On April 12, the Liberal Democratic Party's Digital Society Promotion Headquarters and the web3 Project Team (PT) held a joint meeting to formulate the "White Paper 2024," which serves as a set of policy recommendations.
Following an interview with Kawasaki Hideto, Secretary-General of the PT and member of the House of Representatives, let's take a look at the contents of the white paper.
On April 12, the Liberal Democratic Party Digital Society Promotion Headquarters and the web3 Project Team (PT) held a joint meeting to formulate the policy proposal "web3 White Paper 2024". Following an interview with Kawasaki Hideto, Secretary General of the PT, and a member of the House of Representatives, let's take a look at the contents of the white paper.
A white paper is generally a report that analyzes the issues and factors that companies need to solve and introduces solutions to solve them, but the newly released "web3 White Paper 2024" proposes the current situation and issues in Japan, as well as matters to be discussed and solutions, on a wide range of themes related to Web 3.0, mainly from the perspective of the legal system.
In the world of Web 3.0, it is common for projects that issue tokens to publish materials in the form of white papers to inform investors of their business plans and prospects, so this is likely following that tradition.
The White Paper formulated this time is the third installment, following the "NFT White Paper" published in March 2022 and the "web3 White Paper 2023" published in April 2023.
In the first installment, the "NFT White Paper," web3PT sincerely expressed a sense of crisis, saying, "The arrival of the Web 3.0 era is a great opportunity for Japan. However, if we continue as we are, we will definitely miss out."
In the past, there have been hacking incidents of cryptocurrency exchanges in Japan, and even back then, Japan's regulations regarding Web 3.0 were particularly clear and strict. Although Japan was excellent in terms of risk management, including investor protection, from the perspective of creating innovation, there were a mountain of issues, such as legal and tax systems.
We will view the new market of Web 3.0 as an opportunity for Japan and create a business environment that promotes innovation through appropriate regulations. This is what web3PT is trying to achieve through its proposals in a series of white papers.
In fact, based on the white papers that have been released so far, discussions on many issues have progressed, and laws and ministerial ordinances have been revised. In addition, guidelines have been established on issues that were unclear in interpretation, which has supported the promotion of Web 3.0 business in Japan.
Perhaps because the Web 3.0 industry has a strong emphasis on freedom, it sometimes shows a resistance that can be described as an allergy to "regulations," but at least it should be considered that web3PT's activities are a major driving force for realistically promoting Web 3.0 business in Japanese society.
The newly formulated "web3 White Paper 2024" also sets out the message, "Nippon Nexus: Weaving the web3 Era - Japan at the center of the web3 era."
In addition, web3PT's strong will can be seen from the positive intention that "This paper is a proposal to strongly support the development of blockchain technology, which can become a social infrastructure, in addition to incorporating the web3 ecosystem into the development of our country."
This paper summarizes the issues and recommendations on a wide range of themes related to Web 3.0 as "issues that must be addressed immediately to promote Web 3" and "issues that should be discussed and deepened in anticipation of further development of Web 3."
Although introduced at the bottom of this article, these are only a small part of the issues. If you read the "Web 3 White Paper 2024," you will see how many issues there are in the area called Web 3.0.
For example, in the topic of "digitalization of payment and investment methods," which is listed as an issue that must be addressed immediately, "measures to promote the distribution of permissionless stable coins" are mentioned.
Permissionless means that the permission of an administrator is not required or there is no administrator, and anyone can freely access the network and trade. Many US dollar-linked stable coins, which are currently mainstream in cryptocurrency trading, fall into this category.
As the Web 3.0 ecosystem expands, the demand for such stable coins continues to grow, and development of Japanese yen-linked stable coins is also progressing in Japan. Looking ahead to a future where stablecoins will be used as "money used by many people," the report recommends that banks and businesses in Japan should begin sorting out the obstacles and legal issues that prevent them from issuing stablecoins.
