The cryptocurrency scene is evolving too quickly for policymakers to keep up. That’s the rationale behind a move by Japan—already arguably the most advanced nation in the world when it comes to cryptocurrency regulation—to officially let industry create and enforce its own rules. If the approach works, expect other nations to try it too.
Japan’s Financial Services Agency has granted the Japan Virtual Currency Exchange Association, a self-regulatory organization made up of representatives from cryptocurrency exchanges, authority to create rules aimed at protecting consumers, preventing money laundering, and standardizing how exchanges should operate. The agency also gets the power to sanction exchanges for breaking those rules, reports Reuters.
In April of 2017, Japan’s licensing regime for exchanges—the first of its kind—went into effect, part of the government’s reaction to the catastrophic collapse Mt. Gox, a popular cryptocurrency exchange that lost $450 million to hackers in 2014. Despite the move, in January of this year another exchange, Coincheck, got hit, this time for more than $500 million.
Coincheck was operating without a license, under an exemption. But the hack revealed gaps in the policy, particularly with respect to cybersecurity, and illustrated how difficult it is for lawmakers to keep tabs on the fast-changing industry. That’s not just a problem in Japan. Brian Quintenz, a commissioner for the US Commodity Futures Trading Commission, has suggested that American cryptocurrency exchanges ought to think about self-regulating as well. Cameron and Tyler Winklevoss are working with other exchange owners to heed that suggestion.
Keep up with the fast-moving and sometimes baffling world of cryptocurrencies and blockchains with our twice-weekly newsletter Chain Letter. Subscribe here. It’s free!