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Web3.0 Study Meeting (10th)

Overview

  • Date and time: Wednesday, December 7, 2022, from 9:30 to 11:00
  • Location: Online
  • Agenda:
  1. Opening
  2. Proceedings
    1. Hearings with relevant ministries and agencies (METI, FSA)
    2. Summary of Previous Discussions (Digital Assets)
  3. Adjournment

Materials

  • Agenda (PDF/58KB)
  • [Data 1] Data to be submitted to the Ministry of Economy, Trade and Industry
  • [Material 2] Report submitted by the Financial Services Agency * For members only
  • [Material 3] Materials to be submitted to the Secretariat (Discussions to date on digital assets) * Limited to members
  • Minutes (PDF/244KB)

Minutes

Date

Wednesday, December 7, 2022, from 9:30 a.m. to 11:00 p.m.

Location

Online Meetings

Attendees

Members

  • Jiro Kokuryo (Professor, Faculty of Policy Studies, Keio University)

  • ISHII Natsu Shori (Professor, Faculty of International Information Studies, Chuo University)

  • Joichi Ito (Director and Chief Architect of Digital Garage, Inc., Director General of the Innovation Center of Chiba Institute of Technology)

  • Yuko Kawai (CEO of Japan Digital Design Co., Ltd.; Executive Director of the Strategic Planning Department of Mitsubishi UFJ Financial Group, Inc.; Executive Director of the Strategic Planning Department of MUFG Bank, Ltd.)

  • Keiji Tonomura (Attorney, Nagashima, Ohno & Tsunematsu Law Office)

  • Taiyo Fujii

  • Shinichiro Matsuo, Research Professor, Georgetown University

  • Noriyuki Yanagawa (Professor, Graduate School of Economics, The University of

Digital Agency (Secretariat)

  • Director Kusunoki, Counselor Nozaki

Minutes

The Ministry of Economy, Trade and Industry explained the status of efforts on Web3.0, blockchains, and Society5.0.
Next, the Financial Services Agency explained its efforts to clarify the interpretation of the applicability of various tokens to cryptoassets and to review the taxation of cryptoassets on fair value at the end of the fiscal year.
In the question-and-answer session and opinion exchange, the members mainly made the following remarks.

  • Member: In the explanation by the FSA, it was explained that tokens will be subject to laws as crypto-assets. In other words, tokens other than those are not subject to the laws of crypto-assets. Therefore, the point of the question is whether or not some kind of legal regulation will be imposed on tokens that are not recognized as crypto-assets. The reason for this is that tokens seem to be mainly digital assets, fund procurement, and other things that are not necessarily fund settlements. I would like to ask what kind of legal nature they are, and if so, what kind of regulation will be imposed on them.

  • Member: Civil Code is an old law that has been revised in various ways, but it is recognized that the Civil Code does not directly provide for, for example, ownership of digital assets or requirements for perfection in the case of transfer. I would like to ask if it is necessary to develop it if the social significance of tokens is actually recognized.

    • Speaker: PSA are naturally not subject to regulation under the PSA. In addition, tokens used as a means of fund procurement that are subject to the FIEA are generally referred to as security tokens. At present, it is recognized that other tokens are not subject to regulation in terms of finance.
    • Speaker: , there is a similar discussion in the institutional development related to electronic means of payment, so-called electronic money-type stablecoins. There are parts that can be dealt with within the existing legal system, but there will be difficulties in how far the existing legal system can be dealt with.

  • Member: regulation, there was a discussion about the tax system revision request related to the year-end fair value valuation tax on cryptoassets. Is this tax system revision request also applicable to cryptoassets as defined by the FSA?

    • Speaker: As you understand, we recognize that there are no specific accounting standards, etc. for non-crypto assets.
    • Speaker: was established by defining crypto assets in the regulation PSA. In other words, the PSA was written based on Bitcoin, but since then Web3.0 has been managed to operate in various ways within the existing legal system while the industrial structure itself has changed significantly.
    • Speaker: digital assets and the requirements for third party perfection. For example, security tokens can meet the requirements for third party perfection of digital assets such as digital securities traded in private chains and permissioned chains operated by businesses certified under the Act on Strengthening Industrial Competitiveness, which is under our jurisdiction.
    • Speaker: However, soon after the launch, it is necessary to consider from time to time how the systems themselves, which are the foundation of rights, should be changed in response to changes in the industrial structure, although they are being devised in operation to manage within the existing law.

