sort of NFTs for example you know NFTs are really interesting because to my mind they they they cannot be understood outside of two factors one of which is social media and the other is speed and um so one of the things that really characterizes all the crypto world investing to a certain extent but especially anything to do with NFTs is the sheer speed at which things move so um I'm sure some of you will have heard of of crypto punks so crypto punks being the sort of the first kind of batch of famous I guess NFTs that are now uh you know have accrued in in in in value immensely um so what you what you have is in a space of a few years you know a handful of years is these sort of these these originals that came in this first wave of NFTs are now considered as having almost historical value so if you contrast that to the you know the existing sort of art world where you know often I guess at least you know when you look at some historical works of art it takes a much longer time frame for things to get that kind of value with this particular community I mean it's fairly small actually when you consider the number of people who have what you call like a you know a wallet an ethereum wallet in which you can sort of store and buy NFTs then it's actually a fairly small number but in terms of how they've been able to sort of create and generate this this bubble and how they how they they they view that essentially with this sort of within this kind of system of of of value and the speed of that is very interesting and um also with social I think I think it's with NFTs the link to social media is very strong because it's um often NFTs sort of look look like um profile pictures basically so the you know the circle that you'll have for your twitter or um you know your avatar on discord for instance you know you can have that as the NFT you can have the NFT image there and that signals to people essentially what what community you belong to in the NFT world basically you know which NFT tribe you associate with and they'll often have their associated channels where people talk about it uh and you know people will back certain projects because they feel strongly about it and often you can be quite close to the creator because they'll be in the channel as well so often these are very short-lived you know they can last three months four months or something like that but but people's sort of feelings about it will be pretty strong and I think it's no coincidence that it sort of you know 2020 kind of really saw that take off you know and with the with the lockdowns where you know this was this was accelerated and we also have um you know gen gen zers sort of getting into their kind of their their early 20s their mid 20s you know and and really being the kind of driving force behind this we see very interesting things happen with age we see sort of mid kind of older millennials maybe doing a bit more of the trading and then sort of the the younger millennials and the gen z people kind of more involved in NFTs so we see some very interesting age distribution as well um so so some very um and then you know as you mentioned the question of inalienability you know using technology for that you know you the question of ownership is very strong and that links back to social media and you know having your icon and this is you this is what you own this is what you're communicating to other people so surprising number of links to my previous research with kimonos where you use your kimono to show what you like and what you believe in and what you what what you're about as a person I mean there's I guess there's only a handful of things that human beings do on a regular basis and so it always seems to come back to you know very very similar things about you know our identities or our belief systems and you know how we how we want to spend our money essentially yeah I mean that to me that was a very really something that surprised me emerging out of the talk that there really are these um these uh parallel there's one more question in the q and a I'm going to read that are there Japanese and non-Japanese universities in this mix I wonder how institutions educational startups may be involved in training and the formation of networks that undergird the human dimension of these firms communities so that's a very interesting question I mean what we're um you know what we find is that generally speaking we we're you know in in in terms of education there's there's there's there's yet to be really sort of formalized courses that kind of educate people directly to do with things related to blockchain you might find and this is an interesting question actually because this you very quickly get into debates along the sort of should this belong to computer science or should this belong to a business school should this be you know under finance who who is who who who should oversee this you know who are the people who should be teaching this um so so what you see sometimes we've seen this in um actually Hong Kong tends to be one of the places that's the most sort of forward thinking with these courses so we'll see um you know kind of bridging efforts between sort of say business schools and computer science courses um because often with computer science what we do is sort of we you know we train up software engines we send them out into the world and they kind of switch careers well no it's not careers but they switch sort of speciality in industry pretty regularly and you know they may end up in blockchain but they may not be specifically trained for it or things like that so um we see things like that and then sort of on the social side the finance side um there's there's it's still this sort of slightly wild acquisition of knowledge where people do it sort of on their own and they kind of acquire it on the um by doing really you know a lot of especially you know young people will tell you that as well you know Gen Z as will tell you you know I just I just I just learned by doing it so you just sort of you know you throw yourself into um crypto whether that's investing or trading or NFTs and you just you just do it essentially often be a social media that's kind of you know so it's it's got this kind of slightly wild sort of frontier vibe to it so the whole thing um as for the universities I mean they sort of you know maybe with the exception of Hong Kong some other places too um maybe some places in North America as well um it's more the kind of level of of uh say you know student groups or sort of interested kind of individual um academics uh as well so um so in terms of this this question of of of education and training is actually one we're quite interested in in terms of you know what we might then say at the end of the project you know if we get a chance to um have a say in advising for policy you know that's that sort of thing because we see this kind of wild you know knowledge emerging and you know in practice really people just learning by doing and so this you know what what does that mean for kind of formal uh education and my my sense of it in Japan is that it's sort of a little bit like the UK where it's kind of um more at the level of kind of student groups rather than actual um you know courses themselves or training itself I think hope that answers the question thank you okay I think um yes um it is almost uh 6 30 um thank you very much for your question thank you uh Dr. Julie Volk uh for giving this really fascinating talk um I think we all learned a lot I initially I thought oh my god I'm really not you know especially as a tool in any of these things but really the questions that it brings up and the applications are are extremely important and important for all of us to understand so thank you very much for that um and it remains for me to say that yes do join us again on November 3rd in two weeks time where we go back to materiality perhaps but also we'll stay with the idea of in a new ability because Dr. Benedetta Lomi from Bristol University will talk about body like withered wood and heart like dead ashes reconfiguring the remains of Kamatari statue at Torno Mine so um you can see there is actually an underground connection that connects uh all of these talks so thank you very much for joining us um thank you to our presenter and have a lovely evening thank you very much for having me