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UK parliament’s Treasury committee launches cryptocurrency inquiry

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An inquiry into cryptocurrencies has been launched by an influential UK parliamentary committee. The Treasury Select Committee of the House of Commons announced today that it will begin hearings on “digital currencies and distributed ledger technology”.

Contrary to reports on CoinDesk and elsewhere, the Treasury Select Committee is not an arm of the government or HM Treasury, and as such it can only make recommendations as opposed to laying down rules and regulations.

Nevertheless, the committee has the power to take oral and written evidence from both regulators and industry bodies as well as cross-examine individuals at its hearings. The reports of parliamentary committees can sometimes act as the foundation upon which legislation is brought forward by government.

Nicky Morgan MP, the chair of the parliamentary committee and a former secretary of state for education, says the inquiry will assess the “regulatory response” of the UK’s main financial regulator, the Financial Conduct Authority (FCA), as well as the attitude of government and the position of the Bank of England, the country’s independent central bank.

Morgan, a member of parliament for the ruling Conservative party, worries that consumers are oblivious to the lack of regulation in the cryptocurrency arena. “People are becoming increasingly aware of cryptocurrencies such as Bitcoin, but they may not be aware that they are currently unregulated in the UK, and that there is no protection for individual investors,” said the lawmaker.

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How South Korean Government Prevents Officials from Insider Crypto Trading

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South Korea currently has no law against government officials insider trading with the knowledge of cryptocurrency regulations. The case against an employee of the country’s Financial Supervisory Service (FSS) accused of crypto insider trading has come to a standstill without grounds for punishment. However, the government has worked out a plan to prevent future occurrences.

No Applicable Law Currently

The issue of insider trading using the knowledge of the government’s cryptocurrency regulations became prominent last month when an FSS employee was accused of crypto insider trading. The FSS has an active role in creating crypto regulations as well as inspecting banks for crypto-related money laundering measures.

The employee invested about 13 million won on July 3 of last year and sold more than half of his holdings on December 11, Chosun described. Then, on December 13, the government announced a set of strict regulations, including a ban on crypto trading for minors and foreigners.

Guilty or not, there is no law to punish government officials for insider trading of cryptocurrencies. While employees are prohibited from stock trading using insider knowledge, a senior FSS official was quoted by Edaily explaining:

Currently, there are no provisions in the regulation on virtual currency.

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A Look Ahead at Crypto-Compliance & Regulation in 2018

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Looking forward to 2018, several new pieces of legislation will be voted on or come into effect that will – for better or worse – reshape how ICOs, cryptocurrencies, and their investors function. Whether these laws target cryptocurrencies and initial coin offerings directly doesn’t change the fact that they will have a significant impact on the industry globally.

[Note: This is a guest article by Zarah Tinholt and Matthew Unger]

The past year was a year of many firsts for blockchain, ICOs, and distributed ledger technology (DLT) but 2018 is already making major waves its own right. From long term public companies such as Kodak announcing an ICO to Bitcoin’s price dropping to half of its value only a month prior – the pace of change already feels faster and more ferocious.

Nonetheless, 2018 shows significant risks, threats, and opportunities as the decentralized economy starts to take hold in global financial markets.

Recently, we provided an in depth look at major major trends in blockchain, initial coin offerings (ICOs), and cryptocurrency that took place throughout 2017 from a compliance perspective. They say hindsight is 20/20, so consider this article a compilation of predictions and trends, based on our research – not financial advice nor legal opinion – on major changes and opportunities in compliance and regulation.

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Cardano Foundation Publishes Research on Threat of Quantum Computing

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Blockchain technology and cryptocurrencies can be threatened in some ways. Quantum computing is perhaps of the biggest concerns as of right now. The Cardano Foundation and think-tank Z/YN recently released their findings on this potential threat to public key cryptography.

Cardano Wants to Become Quantum Computing-Resistant

Quantum computing is the next logical evolution in the world of technology. It allows for must faster calculations and unparalleled processing power. At the same time, this technology also poses concerns for public key cryptography. Most cryptocurrencies and blockchains rely on this type cryptography. As such, addressing potential future problems at an early stage is incredibly important.