  • Member: The way of thinking about crypto assets and tokens can still change in the future due to technological progress, and in the multi-stakeholder discussion at the BGIN General Meeting held last week, there was a talk that the version upgrade of Howey testing will be required with the times. I would like to confirm whether it is correct to continue various discussions in the future depending on the actual situation, while adding a certain direction of discussion this time.

  • Member: I would like to ask two questions. First, regarding the accounting and tax treatment of NFTs that are classified as not falling under the category of crypto-assets, there are problems that are not actually audited in practice. Therefore, I would like to ask you about the status of consideration of those that do not fall under the category of crypto-assets. Second, regarding the taxation on fair value at the end of the fiscal year, it is desirable to continue to consider third party holdings. However, I would like to ask what kind of discussion is being made in relation to the fact that it is held by investors who support startups, etc., and the makura word "support startups" is attached.

  • Member: and the revision of the law depending on the actual situation in the regulation. I recognize that the Japanese tax system is a declared tax system and that there is a system in place in which business operators pay tax based on the content of their declarations. However, there are some points that I cannot agree with regarding the stance of setting guidelines in detail for new fields, but I would like to see consideration of a system that can reflect the decisions of business operators depending on the actual situation when value is transferred or exchanged in various ways, not limited to Web3.0.

    • Speaker: In addition to the proposed revision of the Guidelines, we will continue to review them as necessary. Given that the FIEA and Howey testing are subject to different scopes, we will consider responding to any regulation or framework that will be necessary from a financial perspective in the future with the development of token businesses or token economies. Many NFTs will be classified as not falling under the category of crypto-assets, and it will be difficult for the FSA to be involved in them if they are excluded from the scope of Financial regulation. We would appreciate if you could share your thoughts on NFTs that do not fall under the category of crypto-assets at this workshop.
    • Speaker: In addition, since the tax system of tax return and payment is a big theme, it would be better to discuss or make proposals in such a forum rather than from one ministry and agency.
    • Speaker: start-ups, in the request for the revision of tax system in fiscal 2023 this year, what is being discussed in an administrative manner, including specific requirements, is self-holding, and regarding third party-holding, it is a situation in which a request with a high level of abstraction has been made in the form of a sub-committee request. There is no agreement on its treatment, further requirements, etc., and it is Issue that will be examined in the future.
    • Speaker: "Support start-ups." In addition to the makura word, it has a makura word, but it says "etc." at the end. Some people think from various perspectives that it should be narrowed or expanded. It is not yet in a fluid and mature state, so I would like you to understand that it is as written. It is exactly what we have to discuss from now on.

Next, the secretariat explained the draft report on digital assets.
In the question-and-answer session and opinion exchange, the members mainly made the following remarks.

  • Member: The most important feature of the public blockchain is that it is a collaborative ecosystem in which many people innovate, just like the Internet.

  • Member: There is a story that Web3.0 will disappear, and it will be efficient if banks, databases, and companies work together. The feature of public blockchains is that outsiders can write programs, and outsiders such as venture companies can program money and NFTs. ERC721 and 1155 are not standards set by the government, but are standards set by the government to be open and public. Under the open protocol, it is an open ecosystem, and it becomes a generative ecosystem when someone does it, regardless of company, individual, or nationality. The general objection is that it is difficult to be good in a system such as a large company, and it is dangerous if anyone can program it.

  • Member: When the Internet first came into existence, some people said it was illegal to let them do it. Some people feel the value of an open ecosystem, but others don't. However, if you are going to start a startup, you need to create an open ecosystem, or you will become a Galapagos.

