Tag: nft

Artificial Intelligence, Blockchains, Japan, Yogi Nelson

Understanding Japan’s Crypto Landscape: Key Concepts Explained

Yogi Nelson

Namaste Yogis!   Welcome to the Blockchain & AI Forum, where your technology questions are answered. As a bonus, a proverb is also included.  Today’s question, was submitted by Chisato and she wants to understand the evolution of crypto regulations in her native Japan.

Chisato, you came to the right place. Let’s examine the Japanese regulatory milieu of crypto by dividing the eras into three distinct periods, and ending by defining four key terms.  A big thanks and acknowledgment to So Saito and Kazuki Imanari of So & Sato Law Offices for the source of this information:

Click to access Crypto-Regulations-in-Japan-2024_240904-1.pdf

Early Era: 2014 – 2017   

Japan was an early leader in crypto but after the Mt. Gox exchange collapse in 2015, crypto fell from grace.  One year before the collapse of Mt Gox, the Japanese government decided to not regulate the industry and instead asked the industry to self-regulate.  It didn’t work. Although some retail users fled, crypto developers continued to build and true believers remained and by 2017 Japan was home to the number one crypto exchange.

Era of Stricter Regulations:  2017 – 2020

In America, stricter regulations always happen after a catastrophe; Japan is no different.    In 2018 there was a massive hacking, known as the Coincheck incident, and immediately thereafter Japanese financial regulators came charging.  Exchanges were forced to comply with new regulations, leading to a shake-out in the industry.

Web3 Makes the National Growth Strategy List:  2021 – Present

In 2021, the Japanese government approved a Web3 White Paper wherein it committed to Web3 as a national priority.  They quickly followed that action by being among the first to enact stablecoin regulations.   

Let’s now examine the Japanese definition of four key crypto concepts. 

Stablecoins

As noted above, Japan was a pioneer in crypto regulations and consequently was one of the first to establish stablecoin regulations.  In Japan, stablecoins pegged to fiat currency are defined as electronic payment instruments and require the issuer to obtain a license. Stablecoins classified as assets are subject to crypto regulations, while stablecoins classified as securities are subject to securities regulations.

Non-Fungible Tokens (NFTs)

NFT regulations are generally clear.  The basic rule says, that if the NFT does not function as a payment instrument it is not considered a crypto asset.  Japanese regulators say “pure” NFTs have technical features that prohibit their use as payment instruments.  Japanese regulators also examine whether the quantity and price of NFTs are suitable for payment instruments.  Bottom line:  NFTs are not regulated in Japan; they are treated analogous to trading cards.  However, if an NFT is linked to a real-world asset, e.g. real estate, it could be considered a security. 

Crypto Lending

Crypto lending is not regulated in Japan.  What do I mean by crypto lending?  In crypto lending, a service provider borrows crypto assets from users for a certain period of time and pays a lending fee in exchange.  Why is this not regulated?  Because crypto assets are not considered money, therefore the Money Lending Business Act does not apply.  However, crypto lending maybe regulated in cases where the service is considered custody. 

Crypto Taxation

Death and taxes are inevitable everywhere, including Japan.  In Japan, tax authorities define crypto asset profits as miscellaneous income.  Profits generated by crypto asset transactions are taxed based on the personal tax bracket of the individual.  Income tax rates in Japan go from 5% to 45%!  Ouch. 

I end now with a proverb from Japan, where they say: “the mouth is the source of disaster”.

Until next time,

Yogi Nelson

Artificial Intelligence, Blockchains

AND NOW A WORD ABOUT AIRDROPS?

Yogi Nelson

Namaste Yogis.   Welcome to the Blockchain & AI Forum, where your technology questions are answered, mostly correct!   Here no question is too mundane.  As a bonus, a proverb is also included.  Today’s question, submitted by Danny in Los Angeles, and he wants to know about airdrops.

Danny, you came to the right place.  If you take the term literally, you might think someone is dropping air on your head which would be absurd!  Let’s start with a definition.

Airdrops is a term native to and used exclusively in crypto.  You won’t find reference to airdrops in any other market or industry.  Best of all, airdrops are free!  No charge.  Nada.  Zero.  However, nothing is truly free, meaning we must dig a little deeper.

Let’s start with the obvious; airdrops are a marketing strategy.  The point is to raise awareness and adoption of the project doing the airdrop.  Holy obvious, Batman! Generally, start-up blockchain companies are most likely to engage in airdrops.  The first airdrop occurred in 2014 by AuroraCoin, in Iceland.  El Salvador gave every citizen $30 of Bitcoin to those who installed the government built crypto wallet.  A government-built wallet from a corrupt government to encourage a decentralized money system.  Holy, are you serious, Batman!

Airdrops vary.  I’ll explain a few staring with Standard.

Standard Airdrop.  Standard Airdrop is the simplest.  Participants need only provide their wallet address and basic information. The airdrop quantity may vary depending on several factors, including number of participants, and the amount available, to name just two.

