Marked hostility to new and emerging Web3 technologies like cryptocurrencies threatens to cost Japan its place as the gaming capital of the world. We’re perilously close to the point of no return, and here’s why.
No one can be sure where the country’s antagonism towards crypto originated or why it persists even after the non-fungible token (NFT) and the crypto “boom” of 2021, which took off globally and prompted officials in the United States and Europe to reverse their initial antipathy for the space, finally opening up to regulation. The White House has just released its first crypto regulatory framework in September 2022, and the committee of the European Parliament followed in October 2022 by approve the Markets in Crypto-Assets framework, also known as MiCA, with an overwhelming vote. As Europe’s first crypto policy, the much-discussed MiCA text represents a groundbreaking step in the direction of what many see as the future of the financial world.
Japan, however, has a very different position.
We all know that Japan is home to gaming giants like Nintendo and Sega and has been for decades, with such triumphs as Super Mario, Sonic the Hedgehog, the Sega Mega Drive and the Game Boy. But, to stay at the top of its game (pun absolutely intentional), the industry needs to be able to move consistently and quickly over time, not get stuck where it was when it was first recognized. Gaming is a highly creative space and has always had the technology to support its extraordinary potential. But, to do this, it must be able to keep abreast of new and evolving innovations, otherwise it will become stagnant and lethargic.
GameFi is an emerging area of interest in the industry with immense potential. But, when you look closer, there are very few Japanese companies developing the GameFi sector into what it is sure to become within a few years to a decade. And if that doesn’t change soon, the entire industry will be at risk.
The worlds of crypto and technology are two of the major stages in the exciting and rapidly changing advancements happening in the modern age, and in Japan they are held hostage by crucial things like taxation and a process of complicated selection.
In Japan, there is no reason to justify crypto assets properly, and none of the auditors want to audit crypto assets. Due to the strict listing rules established by the Financial Agency, the process of listing a coin in Japan can be confusing and frustrating. But, when time is money for any entrepreneur with a brilliant idea, waiting six months for a token to be reviewed is needlessly daunting.
Then there is taxation. In Japan, token issuers are taxed on unrealized assets at the end of the fiscal year, whether or not they have enough fiat currency to cover high taxes. And, while non-crypto stock profits are taxed at a flat rate of 20%, crypto income is subject to a whopping 55% tax rate, a difference of 35 points.
As Japan’s reputation falters, other countries will be waiting with open arms to accept its brilliant minds and fearless entrepreneurs who simply cannot understand why their country has turned its back on them. Europe is full of investor-friendly countries with sound regulatory systems, such as the Netherlands. With the new MiCA legislations about to be widely implemented, it is not extreme to wonder whether other countries would be better suited to Japan’s brain drain.
We could indeed see small improvements in the right direction. The government may be inclined to relax the current onerous listing rules soon and allow the country’s trillion-dollar cryptocurrency trading market to thrive a little easier, with exchanges able to “list more than a dozen pieces at once and without a long selection process”. And since taking office in 2021, Japanese Prime Minister Fumio Kishida has prioritized the development of Web3 as a means of “economic revitalization”, which means we could see a marked change in the way the country regulates the cryptography and supports the growth of the Web3 industry as a whole.
But time is running out, and if only time will tell how Japan’s role in the gaming industry will impact the economy of its future, it’s hard to be overly optimistic.
Shinnosuke “Shin” Murata is the founder of blockchain game developer Murasaki. He joined Japanese conglomerate Mitsui & Co. in 2014 in automotive financing and trading in Malaysia, Venezuela and Bolivia. He left Mitsui to join a second-year start-up called Jiraffe as the company’s first sales representative, then joined STVV, a Belgian soccer club, as chief operating officer, and helped the club to create a community token. He founded Murasaki in the Netherlands in 2019.
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