  • Member: The world of private chains is a normal place where Japan always stays. Web3.0 and the Internet are global standards, and anyone can tinker with them. If public places are removed, Japan will become a Galapagos again.

  • Member: Society5.0 through private blockchains, but if they think that Society5.0 cannot be realized without public blockchains, they have to talk about public blockchains and ecosystems in an open forum. If things continue as they are now, I am worried that I cannot confirm whether they really think so.

    • Speaker: aims to improve the Web3.0 environment. Since it is not limited to digital assets but also related to other Issue such as DAO, I would like to describe the idea you gave me in the general remarks.
    • Speaker: In any case, I believe that the first priority is to make it possible for businesses to do business in a business environment where there are many things that cannot be done now in Japan. I tend to be anxious because I cannot see the relationship between what I am doing in front of me and what I am looking at in the future, but I think it is enough to do business from the perspective of creating an environment where businesses can do business one by one.

  • Member: FTX incident, the list of Issue is quite strict, and I think it is correct in the sense of sharing recognition, but if possible, I would like to have a message encouraging in this report at the beginning. The subject of this discussion is mainly NFT, but what people who want to do various things with NFT are aiming for is extremely important. On the other hand, the technology related to current NFT is somewhat or somewhat lacking in power compared to the purpose. We need a message that we will support technology development and research development to make up for the lack of power. When the FTX incident occurred, an American professor sent a message that "This kind of thing often happens in finance. Instead of flinching here, it is the history of finance to date to overcome the gap between regulation, services, and business by upgrading their versions, and that is why it is a good opportunity." Regarding the NFT incident, there are various Issue, but I would like to have a message that it is a chance to fill the gap between what we want to do and our ability.

    • Speaker: FTX, there has been an atmosphere in which the discussion tends to be led by whether it is dangerous or strange. For example, what happened to money laundering and FTX has been protected by the regulation of the Japanese Financial Services Agency, which was the first in the world. I think that is a point that Japan can be confident about, but I think that story is different from the story that Japan cannot operate businesses in the first place.
    • Speaker: safety and the fact that Japan is a considerably low level business environment in the sense that businesses cannot be conducted in the first place, I think it would be easier for the ministries and agencies concerned to take action.

  • Member: First, there are many things to be aware of, but it is important to write at the beginning that this is what we actually want to realize. Second, there is still confusion about the concept of Web3.0, and when we discuss Web3.0, we may recognize that the world of Web2.0 will be replaced by Web3.0. Web3.0 was originally created as an antithesis of Web2.0, but we recognize that we are not thinking of a world that will suddenly replace Web2.0, but a world that will coexist with it. It is desirable that what we want you to know as general common sense is also included at the beginning.
    First, regarding the protection of consumers, we recognize that this is an explanation of the context in which creators are exploited by the rules of NFT platforms. If creators are legally positioned as consumers, there may be problems with the Consumer Contract Act because they are in an environment where they have to abide by onesided disadvantageous contracts. While stating what can be applied under the current law, we may be able to state measures to create and share platform best practices in relation to soft law. Second, regarding the transfer of digital securities, we recognize that the discussion of attaching a fixed date for the assignment of receivables comes from the world of old civil laws. Since we did not expect the form of transferring tokens on blockchains, it has been discussed that we may be able to respond using blockchain technology in the sandbox of regulation, premised on the provisions of the current law. However, as transactions with foreign countries are expected, it is important to examine the current situation, whether it will be concluded that there is no problem if the old Civil Code of Japan is applied, and how the discussion of perfection requirements is treated in foreign countries.

    • Speaker: We would like to clarify the first legal issue in consultation with the relevant ministries and agencies.
    • Speaker: Regarding the second point, since it is a world that transcends national borders, there are parts that have not been fully examined whether closed discussions can be held in the world of Japanese civil law, and it is a vexing problem.
    • Speaker: Research Study, but due to the period and cost, it has not yet been investigated in other countries. Although it is a cross-border issue, it is not a discussion closed only by the Civil Code of Japan, so I would like to work on it firmly.

  • Member: Soft law and hard law are combined to express something like OODA loop, and the question of whether it will work effectively must be considered, but is there no problem with this idea itself?