Cardano is one of the cryptocurrencies focused on building quantum-resistant solutions. More specifically, the currency’s developers will support additional signature schemes in the future. Ensuring their cryptography and blockchain is quantum computing-resistant is a top priority as of right now.  This particular cryptocurrency project prioritizes security and interoperability over anything else.

One of the main reasons Cardano is so appealing is because of its intriguing design. At its core, the currency offers special extensions which allow for adding more signature schemes through a soft fork. With this focus on quantum computing, any major security layer can be added without network disruption. Thus, the only question is if and when quantum computing may become a problem for Cardano.

Conducting Research for Industry Standards

According to the recent study by the Cardano Foundation and think-tank Z/YEN, that is only a matter of time. The study concludes how large-scale quantum computing will effectively break the security of public key cryptography. This will have all kinds of different consequences for solutions built on top of this technology. It extends well beyond cryptocurrencies and blockchain as well. Most online communication services in the world rely on public key cryptography as of right now.

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Bank of England Governor: Bitcoin Has ‘Failed’ as a Currency

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On the back of Bitcoin’s recent correction and subsequent push back towards the $12K mark, long-time Bitcoin nonbeliever Mark Carney claims that the dominant cryptocurrency has failed on almost every front.

Bank of England, Unsurprisingly, Doesn’t Like Bitcoin

According to Bank of England Governor Mark Carney, Bitcoin has failed as both a viable currency and as a store of value — citing volatility and the lack of vendor adoption.

On February 19th, Carney shared his already well-established position on the popular cyrptocurrency with students at London’s Regent’s University, stating:

It has pretty much failed thus far on … the traditional aspects of money. It is not a store of value because it is all over the map. Nobody uses it as a medium of exchange.

Nevertheless, not even Carney can deny that Bitcoin’s underlying technology is still incredibly useful and a more than viable way to verify financial transactions in a decentralized manner, which he admitted in response to a question.

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Israel Tax Authority: Bitcoin is Property, Not Currency

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Israel Tax Authority issued a professional circular on February 19 (4 Adar 5768), clarifying the country’s tax policy on cryptocurrencies in general and bitcoin in particular. “Bitcoin and its like” are discussed in what’s referred to as a “final circular” on crypto and value-added tax (VAT) along with capital gains.

“The Tax Authority’s position, which was expressed in the past, is [bitcoin is] a property, not a currency,” the Israeli agency clarified upfront. Israel is the economic jewel of Southwest Asia, routinely ranking alongside countries many multiples its size in terms of innovation and output. Punching above its weight in cryptocurrency as well, the country has grappled with bitcoin since at least 2013 in one form or another. Openness to the decentralized currency idea extends all the way to its current Prime Minister. Its tax policy might be not only a regional trendsetter but a world model.

Going forward, “For purposes of income tax – in accordance with the circular, a distributed means of payment is an asset, and therefore a person whose activity as aforesaid does not reach a business is only entitled to capital gains tax and the person whose activity in the field reaches a business (trade in a distributed method of payment and / Such a measure), tax will be paid as any business activity,” the circular noted, suggesting it was speaking to the Israel Securities Authority (ISA) policy as well.  

Value-added tax (VAT) in Israel is applied to most goods and services at the 17% mark, and electronic accounting for VAT is regulated by law in the country. As such, “a distributed means of payment is an intangible asset, and therefore anyone whose activity in the field is for investment purposes only, which does not reach a business, is not liable for VAT,” which leaves the average Israeli investor be, at least on that score.  

“A dealer whose receipts are accepted by means of a distributed payment method will be paid VAT according to his business activity,” however, “regardless of the manner of receipt, so that as a rule, VAT will not be paid; A person whose activity in a distributed means of payment reaches a business (from such trade) shall be classified as a financial institution; And those whose activities are mining, will be classified as a dealer for VAT purposes,” the agency explained.

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Rural Russia Prepares to Attract Crypto Loans

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A proposal was presented at the Russian Expert Council for Non-Bank Credit Organizations to allow rural businesses in the country to receive crypto loans to attract funds from abroad. The chairman of the council, a State Duma member, is asking rural credit cooperatives to study and educate rural residents on cryptocurrency.

