The man who single-handedly made Japan an oasis for bitcoin entrepreneurs was holding court with political supporters. The price of admission: ¥10,000.
Squeezed into a tiny private room at a Chinese restaurant in central Tokyo, Mineyuki Fukuda was at the head of the table with a half-dozen techies.
Fukuda started by explaining how he, a second-term Diet member on an obscure subcommittee overseeing electronic payment systems, wound up in charge of Japan’s bitcoin policy.
Nine months ago, no more than a handful of Japanese officials had even heard of the digital currency, let alone something called Mt. Gox, a bitcoin bank run by a Frenchman who just happened to live in Tokyo.
After $473 million worth of virtual money was stolen by hackers, the government was finally forced to ask: What is bitcoin? And, more importantly, who should regulate it?
“The Finance Ministry didn’t want to deal with it. Neither did the Ministry of Economy, Trade and Industry,” said the 50-year-old politician, a skinny pink necktie and an unruly shock of dark hair accenting his gray suit. “It fell to me.”
To get the facts, Fukuda went on a listening tour. He met with traders, programmers and merchants to find out how bitcoin works, and how it doesn’t. A popular blog showed him posing next to a computer rig with its circuit boards exposed, and smiling with an entrepreneur who looked more like a skateboarder than a businessman.
Rather than making a law, Fukuda decided instead to push industry to come up with its own rules and enforce them.
Cultivating new business is part of Prime Minister Shinzo Abe’s agenda, so Fukuda was able to persuade his colleagues in the Liberal Democratic Party to risk his hands-off approach.
For the average Japanese, bitcoin began and ended with the Mt. Gox meltdown. It’s viewed as an imported oddity that’s now dead. These days, the vast majority of enthusiasts at weekly meet-ups in Tokyo are expats. Fukuda says he wants that to change.
Still, it’s sometimes lonely being the only government authority in charge of a technology few understand. During a fact-finding mission to the U.S. in September, Fukuda says he was stood up by Jared Polis, a congressman from Colorado, who canceled their meeting at the last minute. When Fukuda tries to tell voters back home in Yokohama about his new portfolio, he says the response is usually: “huh?”
On this chilly November evening, though, Fukuda was sharing oolong tea, aged Chinese wine and sweet and sour pork with a group of seven supporters and two journalists crammed around the table.
It was a rare audience who could actually appreciate Fukuda’s musings about the potential uses of “blockchain,” the permanent online registry that prevents bitcoin from being counterfeited.
“To me, bitcoin isn’t just a form of money,” Fukuda told the room. “What I’m really interested in is the future of blockchain.”
“Indeed, indeed,” came the response from around the table.
“Take, for example, the process of registering property titles,” Fukuda continued. “Right now the government has to keep records. If blockchain were used, everyone would know who owns what and the government wouldn’t have to be involved.”
One of the diners kept trying to steer the conversation into the realm of central bank conspiracy theories, a favorite topic among bitcoin’s early adopters.
They had each contributed a minimum of ¥10,000 to fund Fukuda’s trip to the United States, where he met with the U.S. Treasury’s Financial Crimes Enforcement Network and some bitcoin entrepreneurs. The LDP didn’t cover his expenses because he’d already used up his travel budget. The main message the lawmaker brought home: “Everyone said they wished the U.S. was doing it the Japanese way.”
When it comes to regulating bitcoin, standards are all over the map. The U.K. has kept quiet on the subject, leaving entrepreneurs to wonder what will happen, while the U.S. and China have been quick to make rulings to limit speculation or stop money laundering.
Then there’s Japan, where Fukuda made some clever compromises.
His first move was to define bitcoin using purposely nebulous language that floats clear of Japan’s banking laws. Most countries have decided that bitcoin is either a currency or a commodity. Fukuda’s formulation — “digital recorded value” — is neither.
Next, he teamed up with one of the people seated around the table that evening, Yuzo Kano, a 38-year-old former trader at Goldman Sachs Group Inc. who quit a year ago to start his own bitcoin exchange, a replacement for Mt. Gox.
Fukuda persuaded Kano to set up a trade group called the Japan Authority of Digital Asset.
Laying down the law
The idea is to get bitcoin businesses to adopt some basic standards, like making sure that money is stored offline in a “cold wallet” so that hackers can’t get at it, or requiring account holders to identify themselves in a selfie with their driver’s license in the shot.
Since JADA started in August, five companies have signed up.
One heated back-and-forth during the dinner showed how hard it may be to get people in line. “I don’t think our clients want to provide photos,” said David Zhang, an entrepreneur in his early 20s who founded his own trading platform.
“Look,” Kano responded, “We’re going to have to accept some rules if we want to avoid real government regulation.”
Like the permissive parent who lets the kids rough house at the slumber party, Fukuda sat back and watched. Finally, he stepped in to make it clear that, although it may look voluntary, JADA has the force of Japan’s government behind it.
“We made this happen,” he said.
Still getting used to it
Fukuda wrapped up the dinner by reminding his guests that before he can do more to advocate bitcoin, he has to keep his seat in the snap general election Dec. 14.
Wanting to do his part, one of the donors whipped out his smartphone to make a campaign contribution in bitcoins right there on the spot. In theory, it would have taken just a few seconds to scan a QR code and wire the funds.
The nation’s chief government authority on the digital currency grew flustered as he fumbled with his handset. “This doesn’t have my bitcoin account on it,” he said. “It’s on my other phone.”