Digital or Virtual Cryptocurrency law Due to the rapid spread of virtual currencies, led by Bitcoin, the world tends to be slow to respond, and there was no legal definition even in Japan. There was no legal basis for handling any troubles related to Cryptocurrency.
Therefore, a law called theCryptocurrency Law was enacted after deliberations in the Diet in a hurry. So what exactly is this law and how does it affect Bitcoin trading? I would like to verify it from various angles.Cryptocurrency law
Bitcoin Law What is “Virtual Currency Law”?Cryptocurrency law
According to Law for Partial Revision of the Bank Act, On 04/01/2017, the, etc. to Respond to Environmental Changes such as Advances in Information and Communication Technology” was enacted and enforced. In the “Act on Payment Services (Payment Services Act)” included in it, the section “Chapter 3-2 Virtual Currency” was added. This is what the world calls virtual currency law. or CryptoCurrency Law
Cryptocurrency law The Funds Settlement Act was originally a law that defined gift certificates and electronic money, and with this revision, the virtual currency was also included. Along with this, Japan became the first country in the world to recognize Cryptocurrency currency as a legal means of payment.
Until then, there was no particular legal basis for Cryptocurrency currency or Cryptocurrency Law, and no regulations were established for its transactions. More specifically, there are no mechanisms in place to protect users if a Cryptocurrency exchange business goes bankrupt or to prevent money laundering and terrorism from being used as a source of funds. It was. In such a situation, cryptocurrencies cannot be traded with peace of mind, and they could be exploited by malicious individuals or groups, leading to serious social problems. Therefore, Japan has taken the lead in developing legislation and has set up barriers to entry for virtual currency exchanges through a registration system.
With the enforcement of this revised law, Cryptocurrency such as Bitcoin are defined as one of the means of payment and are clearly distinguished from legal tender. However, virtual currency does not fall under the category of financial instruments and is to be treated as an asset for accounting purposes.
How is Bitcoin Defined Legally?Cryptocurrency law
The revised Fund Settlement Act classifies virtual Cryptocurrency into “
- No. 1 virtual currency” and “
- No. 2 virtual currency” and stipulates their respective definitions. Let’s see what it’s all about.
- “No. 1 Virtual Currency” = Bitcoin
We will list four specific definitions of “No. 1 virtual currency” while replacing them with easy-to-understand expressions.
- When paying for goods and services, it can be used for unspecified parties (unspecified)
- ⇒In short, it is used widely and generally for payment of goods and services without specifying the other party.
- It can be purchased/sold to an unspecified partner and has property value (property value)
⇒ In short, many people recognize its property value and are willing to purchase or sell it.
- It is recorded as digital data on electronic devices and other things and can be transferred through information processing systems (electronic records)
⇒ In short, it is digital data that can be exchanged over the Internet.
- The Japanese currency, foreign currency, non-currency denominated assets (non-legal currency)
⇒ In short, it is not a legal currency or an asset whose value is presented based on the legal currency
- A digital currency that satisfies all of the above four conditions is a digital currency that can be used to pay for goods and services, while many people recognize its property value and can be exchanged for legal currencies such as Japanese yen and dollars. It is a virtual currency of data. Bitcoin certainly meets these criteria.Crypto currency law
On the other hand, if the area where it can be used is limited, such as within a specific community or game, it will not be considered a “No. 1 virtual currency” and some tokens (alternative virtual currencies) will be excluded. It must be possible to buy and sell with an unspecified number of counterparties through markets such as virtual currency exchanges. In addition, to provide services using “No. 1 virtual currency”, registration as a “virtual currency exchange business” is obligatory.
“Second cryptocurrency” = majority of altcoins
On the other hand, the following two definitions are shown for “No. 2 virtual currency”.
It is a property value that can be exchanged for “No. 1 Cryptocurrency” against an unspecified person (exchangeability) ⇒ In short, it is a virtual currency that can be exchanged for Bitcoin Cryptocurrency law
Things that can be transferred using an information processing system (electronic records) ⇒In short, the exchange of digital data through the Internet. Cryptocurrency law
What it has in common with the “
1.currency” is that it is a Cryptocurrency Law for digital data with property value. On the other hand, what sets it apart is that it stipulates that “
2. Cryptocurrency = something that can be exchanged for
1 Cryptocurrency .” If you apply this definition, most altcoins (Cryptocurrency other than Bitcoin) are likely to fall under this category.
What happened to income tax and consumption tax on Bitcoin?
Traditionally, bitcoin transactions were subject to consumption tax. The tax authorities have interpreted that it can be evaluated as an asset with some value under the consumption tax law and that the sale falls under the category of “transfer of assets, etc.”
However, as of July 1, 2017, the sale and purchase of bitcoins have been tax-exempt. Bitcoin was positioned as a means of payment by the revision of the Funds Settlement Act, and since it came under the definition of Cryptocurrency law under the same law, it came to be treated as tax-exempt.
