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The Japanese way of money from the Genji Era to the Mt. Gox scandal

Author: LB 2020-06-28 143

If we would like to educate ourselves in a certain field, one of the best options we have is to listen to experts from different cultures and have some kind of insight from different angles. With this kind of intention, I decided to bring you some thoughts from a famous Japanese YouTuber who explains us the history of money in Japan from the Genji Era to what we call crypto currencies these days.


Atsuhiko Nakata was born in Japan in 1982 and he has been working in the Japanese media, mainly as a comedian. He has a very unque way of presenting things, therefore I thought it would be interesting to have a look at his presentation on cryptos and money in Japan in general. He published a video on YouTube on the 22nd of August, 2019 in which he talks about crypto currencies and their adaptation in Japan.


The first Bitcoin whitepaper was published by a most likely non-existent person called Satoshi Nakamoto and as this names sounds a bit Japanese, many of us tend to think that Bitcoin was invented in Japan, however this is not true or at least we have no evidence in this regard. Anyway, we see that even Blockchain based technologies are being actively developed in the country and Japanese citizens are pretty welcoming about this new kind of technology as well.


All right, let's see what Nakata Atsuhiko tells us about cryptos.


In his video published in 2019, he starts his discussion from the formation of our modern financial system.


If someone uses the word "cryptocurrency" in Japan, many of the people around would immediately start thinking of something fishy and huge losses.


So we see that Japanese citizens seem to be doubtful about this whole technology and "this is something that should be avoided" is a common idea when somebody brings up the topic of cryptos.


This does not mean that there is no interest in Japan for crypto currencies, but complete adoption takes time. When Bitcoin appeared it was very popular in Japan and many entrepreneurs followed the latest trends, however this kind of overheated atmosphere seems to be cooling down a bit. Nevertheless, the Japanese comedian found the whole topic interesting and researched a few facts on crypto currencies in Japan for his audience.


Vulnerabilities in Blockchain based technologies cannot be overlooked, especially because recently we hear and read more and more news on stolen cryptos and crypto exchanges attacked by hackers. And also for this reason Japanese users are still a bit skeptical about these new technologies.


Unquestionably, the future will change with believers and non-believers in the Japanese society.


The Japanese comedian hints that these cryptos will appear in films in the next few decades. Clearly, our future will encompass these new financial inventions as well.


Money in the Genji era


First let us see a short history lesson.


First of all we have to clarify the significance of non-money like instruments that existed in Japan prior to money.


In Japan, during the Genji era, citizens exchanged goods for goods instead of money.


There were merchants with boiled rice and there were people with raw meat.


Whoever had raw meat did not want to exchange it for rice, because they knew there was more energy in rice so they asked for 10 portions of rice or even 100 portions, depending on the meat. On the other hand though, the merchant wanted to give 50 portions of rice only, therefore they had to negotiate. That is how trading went in the Genji era.


This was fairly simple, but let us think of the following issue.


Someone has boiled rice, but he does not like meat, he would prefer raw fish. This is not an example that came out of thin air in Japan.


This person would not be willing to exchange his rice for meat. He would prefer fish.


Or what if he was offered cucumbers, but he would like to eat a salad?


So it was not long before Japanese citizens realized that the direct exchange of goods is a very inefficient way of trading, usually because people always wanted items that were not in stock. This problem can be tackled easily if we use some kind of instrument that is able to transfer value.


What if we were to exchange shells?


And that is exactly what the did in Japan.


Soon silver and gold were introduced as instruments.


These precious metals were introduced, because for example shells were accepted in certain Japanese villages and certain shells were not accepted in other villages. And this caused confusion.


Precious metals were much more convenient, because everyone know their value. Especially because they were rare and the amount they could mine was limited. So we can christen this era the the first era when money appeared in Japan.


In the middle ages, when goods were exchanged money with certain silver or gold content were exchanged too. The value of this money was controlled merely by the amount of precious metal it contained.


