Blockchain and cryptocurrency in Japan: an expert view

Maurizio Raffone’s services are in high demand. The former investment banker has built a reputation as an expert on all things blockchain in Japan, where he runs Finetiq, a consulting firm that helps fintech companies utilize blockchain to expand their presence in the country.

Raffone held a session at the annual Rakuten Technology Conference last October entitled Blockchain and its use cases: Japan compared to the rest of the world. Following the talk, the blockchain guru sat down with Rakuten Today.

Japan: A reluctant crypto hub

In 2017, Japan became the world’s first economy to regulate cryptocurrencies — a reaction to two large-scale heists on unregulated Japanese cryptocurrency exchanges. The move was somewhat unexpected for a country which — despite its reputation for cutting-edge technology — tends to lag behind in adopting new technologies for the general public (see Japan’s continued love affair with fax machines).

“The regulation came into place because they needed a legal framework to define virtual currencies,” Raffone explains. “Now I’m not a Japanese politician, but I can deduce that they put those laws in place because they wanted to avoid the black hole where retail investors, excited by this new technology, go off and burn their pension money on bitcoin.”

The resulting explosion in interest in cryptocurrencies caught even regulators off guard. “All of a sudden they found the spotlight of the whole world on their country,” he recalls. “There was massive growth in the industry, particularly when China banned cryptocurrency exchanges. That created an industry that was much bigger than what they expected. Now at that point they had to backpedal a bit and say okay, how are we actually doing this?”

Where are the local cryptocurrencies?

Despite being home to many of the world’s largest cryptocurrency exchanges (including the Rakuten-owned Everybody’s Bitcoin), few local cryptocurrencies have managed to make it big: Of the top 50 cryptocurrencies in the world, not one is Japanese.

“Most of these cryptocurrencies are actually driven by grassroots entrepreneurial efforts. We haven’t had a lot of that in Japan,” Raffone explains. ”First of all we don’t have a lot of software engineers — that’s a big problem here.. and a lot of the talent we do have is locked up in big organizations.”

Raffone believes that regulation also has its downsides. “After the regulation was put in place, it curtailed a bit of the more risk-taking business development that could have gotten Japan to a position of relevance on the world stage.”

Academic investment may also play a key role: “Japan dominates in terms of science, medical sciences, things like robotics and engineering. I think the reason we don’t have a coin in the top 50 is because the focus has been on other areas.”

Blockchain: More than cryptocurrency

Raffone laments the attention cryptocurrencies receive, calling the headlines on cryptocurrency exchange heists “the least interesting thing about blockchain technology.”

His firm provides blockchain solutions for both Japanese companies and companies looking to do business in Japan. “Japan is a tough market to get into,” he explains. “A lot of Japanese organizations are very vertically integrated, which limits how you can implement blockchain. At our firm we focus on how it can be used practically, mostly at the corporate level.”

While the cryptocurrency boom has sparked public interest in blockchain, much of the technology is actually implemented behind the scenes and out of the public eye. Adoption of the technology has also largely been limited to the world of finance.

He talks about real-world use cases of blockchain technology that push those boundaries, such as Ant Financial’s recent experiments with medical e-bills in China that prevent “double-dipping” multiple reimbursement scams by keeping all billing records on a blockchain ledger that cannot be changed.

“From there, you can start to add value in terms of growing financial services, health services, retirement services. It’s exponential.”

Dark times ahead for blockchain tech?

In order to maintain the momentum that blockchain technology has gathered, Raffone believes that sustained investment is key. “We need greater collaborative effort from government, academia, corporations and startups,” he insists. “Beyond the PR exercises.”

But in today’s fast-paced tech environment, the incremental approach to innovation may not see much success when the financial tide recedes.

“We’re now coming to the end of a fairly long technological growth cycle. We’re seeing monetary policy in the U.S. tighten, and that’s just the start,” Raffone predicts. “We’re going to see it in Europe and we’re going to see it in Japan. And a lot of the things that are happening now with corporate innovation labs and places like that, I’m afraid they’ll disappear very quickly when the economy turns.”

“We need to have processes in place that can be agnostic, to some degree, to the economic environment. Otherwise, you lose that momentum of development, of innovation. A country needs to sustain through the cycle, not just when times are good. That requires a little bit of government intervention, corporations running these labs truly as labs and not just as corporate marketing exercises. Some of the more forward-looking companies are doing that, and I hope they’ll set the standard for everyone else.”

The importance of educating the market

Raffone also co-founded the Tokyo Fintech Association, a non-profit that runs regular events educating people about the fintech industry and blockchain.

“More people need to understand not only the technology itself, but how it’s being used, what it is being used for, and what it could be used for,” Raffone says. “Just having a conversation about it will stimulate investment and human resources into a technology that will do a lot of good. We’re moving towards more decentralization, towards more control over our lives.”

For more about Rakuten Technology Conference, visit here.