  • Member: There is no objection. However, from the perspective of consumer protection, the Consumer Contract Act may be applied in individual cases, and creators may be protected. Whether there is or not depends on individual cases, so separately from that, I have an image that it is necessary to share good practice guidelines and ways of thinking with platformers.

  • Member: Web3.0 and Society5.0's technologies started from blockchains is weak. Since Web3.0 is international or open source, there may be many activities based on the concept of decentralization and clear confrontation against countries.

  • Member: Information computational geometry is the foundation of such various Society5.0, IoT using private chains, and Web3.0 and assets. Please add the opinion that support and investment in the basic layer are necessary.

    • Speaker: Web3.0?

  • Member: 's recognition is correct. If this opportunity is taken to invest in computational geometry and information and communications technology and to expand social understanding, Web3.0 activities will be meaningful.

    • Speaker: In response to this comment, the United States has established the Digital Asset Research development Agenda, which is the main focus of national Gramary in the United States. It says that technology should be advanced to create environments such as next-generation cryptography, transaction professionals, cyber security, and privacy. Japan cannot make a commitment at this point, but we are thinking of sending a message on how to deal with it.
    • Speaker: Web3.0 is not premised on national borders, does not like centralized things, and that the mental climate itself has many aspects that do not conflict with the image of government policies. On the other hand, I do not intend to link Web3.0 and Society5.0 directly.
    • Speaker: blockchain itself was born, incentives called cryptographic assets were created, a trick called smart contracts was created, and technology development was carried out.
    • Speaker: spiritual climate, it is expressed with the meaning that there is a possibility that the two may be connected by something because they are close in technology, and they have the same awareness of the problem of technology development.

  • Member: The reason why blockchain and Web3.0 development are not possible is that only investment and regulation are highlighted, but to put it bluntly, there are no engineers or researchers. It is natural that we cannot do anything because we are in a poor environment, but there are people who are doing their best, and that is the legacy of Web2.0. It is still working with people who have written code for Web2.0, but there are too few people and schools doing specialized research. If such places increase, I expect that people who will naturally move Society5.0, people who will move Web3.0, and people who will be involved in the future will increase.

  • Member: There are almost no papers on blockchains among Japanese. If we think in a lessig way, researchers and engineers are the main players who create order and business in this world, but even if we create a financial environment to win soccer in the World Cup, it will be easier for the Football Association to operate, so we think that in the end, there are no players who play soccer. At present, Japanese soccer clubs are given preferential treatment in tax system, but we should not be in a situation where we cannot win the World Cup because there are no soccer club players who play at the world level on the ground without looking at the players. Considering that we cannot win soccer unless we increase the number of soccer players, shouldn't it be recognized as a high priority? The J League has a 100-year concept, and just as it has grown to this point in its 30th year, a 100-year concept is necessary, not only for blockchains.

  • Member: In Japan, large IT companies are building closed source, and they are developing human resources suitable for a closed source environment. Bitcoin and Ethereum are both open source, and universities and large companies are participating in the open source ecosystem, but we recognize that the lack of understanding of the concept of this open source ecosystem is also closely related to this shortage of human resources. I would like to say a few words about human resource development. We need to connect with open source.

  • Member: When considering "crypto assets," "securities tokens," and "various tokens other than the above," it is relatively easy to think of crypto assets because they have a relatively narrow definition and are closely related to the world of PSA. Securities tokens are considered in the world of FIEA. It is necessary to examine how to think about DAO.

  • Member: In addition, it is vague to say "other than the above," but I understand that they are aware of NFT. Under such circumstances, the draft report on digital assets states that "in the future, ministries and agencies in charge will formulate interpretation guidelines on whether tokens including NFT can be classified as crypto-assets." Is it correct to understand that the Financial Services Agency is the main body of such guidelines?

    • Speaker: , as you understand.
    • Speaker: In addition, the nature of NFT or fungible token itself has nothing to do with the definition of cryptoassets, and what is used as a means of settlement is a cryptoasset. In addition, as a description in the summary, I think it is the judgment of the members, but it is possible to clarify what can be a cryptoasset in NFT or what is not a cryptoasset in fungible token.