What is the problem with money that contains precious metals?


We hardly use this kind of money these days so we do not really think of this problem, but think about it! Can you carry as much as you want with you? No, right?


Just think Japanese people carrying several kilos of gold in getas. How funny it must have been!?


So this idea was out-of-question in the long run and they had to come up with a new one. It was much more convenient to use a piece of paper, scribble some kind of numbers on it and carry these notes when people wanted to buy something. And these notes were exchangeable at certain places.


These note were the predecessors of modern day banknotes. They were coupons that could be exchanged into silver and gold.


In other words, the Japanese government were collecting silver and gold and they issued notes based on the amount of precious metal they had. If a Japanese citizen paid a visit to the Japanese government they were obliged to give precious metals in exchange for the citizen's note.


Consequently, everybody was very happy to collect these notes, because they knew that they will get precious metals for them when they go the bank. Therefore these notes actually had value.


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These rules were established in England in 1816 and the Japanese government adopted these guidelines to formulate their own financial system.


However, the Americans in 1971 started financial reforms to abolish this old concept.


It the Nixon era, the exchangeability of these note was terminated.


Mainly due to the war in Vietnam.


The war cost a lot of money and it was clear for the Americans that it is impossible to guarantee the exchangeability of every single dollar bill.


But anyway, why would it be impossible to separate these note from the precious metals? People already believe in the power of the dollar bill.


Nobody comes to the Central Bank to demand precious metals for his/her dollar bills anymore. If they already believe in the value the dollar bill represents (and at that time, this was true), there is no need for actual exchangeability. Who thinks of the actual value of a dollar bill? What does it mean for you? We kind of know what it represents, therefore we exchange it.


So from the point when the banknotes exist independently from the precious metals kept by the Central Bank, monetary politics can be altered freely by recklessly printing these banknotes.


So in a few decades financial concepts changed and humans, instead of exchanging shells print money in accordance with the actual monetary politics. If we accept this, we can also accept the fact that finance and money will keep changing in the following few years too.


Even these days. Sometimes it is hard to comprehend the difference between our banknotes in our wallets and the digital money we have in our e-wallet applications. So which one is which one? They represent the same thing, and they are just in different forms?


A few years ago cryptocurrencies appeared.


A well-behaved crypto should satisfy three criteria. It shall store value, it should be convenient to store and we should be able to pay with it. I guess a cryptocurrency is perfect for these purposes.


In the past, when people were exchanging goods to goods, the first criteria was not satisfied.


If someone had 100 fish and he wanted to pass these fish as inheritance. Well... Not straightforward. Or if someone has a lottery ticket that expires in a year. How do we store value with these?


Banking system that raises concerns


What is the purpose of our banking systems?


We would expect our banks to guarantee the value of our money.


So in reality, we believe that the money issued by our banks have value. Since the bank guarantees this, in some cases we are ready to pay transaction fees for example.


Or in other cases, when we deposit our money in the bank and the bank uses the same money to provide loans to customers to eventually charge interest on these we might have an impression that the bank is an ingenious institution.


Clearly, someone has to guarantee to value of money and banks tend to monopolize financial activities.


The concept of Bitcoin, born in 2009 aims at solving this problem using a technology called Blockchain.


So basically, Blockchain takes away the bank's authority to guarantee the value of money and endows the community with this stolen authority.


With this democratic (what a modern expression...) system the oligopoly of the banks could be weakened and this idea is the core of the Bitcoin whitepaper published in 2009.


So this is basically and architecture with participants who continuously check the validity of the transactions. Therefore there is no need for a centralized entity and the system can operate in a distributed fashion. This also means that participants are able to exchange money in a P2P-like way and for example the American government is not able to influence the value of the exchanged currency in such a system, which results in interesting phenomenons.