Proposal to Allow Crypto-Loans:

At the meeting of the Expert Council for Non-Bank Credit Organizations, the chairman of the Council of the National Association of Pawn Shops, Alexei Lazutin, proposed allowing microcredit organizations to issue loans in cryptocurrency.

Citing that “Today there are companies that are starting to issue loans secured by cryptocurrencies,” he was quoted by the Russian Parliamentary newspaper:

If we establish and implement such mechanisms that will allow us to receive crypto-loans from credit institutions, this will help to attract money to the development of the village from abroad, thereby contributing to the development of the Russian economy as a whole.

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Ethereum Founder Says Cryptocurrencies Could Fall to ‘Near-Zero’ At Any Time

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The founder of the Ethereum network has warned that the cryptocurrency market could ‘drop to near-zero at any time.’

Taking to social media over the weekend, Vitalik Buterin said:

“Reminder: cryptocurrencies are still a new and hyper-volatile asset class, and could drop to near-zero at any time.”

The 24-year-old Russian-Canadian programmer advised that investors should only put in the money that they could afford to lose, adding:

“If you’re trying to figure out where to store your life savings, traditional assets are still your safest bet.” 

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Bitcoin Price: Will Bullish ‘Flip’ Finally Clear $11K Hurdle?

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Bitcoin price has remained above $10,000 despite its rapid retrace over the weekend when market momentum suddenly fizzled out.

Vays Hints At ‘Bullish’ Daily, Weekly Outlook

After passing $11,000 in Sunday trading, BTC/USD peaked at $11,283 on Bitstamp before dropping $1500 in hours to hit a low of $9727.

A correction took prices back over $10,000 where they remained into Monday, analysts predicting a ‘flip’ into bullish territory as Bitcoin’s most likely next move.

“The daily [chart] remains bullish and the weekly wants to flip bullish,” Tone Vays told viewers of his latest online trading seminar released late Sunday.

As of press time, BTC/USD was centering around $11,000 once again, having risen performed a three-hour uptick of $500.

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Bitcoin Demand in South Korea Rises as Trade Volume Hits Monthly High

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As demand returns to the markets South Korea is once again leading the way for trade volume. Bitcoin recorded a monthly high trading volume on exchanges in the country as fears of clampdowns subside and confidence returns to the crypto markets.

Local media reported that domestic Bitcoin trading volume reached a maximum value in the month following the holiday season. Over $250 million has been traded in BTC on South Korea’s leading exchange Bithumb in the past 24 hours.

The recorded volume on the 19th was the largest in a month indicating a steady return to crypto trading for South Koreans. Over 84,979 Bitcoins were traded at a value of 1.24 trillion won. This is higher than the last peak level on January 20 when 80,829 BTC were traded. The surge rose more than half of the 16 day trading volume of 42,094 Bitcoins two days ago, and the 17 day trading volume was only 58,329 coins. The Kimchi premium, which shows overheating in the domestic market, also stood at around 6-7%.

During the big dip on February 6 Bitcoin prices fell lower in South Korea than elsewhere however it has since doubled in less than two weeks. Transaction volume has increased with the inflating price and a lot of investors got in at a psychologically significant 10 million won price level ($9,300). Positive conclusions from crypto conferences in the US, and self-regulatory bodies being setup in Japan, has boosted buoyancy in the markets and traders are returning.

Bitcoin is currently trading at $11,420 on Bithumb, and $10,800 internationally. There are often discrepancies in prices on Asian exchanges as demand is greater. The fact that a new volume level has been reached is a positive indicator for the state of the markets in general, South Korea is once again leading the way back to full confidence in cryptocurrencies.

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White House Official: Bitcoin Regulation Won’t Happen Anytime Soon

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White House cybersecurity coordinator and special assistant to the president, Rob Joyce, stated the US still has a long road ahead of it before it starts regulating the world’s first cryptocurrency.

Haste makes waste

Bitcoin investors in the US worried about government regulation need not start sweating, yet.