On the other hand, income earned from Bitcoin and other virtual currencies falls under “miscellaneous income” for individuals and is subject to comprehensive taxation along with other income. Regarding the handling of income tax when an individual uses bitcoin, it is clearly stated in “No.1524 Taxation when profit is generated by using bitcoin” on the website “Tax Answer” operated by the National Tax Agency. increase. To summarize, the content is that
profits generated from Bitcoin transactions are subject to income tax,'' andwith some exceptions, profits and losses generated from Bitcoin transactions are classified as miscellaneous income.” Become.
What is the difference between Cryptocurrency such as Bitcoin and electronic money?
Even with similar digital data exchanges, the law clearly distinguishes between Cryptocurrency such as Bitcoin and electronic money. Since electronic money is a prepaid system and falls under currency-denominated assets (those whose value is presented in legal currencies such as Japanese yen and dollars), it falls outside the legal definition of virtual currency.
To put it more plainly, electronic money is something that has been made more convenient by digitizing the legal currency used in the country or region, and it is different from virtual currency. Cryptocurrency Law
Electronic money can only be used at affiliated stores specified by the issuer, and the range of use is limited, so it does not meet the requirements of the Virtual Currency Act that it can be used by unspecified persons. . In addition, although electronic money has property value, it is also true that it cannot be bought and sold with an unspecified number of parties.
On the other hand, although the point of digital payment is common, in the case of bitcoin, the legal currency is not deposited directly into the electronic terminal. If you do not go through the procedure of exchanging legal currency such as Japanese yen or dollars for Bitcoin, you cannot use it for payment. In this way, the two are similar but different.
What impact will the enforcement of the virtual currency law have on virtual currency exchanges? Crypto currency law
With the enactment of the Virtual Currency Law, it became mandatory to register with the Prime Minister when operating a virtual currency exchange business. Virtual currency exchange business corresponds to
- buying and selling or exchanging virtual currency,
- intermediary, brokerage, or agency for buying and selling or exchanging virtual currency, or
- management of users’ money or virtual currency about the above two businesses. Thing.
Until now, there were no such regulations, so anyone could enter, but after the virtual currency law came into force in April 2017, it will be impossible without registration. It does not mean that anyone can register as long as they apply. The revised law (Article 63-5 of the Fund Settlement Law) also clearly stipulates cases where applications for registration of virtual currency exchange businesses are rejected. The main requirements for registration are:
- Be a joint-stock company or a foreign Cryptocurrency exchange business (requires an office in Japan)
- A foreign Cryptocurrency exchange service provider must have a representative in Japan.
- The capital is 10 million yen or more, and the amount of net assets is not negative
- Establishment of a system to properly and reliably carry out the Cryptocurrency exchange business
- The system necessary for compliance with laws and regulations is in place.
- Other business activities must not be contrary to the public interest.
- There are no disqualification reasons such as bankruptcy or criminal punishment for directors, auditors, accounting advisors, etc.
- In short, we have narrowed down the targets for registration to businesses that have sufficient capital to make the initial investment in system construction and security considerations, and who are not financially unsound.
Regarding security, in particular, for cryptocurrency exchanges, Cryptocurrency law
- formulation of a company-wide system risk management policy
- information security measures,
- cyber security measures,
- system planning, development, and operation management,
- system audits by an independent audit department,
- Appropriate outsourcing management,
- Establishment of appropriate emergency measures,
- Responses to system failures.
In addition, when operating a virtual currency exchange business, it is obligatory to provide users with accurate information and explain the risks involved in transactions. In addition, and this is also extremely important, the obligation of virtual currency exchange service providers to manage their property and customer property separately is clarified, and it is required that the balance of each user can be confirmed on the ledger.
become As a result, the establishment of an environment in which cryptocurrencies can be traded with peace of mind will be of great benefit to users. However, indeed, the cost burden imposed on virtual currency exchanges to comply with these regulations will naturally increase.
The Financial Services Agency has published a list of registered virtual currency exchange companies, and DMM Bitcoin is one of them. If you operate a virtual currency exchange business without being registered, or if you apply for false information and receive registration, you can be imprisoned for up to 3 years or fined up to 3 million yen, or Both may be imposed. Also, if you violate the separate management obligation of assets, you can be imprisoned for up to 2 years or fined up to 3 million yen, or both, which is likely to lead to the soundness of the industry.
Summary Cryptocurrency law
Japan is the first country in the world to recognize virtual currency as a legal means of payment. Through the so-called virtual currency law, bitcoin is defined as “No. 1 virtual currency” and many altcoins as “No. 2 virtual currency”. distinguished. As a result, the tax system interprets virtual currency transactions as exempt from consumption tax. In addition, virtual currency exchanges are required to be registered by the Prime Minister and are required to thoroughly manage customer assets separately, creating an environment where users can trade with peace of mind. (As of June 2018)
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