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The Bank Of Japan Considers Deploying Blockchain-Based Digital Currency

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The Bank of Japan has announced that they will start experimenting with their own Central Bank Digital Currency (CBDC) to determine whether or not the technology can be feasibly implemented within the country.

In a paper title "Technical Hurdles for CBDC", the BoJ weighed the pros and cons of establishing a centralized versus blockchain-based digital currency. It was noted that a centralized solution would provide ample capacity and speed, yet act as a single point of failure. Conversely, a blockchain-based solution would be more resilient, but lack the performance of a centralized alternative.

The paper listed two primary concerns regarding the deployment of a digital currency:

  • Universal Access: As less than 75% of the Japanese population own a smart phone, a large portion of the population would be excluded from the new currency system.
  • Resilience: Given that Japan is a hotbed of seismic activity, would the currency be able to withstand a series of natural disasters that led to a nationwide power outage.

Japan is still very much a cash-based society. Despite the emergence of credit cards and smart phones, most Japanese consumers continue pay with cash at shops, convenience stores, and restaurants. Compared to China, where most shoppers use apps like Alipay and WeChat to make purchases, Japan lags far behind in smartphone-based payments. To add to the pressure, China just took the lead in digital currencies by launching its own nationwide blockchain network in April.

Even though Japan trails behind other countries in the adoption of digital payments, in 2017 they were the first country to pass a law recognizing Bitcoin as a legal payment method. Some large retailers in Japan, such as Big Camera, have already adopted Bitcoin and accept it as payment at their cash registers. JP rail, the largest railway operator in Japan, announced last year that they were planning to allow passengers to add credit to their train passes using Bitcoin.

In February, the central banks of Japan, England, Canada, Sweden, Switzerland, and the European Union formed a group to study digital currencies. However, even if these nations were to launch their own digital currencies, the question of how this would solve the ever growing worldwide debt burden, remains unanswered. Simply migrating existing currency and debt to a different database or blockchain would not solve the absurd debt-to-gdp ratios, or the ever sliding negative interest rates sweeping the globe.

Decentralized digital currencies on the other hand, such as Bitcoin and Ethereum, offer an alternative form of money that is not debt-based. Distinct from existing fiat currency, a Bitcoin owned by one person is not owed to anyone else and cannot be created at will be a central authority. In the long run, citizens may find it more beneficial to convert some of their existing wealth into well-established cryptocurrencies, rather than waiting for a viable solution to come from the central banks.

Sources: https://cointelegraph.com/news/bank-of-japan-will-begin-experimenting-with-a-digital-yen/amp https://blockchain.news/news/bank-of-japan-testing-digital-yen-cbdc https://www.bitcoininsider.org/article/81224/japan-entering-central-bank-digital-currency-space-too https://ca.finance.yahoo.com/news/breaking-japan-biggest-railway-plans-125528127.html