Bounty Airdrop.  To earn bounty airdrops, users must perform certain tasks.  Tasks vary, but generally revolve around raising project awareness, e.g., posting on social media, tagging a company, retweeting a post.  Some projects award airdrops for recruiting other users, think multi-layer marketing, Batman!

Holder Airdrop.  Holder airdrops are often automatic and based on a formula of quantities of tokens a holder possesses, and duration held. It is a way to reward commitment and loyalty.  Only the financially faithful, Batman!

Exclusive Airdrop.  As the name suggest, exclusive airdrops are reserved for selected individuals.  Who are the exclusive?  Generally, they are people who spend the most time on the project, contribute to the project, post about the project, and/or stake their holdings with the project.  Staking is generally the most effective way to get airdrops.  Holy, hoity-toti, Batman! 

Raffle Airdrops.  Raffle airdrops occur when a project decides to give away X number of tokens, based on a lottery.  However, the lottery may not be completely random.  The lottery may be weighted to give advantage to holders.     

If nothing is free nor perfect, what are the downside of airdrops.  In a word–SCAMS!  I’ll give you two scam types, starting with dusting.

In a dusting scam, the thief will send micro amounts of a valuable coin, e.g., Bitcoin, to a recipient.  The idea is to entice the victim to attach their wallet to a crooked phishing website, via a legit service such as Metamask, to claim their airdrop.  After a user connects their wallet and enters their password the scammer drains the stash!  Holy, where is my money Batman!  The second is enticing market participants to invest in a fraudulent, or non-existent project.  Either way your money is vaporized!  Two more quick points.  Tokens from airdrop projects might be worthless because the project fails, and/or token illiquidity.  Hence, keep the champagne on ice but the cork in the bottle!  Lol!

I end with a proverb from Niger:  Ashes fly back into the faces of those who throws them.

Until next time,

Yogi Nelson

Blockchains

ARE BLOCKCHAINS AND CHARITIES A PERFECT MATCH?

Yogi Nelson

Namaste Yogis.   Welcome to the Blockchain & AI Forum, where your technology questions are answered, mostly correct!   Here no question is too mundane.  As a bonus, a proverb is also included.  Today’s question, comes from Lisa in Naperville, and she wants to know if blockchain technology and charity are a perfect match?

Lisa, you came to the right place.  Prior to your question, I hadn’t considered a possible marriage between blockchain technology and charity work.  That’s my fault.  The answer is … read this article and decide for yourself!

In traditional charity, benefactors expect their donations will be accepted and deployed congruent with their intent by the charity administrator.  In other words, based on trusting intermediaries.  What if there was a technology that would remove the need for trusted intermediaries? Suppose that technology allowed a peer-to-peer exchange of value, without permission, and need for trust because all transactions are subject to verification on a digital distributed ledger for anyone to confirm, at any time, from anywhere?  That would be incredible! Breaking news, the technology exist–its blockchain combined with crypto currency!  Holy obvious, Batman! Hold on, the tsunami of reasons for pairing blockchain with charity are only beginning to flood in. 

Blockchain technology removes unnecessary intermediaries, making the donation process faster.  For example, donations can be sent and received directly on-chain, making transactions quick.  What perhaps previously took 8 steps, and several middlemen, can be reduced to maybe 4 using blockchain technology.  However, this pairing goes beyond the removal of intermediaries.

With blockchain technology benefactors can verify transactions independently.   In other words, matching blockchain and charity flows beyond eliminating middlemen.  The point is there is no need to trust because the proof is in the blockchain.  Sweet! 

A third reason is efficiency.  Charities that utilize smart contracts, via blockchains, have a tremendous advantage over their competitors.  With smart contracts, charities can automate transactions when predetermined criteria are satisfied.  Thus far we have faster, more efficient, and trustless reasons.  Let’s talk about international charities. 

Speaking from personal experience, sending money overseas is expen$$$ive and s-l-o-w—but not with blockchain technology.  With a couple of mouse clicks money is sent instantly and for just pennies.  Moreover, with blockchain and smart contracts the potential pool of donors is worldwide, making it reason number five!  You are on a roll now Batman, please mention NFTs.

Charities need to raise awareness to succeed and issuing NFTs could be a means to draw attention.  NFT stands for non-fungible token, therefore each NFT is unique.  A charity could raise funds by selling a series of NFTs or an NFT collection set in a raffle, for example.  Holy storytelling, Batman! 

Using blockchain technology for charitable purposes is not worry free.  For example, crypto currencies fluctuate in value; hence, a benefactor may exceed their intended donation, or under deliver.  Either way, it complicates budgeting for the charity.  Sending stable coins is a possible solution because they are pegged to specific assets, i.e., U.S. Dollar, Euro, Yen, etc. but that too could be a hurdle. 

What hurdle?  The challenge of the digital divide.  Not every charity organization has the technical skills to handle crypto currencies.  Cyber security may be a challenge.  For instance, transactions can be hacked or compromised.  Send out the Bat signal! 

Government regulations are always a consideration.  Some nations permit charities to accept crypto donations; others might incarcerate in the BIG house for doing so! 

I end with this Panamanian proverb: If you want no disappointments, don’t indulge in illusion

Until next time,

Yogi Nelson