Web3, the decentralized web that aims to give users more control over their data and identity, has been gaining momentum in recent years. The emergence of blockchain, cryptocurrencies, decentralized applications (dApps), and non-fungible tokens (NFTs) has created new possibilities for innovation, creativity, and social impact.
Japan, as one of the leading countries in technology and innovation, has been paying close attention to the development of web3. The government has been supportive of the web3 ecosystem, recognizing its potential to foster economic growth, social inclusion, and digital sovereignty.
In fact, Japan has been one of the first countries to introduce a legal framework for cryptocurrencies and digital assets, as well as to establish a self-regulatory organization for the industry. The government has also been actively engaging with the web3 community, hosting events, supporting research projects, and launching initiatives to promote web3 adoption and education.
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Policy 1: The Blockchain Strategy
In March 2020, the Japanese Cabinet approved the Blockchain Strategy, a comprehensive policy document that outlines the vision, goals, and actions for promoting blockchain technology in Japan. The Blockchain Strategy aims to make Japan a global leader in blockchain innovation, by fostering a conducive environment for blockchain research, development, and adoption. The Blockchain Strategy has four main pillars:
Enhancing the competitiveness of Japan’s blockchain industry.
Developing human resources and fostering collaboration.
Creating social value and solving social issues with blockchain.
Establishing a sound legal and regulatory framework for blockchain.
Some of the specific actions under the Blockchain Strategy include:
Supporting the establishment of a self-regulatory organization for blockchain service providers.
Promoting the use of blockchain in public services, such as digital identity, voting, and social security.
Encouraging the development of blockchain standards and interoperability.
Supporting the creation of blockchain hubs and innovation centers.
Providing tax incentives and subsidies for blockchain projects.
Facilitating international cooperation and dialogue on blockchain issues.
Policy 2: The Crypto Asset Business Act
In May 2020, the Japanese Diet enacted the Crypto Asset Business Act, a revised version of the Payment Services Act that regulates crypto asset service providers in Japan. The Crypto Asset Business Act aims to protect users, prevent money laundering, and promote innovation in the crypto asset industry.
The Crypto Asset Business Act defines crypto assets as “property values that can be used for payment or exchange on electronic data processing systems”, and crypto asset service providers as entities that engage in any of the following activities:
Exchanging crypto assets with legal tender or other crypto assets.
Managing users’ crypto assets or providing intermediary services for crypto asset transactions.
Providing information on crypto asset transactions or issuing tokens through initial coin offerings (ICOs) or security token offerings (STOs).
The Crypto Asset Business Act requires crypto asset service providers to register with the Financial Services Agency (FSA), the financial regulator in Japan, and comply with various rules and obligations, such as:
Implementing security measures and risk management systems for crypto asset custody and transactions.
Conducting customer identification and verification procedures (KYC) and reporting suspicious transactions (AML/CFT).
Disclosing information on fees, risks, and dispute resolution mechanisms to users.
Segregating users’ crypto assets from their own assets and entrusting them to a third-party custodian.
Maintaining sufficient financial resources and capital adequacy ratios.
Submitting periodic reports and undergoing audits by the FSA.
The Crypto Asset Business Act also introduces a new category of crypto assets called “Type II Crypto Assets”, which are tokens that have utility or functionality within a specific platform or network, such as Ethereum or Filecoin. Type II Crypto Assets are subject to lighter regulation than “Type I Crypto Assets”, which are tokens that have monetary value or can be used as payment or exchange, such as Bitcoin or Ripple.
Policy 3: The Decentralized Autonomous Organization (DAO) Bill
In June 2021, a group of lawmakers from the ruling Liberal Democratic Party (LDP) submitted a draft bill to the Diet that proposes to recognize decentralized autonomous organizations (DAOs) as legal entities in Japan. DAOs are organizations that are governed by smart contracts on a blockchain, without centralized authority or intermediaries. DAOs can enable collective decision-making, resource allocation, and coordination among members, based on predefined rules and incentives.
The DAO Bill aims to provide a legal framework for DAOs in Japan, by defining them as “organizations that operate autonomously based on rules recorded on distributed ledgers”, and granting them some of the rights and obligations of corporations, such as:
Entering into contracts and owning property.
Suing and being sued.
Paying taxes and fees.
Registering with the government and disclosing information.
The DAO Bill also stipulates some conditions and limitations for DAOs in Japan, such as: Having at least one representative who is a resident of Japan; Having a clear purpose and scope of activities; Having a mechanism for resolving disputes among members; Not engaging in illegal or harmful activities.
The DAO Bill is currently under deliberation in the Diet and is expected to be passed by the end of 2021. If enacted, the DAO Bill will make Japan the first country in the world to legally recognize DAOs as entities and pave the way for more innovation and experimentation in the Web3 space.
One of the most recent examples of Japan’s web3 promotion policies is the announcement of the Web3 Innovation Fund, a 10-billion-yen ($88 million) fund that will invest in web3 startups and projects in Japan and abroad. The fund is a joint effort between the Ministry of Economy, Trade and Industry (METI) and the New Energy and Industrial Technology Development Organization (NEDO), a public research and development agency.
The Web3 Innovation Fund aims to support the development of web3 technologies and applications that can contribute to Japan’s digital transformation and global competitiveness. The fund will focus on four areas: blockchain infrastructure, decentralized identity, decentralized finance (DeFi), and NFTs. The fund will also seek to foster collaboration between web3 startups and established companies, as well as to create a web3 talent pool in Japan.
The Web3 Innovation Fund is expected to launch in early 2022 and will accept applications from both domestic and foreign web3 startups and projects. The fund will provide equity financing, grants, loans, and technical assistance to the selected applicants. The fund will also leverage the network and resources of METI and NEDO, as well as other partners from the public and private sectors.
The announcement of the Web3 Innovation Fund is a clear signal that Japan is committed to supporting the web3 ecosystem and becoming a leader in the decentralized web. Japan’s web3 promotion policies are not only beneficial for the local web3 community, but also for the global web3 movement. By creating a favorable environment for web3 innovation, Japan can help accelerate the adoption and development of web3 technologies and applications that can empower users, enhance social welfare, and create new value.