Bitcoin value falls following government warning in Japan

Cryptocurrency exchange cautioned over licence while child images found in blockchain

Concerns are growing  that increased regulatory scrutiny will curb demand for digital assets such as Bitcoin. Photograph: iStock

Concerns are growing that increased regulatory scrutiny will curb demand for digital assets such as Bitcoin. Photograph: iStock

 

Bitcoin fell after one of the world’s largest cryptocurrency exchanges was said to face a government warning in Japan, heightening concern that increased regulatory scrutiny will curb demand for digital assets.

Japan’s Financial Services Agency is planning to tell Binance, the trading venue founded by Zhao Changpeng, to stop operating in the country without a licence, a source said. Binance has several staff in Japan and has been expanding operations without receiving permission, the person said.

Governments around the world have been stepping up scrutiny of cryptocurrencies in recent months amid worries that they’re facilitating everything from money-laundering to tax evasion and fraud. Japan, one of the most active markets for digital assets globally, introduced a licensing system for virtual currency exchanges last year in an effort to improve oversight.

Binance said in January that it was working to acquire a licence in Japan. The exchange is “engaged in constructive dialogue” with the FSA and has “not received any mandates” from the regulator, Mr Zhao said on Thursday.

To date, the Japanese regulator has issued licences to 16 cryptocurrency exchanges, including bitFlyer Inc and Quoine. Another 16 were given permission to operate without a licence. Among those was Coincheck, which suffered a $500 million hack in January.

Poor security

In the wake of the Coincheck theft, Japanese authorities have clamped down on the industry. Last month, the FSA issued an administrative penalty against Macau-based Blockchain Laboratory Ltd for giving seminars and providing consultation services in Japan without a licence. And this month, it suspended several local venues for poor security measures.

Separately, German researchers earlier this week said they had discovered unknown people are using bitcoin’s blockchain to store and link to child abuse imagery, potentially putting the cryptocurrency in jeopardy.

The blockchain is the open-source, distributed ledger that records every bitcoin transaction, but can also store small bits of non-financial data. This data is typically notes about the trade of Bitcoin, recording what it was for or other metadata. But it can also be used to store links and files.

Researchers from the RWTH Aachen University, Germany found that about 1,600 files were currently stored in bitcoin’s blockchain. Of the files, at least eight were of sexual content, including one thought to be an image of child abuse and two that contain 274 links to child abuse content, 142 of which link to dark web services. – Bloomberg, Guardian News Service