The web3 White Paper 2024 also summarizes the progress made on the issues raised as recommendations in past white papers, and it can be seen that there has been definite progress in many areas.
As Kawasaki said in an interview with this magazine, tax reforms on corporate taxes on cryptocurrency holdings have been carried out for two consecutive years, and the efficiency of cryptocurrency (token) listing reviews at domestic cryptocurrency exchanges has been improved, and the number of cryptocurrencies being handled has actually increased dramatically in the past two years.
In addition, consideration has begun on the legal nature of digital assets such as NFTs, and progress has been made in training blockchain engineers and dealing with unauthorized NFTs that use content with rights holders without permission.
In light of the above, the white paper by web3PT is full of ambition to incorporate the rapidly developing Web 3.0 market and Web 3.0 business into the current social system without slowing down its momentum, and to use it as a catalyst to make Japan even better. I hope that this welcome challenge will continue and that we will see many progress.
The issues range from familiar ones such as "tax systems for income generated from cryptocurrency transactions" to proposals looking ahead to the future digital society "Society 5.0". Here we will introduce some of the themes raised as issues in the "web3 White Paper 2024".
Problem
"Society 5.0" is a worldview of a "human-centered society that balances economic development and the resolution of social issues through a system that highly integrates cyberspace and physical space." To realize "Society 5.0," in which cyberspace and physical space are highly integrated, collaboration with other fields such as AI, IoT, and the metaverse is essential, but cross-sectoral consideration is insufficient.
Recommendation
To realize "Society 5.0," Web 3.0 policies need to be promoted not only in the blockchain field, but also with an awareness of the linkage with the physical space, for example, the metaverse, and the linkage with AI that can be the engine of a new digital economic sphere.
First of all, a cross-ministerial study should be started to organize the value created by the area where multiple themes such as Web 3.0, the metaverse, and AI are linked and cooperate, and the new issues.
Problem
There is a demand for the use of promising technologies such as VC, DID, and DIW, which can contribute to the digitalization of society in general, and can promote further digitalization and data utilization in society while reducing privacy risks.
*VC: Verifiable Credentials = technology for digitizing certificates containing personal information, or digitized certificates/DID: Decentralized Identifier = decentralized ID/DIW: Digital Identity Wallet = wallet that can store and present the attributes and qualification information of individuals and corporations
Recommendation
In order to use new technologies such as VC, DID, and DIW to trigger business incentives through information sharing via the individual, the Digital Agency needs to take the lead in sorting out institutional and technical issues with a view to the government and local governments taking the lead in becoming VC issuers and verifiers. In addition, for pioneering administrative use cases, related ministries and agencies should work together, centering on the relevant ministries and agencies.
Issues
In Japan, income from cryptocurrency transactions is taxed at a maximum rate of 55%, which is more stringent than in other countries.
In addition, even if cryptocurrency is exchanged for another cryptocurrency, income tax is levied on the profit and loss related to the transfer of cryptocurrency. In addition, it is unclear whether donations made with cryptocurrency qualify as specified donations, and there is no special provision to exempt deemed income from tax on unrealized gains, which hinders donations made with cryptocurrency.
Recommendations
- It should be considered to subject profits and losses related to cryptocurrency transactions to separate taxation, to allow carryover deduction of losses related to cryptocurrency from income amount (for three years from the following year), and to subject cryptocurrency derivative transactions to separate taxation as well.
- It should be considered to tax profits and losses related to cryptocurrency transactions collectively at the time of exchanging the cryptocurrency held for legal tender.
- It should be clarified that donations made with cryptocurrency may qualify as specified donations.
Issues
- Practical issues in establishing and operating a limited liability company-type DAO (such as restrictions on non-executive partners soliciting employees) need to be resolved.
- There are unclear points regarding how to handle the application of existing legal forms other than limited liability companies (NPOs, incorporated associations, associations without legal capacity, etc.) to DAOs.
- It is necessary to ensure interoperability with overseas DAO legal systems (Switzerland, Marshall Islands, etc.) and DAO practices.