Radical changes for Bitcoin


Most of us, without a solid background IT would give up our rendezvous with Bitcoin. In order to understand the concept of Blockchain you would have to enrol in a 5-year CS course and most of us will not sit down to develop Blockchain-based applications. Nevertheless, there were a few entreprenurs who were interested in these kind of new concepts and they started exchanging these coins among them.


The 22nd of May, 2010 is a very important day. This is called the Bitcoin Pizza day in English literature, when 2 slices of pizza were sold for 10.000 BTCs.


So if pizza can be purchased with it, why don't we call it money?


Obviously many enthusiasts thought like this and the technology started booming.


This caused secondary issues. Transactions validated on the Blockchain require long calculations and Bitcoin miners need to purchase expensive video cards. Not surprisingly, the video card market experiences significant increase in demand. The same is true for the market of ASIC miners.


Wealth disappeared in hacker attacks


Mt. Gox was then established in Japan.


Mt. Gox was not a company to provide crypto exchange platforms. They developed a platform to exchange game cards.


However, they realized that they could exchange Bitcoin the same way as they do with game cards and they launched their first crypto exchange. They witnessed a rapid initial success and their platform started growing internationally.


Users with momentum gained started pouring money into the platform, because they felt that something new is happening.


When the balloon grew large enough, hackers attacked the system and the money disappeared. Oddly enough, just a few days before the hacker attack the executives were replaced in the company and the French Mark Karpelès was arrested in Japan.


In the following investigations it turned out that something was wrong with the accounting documents and many concocted conspiracy theories.


Lawsuits in Japan lasted until 2019 and the head of the company has been released recently.


It turned out that although the numbers did not strictly represent reality the reason for these imperfections was not a deliberate fraud. They just made few mistakes in their calculations.


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This mishap was sufficient to trigger a rapid spread and Bitcoin was heard of in every country on the globe.


Cyprus scandals


The Cypriot financial crisis marks an important point in the history of Bitcoin.


Cyprus was know for its favourable taxation policies.


Local politicans establish rules to not levy taxes on foreign companies and only charge registration fees upon incorporating a company in Cyprus.


This was very attractive for entrepreneurs and several hundreds of these companies were registered in the country. Mainly to avoid taxes.


When the financial situation turned downhill politicians changed their mind and they came up with an idea to levy taxes on these companies too.


And entrepreneurs did not like this idea. They stared pulling out their fund from the country.


This caused a severe instability in the banking system and locals lost faith in the banks.


However, many remember the Mt. Gox scandal from Japan and they recalled the idea of this decentralized machinery called cryptocurrency. It would be expedient to use such an instrument, wouldn't it? Consequently, an insane amount of classical cash flowed into the Bitcoin architecture including the cryptocurrency mines.


Cryptos legalized in Japan


A few years ago, the Japanese government voted for the acceptance of cryptos as official means to carry out transactions and this caused another surge in prices.


From this point Japanese citizens tends to look at cryptos as deceptive instruments less and they started believing that cryptocurrencies can reform the Japanese financial system.


It was not long before new cryptoexchanges started appearing in Japan.


Various financial institutions in Japan realized the hidden potential in cryptos and almost all of fintech companies in Japan develop crypto-based solutions today.


Altcoins


The Blockchain technology enables us to develop alternative cryptocurrencies.


In these days, Bitcoin is the most famous cryptocurrency, customers have faith in it. Some purchase BTC to store value, or in other words to invest money for the future.


Bitcoin bubble


When hackers attacked the Japanese cryptoexchange experts were talking about Bitcoin bubble. 1 BTC was 30 USD at that time... When the Japanese government announced that it will accept Bitcoins as an official way for payments 1 BTC was around 20.000 USD on the exchanges.


This price has fallen back slightly, but even in 2020 1 BTC is approximately 10.000 USD.


Translated from Japanese by LB.


You can support me using the following BTC address: 1D6qYk7mWQFE1K5tUgqimjiCLT66AHdyNX


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