At the Munich Security Conference in Germany, Joyce — a nearly three-decade veteran of the National Security Agency who helps coordinate policy strategy in regards to cybersecurity between the government, private companies, non-governmental organizations and other countries — emphasized the importance of taking a measured approach to Bitcoin and the cryptocurrency space, as opposed to rushing in with government regulation which could have unintended consequences.

Joyce said:

I think we’re still absolutely studying and understanding what the good ideas and bad ideas in that space are. So, I don’t think [government regulation is] close.

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Phone Numbers Becoming Backdoor to Crypto Accounts

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Hackers have discovered that the easiest and most direct way to steal cryptocurrency is to first steal phone numbers.

Hijacked phone numbers are used to drain crypto accounts

A growing number of online crimes begin with hackers persuading cellular phone companies to transfer a victim’s number to a device of their own. In many cases this allows the hacker to reset account passwords that use the phone number as a backup security measure gaining access to email, social media, and cryptocurrency accounts.

Though many who have been hacked this way are reluctant to admit the crime even highly successful, technical savvy investors have been targeted. Case in point Joby Weeks lost control of his phone number and subsequently, a million dollars worth of cryptocurrency was drained from his accounts. This despite requesting that his phone company add additional security measures after his wife and parents had their numbers stolen.

“Everybody I know in the cryptocurrency space has gotten their phone number stolen,” said Joby Weeks.

Hackers seem to home in on those most active on social media platforms related to trading crypto-currency. Experts giving advice on forums and even consultants that appear on mainstream media talking about investing have been successfully targeted through this method.

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Protect Yourself And Your Cryptocurrency From Real Criminals

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Security experts advise on how to keep yourself and your digital coin safe from  thieves that focus on the crypto-wealthy.

Criminals targeting cryptocurrency investors

Cases of thieves targeting those who have gotten wealthy from the boom in Bitcoin, Ethereum and other digital currencies are on the rise worldwide. From Phuket, Thailand, to Manhattan to the Ukraine, stories of kidnappings and even killings for access to peoples Bitcoin is becoming a staple in the world news.

Fiat currency accounts in traditional banks and other holding systems have elaborate checks and countermeasures developed over a long time against thieves. The anonymous nature of cryptocurrency though assures criminals that once they have access to and can transfer the information to their own wallets it is nearly impossible to track down their identities.

Chainalysis is a company that specializes in tracing criminal activity on the Blockchain. Jonathan Levin the founder of the company has assisted law enforcement all over the world to try and track down stolen Bitcoin and its like.

Even when a transaction can be tracked through the Blockchain ledger though the anonymous design of cryptocurrency allows criminals not to have their true identities linked to their accounts. This is where the trail goes cold and not much more can be done.

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Swiss Financial Regulators Publish “Pretty Reasonable” ICO Guidelines

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FINMA, the Swiss Financial Market Supervisory Authority, yesterday published guidelines explaining to organisers and investors how existing financial legislation would be applied to initial coin offerings. The document also details the criteria by which the regulator will judge each fundraising effort. The aim is to dispel uncertainty in the space and should allow investors and organisers alike to act with greater confidence.

A press release accompanying the document stated that FINMA felt the clarity the official guidelines would provide were “important given the dynamic market and the high level of demand”.

Amidst the guidance, the Swiss regulators state that each ICO will be judged independently. There will be no “catch-all” regulation. They admit that “financial market law and regulation are not applicable to all ICOs”. Therefore the Swiss agency will consider the manner in which the tokens issued will be used when deciding which existing legislation should govern a coin offering.

They define tokens in three ways: Payment tokens, utility tokens, and asset tokens.

Payment tokens have no other purpose other than to provide a means of payment. They do not interact with specific applications in any unique way. For the purposes of regulation, they must comply with existing anti-money laundering legislation. They will not be treated as securities.

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Patent Stockpiling: Bank of America Holds 45 Crypto-Related Patents

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A patent grants its holder exclusive rights to an invention, such as a piece of technology, for a certain period of time. While designed as a means of protecting the intellectual property of inventors, the system is not without its critics who believe that patenting deters innovation and wastes resources.

Consider crypto founding fathers like Satoshi Nakamoto, individuals and groups who place ideas ahead of profit and are more aligned with open source principles than filing patents and closely guarding their secrets — the only secret Satoshi guarded was his/its identity. It may come as a surprise, then, to learn that in the last decade the company that has amassed more cryptocurrency patents than any other  — and who, to some, seems to be the antithesis of everything decentralized currency stands for — is Bank of America.