Recommendations
- Practical issues in establishing and operating a limited liability company-type DAO should be identified, and those that can be addressed by further clarification of interpretation and review of practical operations should be addressed promptly.
- Practical issues in applying existing legal forms other than limited liability companies to DAOs should be identified, and those that can be addressed by clarification of interpretation and review of practical operations should be addressed promptly.
- Specific consideration should be started based on overseas legal systems and research and studies of DAOs operating globally.
Problems
Japan's proud content has many fans and users around the world. If these fans and users can be incorporated into the Web 3.0 ecosystem, Japan's content industry has great potential to use Web 3.0 to revalue content to a globally fair price and create new markets overseas.
However, the content industry lacks awareness of how to use NFTs and the legal risks, and government support is needed for overseas expansion of content using Web 3.0.
Recommendations
After clarifying the ministry that will serve as the control tower, the relevant ministry should set up a consultation desk for content holders and creators who are interested in overseas expansion using Web 3.0.
In addition, as a concrete measure for supporting overseas expansion, the relevant ministries should match content with reliable overseas Web 3.0-related companies and consider the use of overseas tax incentives in cooperation with the public and private sectors.
Problems
Blockchain technology has the potential to go beyond the Web 3.0 ecosystem and become a fundamental technology for society. However, for ordinary businesses and consumers who do not have particularly high IT literacy, there is a high psychological hurdle in participating in the Web 3.0 ecosystem, where the principle of self-responsibility is emphasized, and investing large amounts of assets.
Recommendations
In order to lower the psychological hurdle of participating in Web 3.0, businesses should provide a safe and secure trading environment, provide information and awareness activities for consumers, and strengthen the crackdown on cybercrime.
At the same time, the government should pay close attention to the development of wallets that are safer and easier for general consumers as part of user protection measures, and provide support as necessary.
Problems
The characteristic of Web 3.0, which forms a community in the digital space and has participating members contribute to the revitalization of the project, is compatible with regional revitalization. Therefore, even in regional revitalization, the number of Web 3.0 projects is increasing, but the improvement of know-how of local government employees and the establishment of related systems such as accounting procedures remain issues. In addition, the situation in which each local government is making efforts to acquire knowledge individually is inefficient when viewed from the perspective of Japan as a whole.
Recommendations
The "Web 3.0 Information Sharing Platform" has been established as a forum for dialogue between local governments and relevant government ministries and agencies, and has been used to a certain extent to answer questions from local governments, but the function of the platform as a consultation window for the government is not fully recognized.
Local governments are expected to actively consult with the Digital Agency and other relevant government ministries and agencies through the platform from the planning stage of the Web 3.0 project. In addition, relevant government ministries and agencies should support efforts to distribute high value-added resources from local areas globally.
Problems
- The current leverage limit of 2x for cryptocurrency derivative transactions has led to many Japanese individual customers switching to overseas businesses that offer higher leverage, and some have pointed out that this is a violation of customer protection.
- In the United States and other countries, Bitcoin spot ETFs have been approved by the SEC (Securities and Exchange Commission) and are listed on multiple stock exchanges. In Japan, cryptocurrency ETFs are not permitted, but the question is whether it is appropriate monetary policy to not allow ETFs that invest in cryptocurrencies.
Recommendations
- It is desirable to investigate and consider the appropriateness of the current upper limit of leverage for cryptocurrency derivative transactions with the cooperation of the industry and experts.
- In Japan, it is necessary to consider the appropriateness and pros and cons of making cryptocurrencies an investment target for investment trusts (including ETFs) in light of the purpose of the Investment Trust Law.
In that case, it is desirable to take into consideration the possibility that not only individual investors but also institutional investors' managed assets may flow out to the United States, where Bitcoin ETFs already exist.
- The "web3 White Paper 2024" aims to improve the business and investment environment for Web 3.0 in order to promote innovation.
- Many positive changes have occurred as a result of the recommendations of past papers.
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