Japan mulls over Bitcoin as a legal currency

If Bitcoin should be made into a legal currency, the ramifications over the change will be huge for banks, businesses and users.

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Japan is debating changes to make the virtual currency Bitcoin legal tender, a move which could change the future of the cryptocurrency in the country.

The country's current governors, the Liberal Democratic party, is planning to propose changes to the legal system which would define virtual currency such as Bitcoin, Dogecoin and Litecoin as official tender.

This means that cryptocurrency will no longer be placed under the banner of a commodity. Instead, a new definition would consider virtual currencies as "a medium of exchange, meaning that they can be used to purchase goods and services," as reported by local news outlet Nikkei.

In addition, the new definition requires that cryptocurrency must be exchangeable for legal tender through "purchases or trades with an unspecified partner."

Tomonori Kanda, an officer from the Japanese Financial Services Agency (FSA), said the issue was discussed on Wednesday and the matter is due to be raised in parliament.

"There is a long way to go," Kanda told The Guardian. "But we have discussed reform and believe it is the right way to go."

As the possibility of converting virtual currency from an asset to legal tender has not been debated in parliament yet, the timing of new rules is still up in the air.

However, if these changes go ahead, virtual currency would have to be backed by a central financial authority, leading to tight controls, regulations and potentially taxation.

As an example, the FSA would require cryptocurrency exchanges and businesses dealing in virtual currency to register with the agency.

The collapse of Mt. Gox in 2014, which was the largest Bitcoin trading platform at the time, resulted in investors and traders losing over $375 million in BTC based on market value at the time. The sudden disappearance of the platform sparked rumours of fraud and theft, eventually leading to Mark Karpeles, the former CEO of Mt. Gox, being held by Japanese authorities on charges of embezzlement.

See also: The Mt. Gox bitcoin debacle: Bankruptcy filed, customer bitcoin lost

Mt. Gox did bring to light a lack of consumer protection for those choosing to invest in Bitcoin, as there is no central financial backing to the currency.

However, supporters argue that the whole point of virtual currency was to remove the need for a central authority, which allows virtual currency to take the place of traditional money in areas with corrupt governments, and it also promotes financial innovation and the freedom of trade.

In 2013, China banned banks from Bitcoin-based transactions citing the virtual currency's links to illegal activities.

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