According to Bitcoin Patent Report, in the nine years since Bitcoin’s first block was mined, over 2,000 related patents have been filed. In the cryptocurrency’s first few years the number of patents was low — averaging under 50 a year. By 2015 that number began to increase, and by 2016 was growing exponentially. In 2017, 1,250 cryptocurrency-related patents were filed.

Some of the companies who feature in the top ten are to be expected, such as Bitflyer and IBM, whose interest in blockchain is well documented. The computing giant has filed a total of 34 cryptocurrency related patents, but is outpaced by South Korean brokerage Coinplug, which is third on the list with 39.

Others on the list are more unexpected, either because they have publicly expressed little interest in cryptocurrency, or are not commonly associated with such cutting-edge technology. It makes sense that MasterCard would have an interest in digital payment systems, for example, but it is surprising to see them ranked ninth for cryptocurrency related patents, with 21 filings. The greatest surprise of all is reserved for the top spot, which as noted above is claimed by Bank of America, having at least 45 patents filed.

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US Regulator Warns Against Pump-and-Dumps and Advises How to Buy Crypto

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The U.S. Commodity Futures Trading Commission (CFTC) has issued its first warning against pump-and-dump schemes involving cryptocurrencies while giving advice on how to buy crypto. This warning follows previous warnings by two other U.S. regulators.

CFTC’s Warning

The CFTC issued a Customer Protection Advisory on Thursday to warn the public to “beware of and avoid pump-and-dump schemes that can occur in thinly traded or new ‘alternative’ virtual currencies, digital coins or tokens.”

CFTC Director of Public Affairs Erica Elliott Richardson explained, “As with many online frauds, this type of scam is not new – it simply deploys an emerging technology to capitalize on public interest in digital assets,” adding that:

Pump-and-dump schemes long pre-date the invention of virtual currencies…The CFTC encourages all customers to thoroughly research potential investments, stay informed about tactics commonly used in investment fraud, and avoid investment opportunities they don’t fully understand.

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Bitcoin Isn’t the Currency for Money Laundering, US Bank Pays $613m Fine

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Money laundering has always been a big problem in the financial sector. Turning “dirty” money into “clean” money makes it nearly impossible to trace criminal activity. One could argue money laundering is a sold as the banks themselves. US Bancorp is fined $613m to settle “willful” violations of the Bank Secrecy Act. It is once again evident financial institutions are the go-to solution to launder money. Cryptocurrencies such as Bitcoin, on the other hand, are very small fish in this cesspool.

Addressing money laundering problems is not easy by any means. With so many people involved in these processes, it’s only natural some transactions go by unnoticed. Banks staffers often fail to recognize or report suspicious transactions. In the case of US Bancorp, it will cost them a hefty penny. With $613m in fines to be paid, some bank members will be to blame. It also shows how relatively easy it is to launder funds through the banking system. There are quite a few institutions who either don’t flag transactions or do not bother to deal with the reporting side of things.

Most of the fines will be paid to the US Treasury. The remainder will go to FinCEN, The Federal Reserve, and the Office of the Comptroller of the Currency. While such a fine is steep, it’s usually a drop in the bucket. Entities such as US Bancorp can make a lot more money from processing these illicit transactions like normal. They collect fees for every transaction, after all. This fine will not necessarily make any big dent in their earnings. More worryingly, people will probably forget US Bancorp was even involved in this scandal in a few months from now.

It is uncanny how these are the same banks who tell people Bitcoin is a tool for criminals and terrorist. Unlike the systems used by US Bancorp and consorts, Bitcoin is as transparent as it can get. There is a degree of pseudonymity, but people can flag transactions in real-time. All information other than users’ identities is public and traceable. Converting Bitcoin to real money needs to be done through brokers or exchanges. These companies perform checks to prevent money laundering as well. It is very cumbersome to cash out crime proceeds with Bitcoin as of right now.