  • Member: If we define it as an extension of the current system, as a result, when some technology changes in the future, it may become a very big drag in some cases. It is okay to change the rules at that time, but in the case of Japanese systems, it is very difficult to revise the rules, so the point is to make the system design as flexible as possible at this stage. Therefore, it is important to devise ways so that the rules just created will not be a drag in the event of future structural changes or different developments. Therefore, it is necessary to have agile characteristics, and the combination of hard and soft laws is also important.

  • Member: Regarding the systems that have been established or will be considered in the future, including tax system, I think it is important to write in a way that people who are not familiar with this field do not get confused in the part of the report where what should be done now is decided, while allowing as much freedom as possible in the definition of the current NFT.

  • Member: The biggest thing that this study group should do is to write the person in charge so that it does not stop at the mission of this study group to compile and publish a report within the year. In addition, it is important to clarify the person in charge of OODA loop, hard law, and soft law, and to remind the relevant ministries and agencies so that they do not stop.
    In light of the risk that doing too much at an early stage will actually be a drag, it will be difficult to handle, but it is necessary to think about it. In addition to that, the biggest point is who and how to take care of "various tokens other than the above." In addition to that, the relationship is also a point because securities tokens can be a tool of DAO.

    • Speaker: I was thinking of forcing this classification, but the difficult part of this story is that I was originally thinking of cryptocurrencies as an extension of Bitcoin, while security and others defined electronic record transfer rights under the 2019 Act. There are various types of tokens other than that, such as governance tokens, and the characteristic between cryptocurrencies and other tokens may be based on fungibility.
    • Speaker: Where is the boundary between nonfungible and fungible? In the world of Ethereum, technically, it is the presence or absence of ID, but fungibility in the world of subjunctive theory is wider. For example, in Japanese, fungibility is translated as "general acceptability," and a typical thing that has general acceptability is a bill, but a bill has a bill number as an ID.
    • Speaker: From this point of view, the real-world 10,000 yen note is not the world of ERC20, but the world of ERC721. Recently, the Ethereum community has also noticed a change in the semi-fungible token, putting a name on it with an ID, and capturing such a concept of fungibility in more detail.
      In that sense, it is possible to expel non-fungible NFTs as NFTs, and it can be said that they do not fall under the category of crypto-assets. However, it is difficult to eliminate the need for regulation for NFTs that are not used for settlement because low-liquidity NFTs have risks such as market manipulation and insider trading. If they are suddenly included in the framework of securities, regulation is too strict and there is no consistency with other countries, so "various tokens other than the above" are in a rather problematic position. However, it is a story that is moving on a cross-border basis, and it is my recognition that it is better not to do it too hastily, in line with international discussions, including the FATF, in the future, rather than where to put it in Japanese law right now. While the taxonomy will be further deepened academically, it is also necessary to clarify the position in Japan, in line with discussions on international regulation frameworks, including anti-money laundering measures. Or, it will be a problem if there is a large amount of damage to consumers while waiting for the situation, so how much monitoring can be done by the competent ministries and agencies within the year. There are some areas in Japan that are not under the jurisdiction unless they are defined by law, so it is necessary to continue to study them while cooperating with the FSA and the Ministry of Foreign Affairs, so whether Digital Agency will continue to see them or not.

  • Member: In the case of Japan, laws and the responsibility of ministries and agencies tend to be linked, and if they are under the jurisdiction of the Financial Services Agency, they may be included in finance-related laws. Therefore, it is necessary to devise ways.

  • Member: It is difficult to decide which ministries and agencies and which laws will handle non-fungible and semi-fungible stories, but since the Study Group has a cooperation mechanism, I would like you to devise the writing style so that we can work together where necessary while cooperating between ministries and agencies.

The secretariat explained that the next workshop is scheduled to be held on Tuesday, December 13.
The secretariat explained that the minutes of the meeting will be published after the members confirm the content.