Even then, the converted money is still processed by banks. If they do not perform proper AML checks, bitcoin isn’t to blame for their shortcomings. US Bancorp and consorts need to be punished far more severely for failing to adhere to regulatory guidelines. They have all of the information on hand to flag, track, and identify suspicious behavior in a few minutes. Why they aren’t doing so is anybody’s guess right now. Money laundering will always be facilitated by the banking system.

Original linkOriginal author: JP Buntinx
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JPMorgan’s WePay: Crypto Lacks Demand, Needs ‘Killer Use Case’

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Some financial institutions are claiming that a lack of demand from clients, coupled with a drought of important use cases, is holding Bitcoin and other cryptocurrencies back.

Where’s the Demand?

If you want to start actually using Bitcoin and other cryptocurrencies, says JPMorgan Chase & Co., you need to start asking.

According to Bill Clerico, CEO of JPMorgan-owned WePay, his company simply isn’t receiving enough requests to justify supporting cryptocurrency transactions.

Clerico also adds that nobody has found a must-have use case for Bitcoin or crypto, which is needed to truly drive cryptocurrency into the mainstream. “Crypto is very interesting,” he told Bloomberg, “[but] no one has figured out a killer use-case.”

Of course, JPMorgan has a history of not supporting Bitcoin, with CEO Jamie Dimon once calling it a fraud.

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Japanese Crypto Associations Merging to Restore Trust Across the Industry

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Japan’s two cryptocurrency associations have reportedly decided to merge in order to restore trust in the industry and accelerate self-imposed rules. Once approved by the Japanese financial regulator, the new organization will have the power to set penalties for breaches of self-regulation.

Two Crypto Associations Merging

Japan currently has two cryptocurrency industry associations: the Japan Blockchain Association (JBA) and the Japan Cryptocurrency Business Association (JCBA). The former is headed by Bitflyer CEO, Yuzo Kano, and has a total of 88 members, while the latter has a total of 154 members, according to Minkabu publication.

The two organizations have reportedly been in talks to merge after the hack of one of the country’s largest exchanges, Coincheck, where 58 billion yen worth on the cryptocurrency NEM were stolen. They “are hurried to restore trust in the industry,” Forbes Japan reported.

They “will be integrated to establish a new self-regulating organization,” to focus on areas such as safety management system and compensation of customer assets, the news outlet added. In addition, the new entity will also focus on the reliability of crypto exchanges that have already been approved by the Japanese Financial Services Agency (FSA). Currently, there are 16 approved exchanges and 16 under review, including Coincheck.

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Japanese Crypto Associations Merge for Self-Regulation

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The crypto industry in Japan is still reeling from the half million dollar Coincheck heist last month. The fallout from one of the largest digital currency hacks in history was wide reaching. Further calls for safeguards and regulation have been made in what is currently the world’s most crypto friendly nation. Rather than a heavy handed approach from the government, two of Japan’s leading cryptocurrency associations are about to merge to self-regulate the ecosystem.

Self-regulation over government restriction

It was reported today that, according to sources, Japan’s two cryptocurrency industry groups are in talks to form a self-regulating body. The Japan Blockchain Association and the Japan Cryptocurrency Business Association are expected to merge as early as April with the intention of implementing further safeguards to protect traders and investors.

The move comes in the wake of the Coincheck hack which resulted in over $530 million in XEM tokens being stolen from the Tokyo exchange. The amalgamation would reassign the heads of both organizations into one self-regulatory body however no definite decisions have been made yet.

Neither association would release any details to the media however the move is a positive one and would bring about a safer environment for crypto users, merchants and exchanges. The Coincheck hack revealed a number of flaws in Japan’s crypto ecosystem but instead of the government taking a heavy handed approach, as in neighboring China, more proactive and constructive solutions are being sought.

Japan leads the way

The Southeast Asian nation is currently one of the world leaders in cryptocurrencies with reports that over 50% of the global trade last month was made in Yen. According to analytics website Coinhills Japanese exchange bitFlyer is the top exchange for daily Bitcoin trade, with over 314,000 BTC traded in the past 24 hours. Like South Korea, the country has some huge exchanges and its citizens are free to trade providing they remain lawful and do not use cryptocurrencies for any shady purposes.

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