Japan’s famously conservative financial system is set to receive the biggest shakeup in decades as one of the world’s largest financial institutions is building a blockchain-based consumer network designed to handle a million transactions per second in time for the Tokyo 2020 Olympics.
The MIT Technology Review reports that Mitsubishi UFJ Financial Group (MUFG), which is Japan’s largest bank by assets and the fifth biggest bank in the world is collaborating with American internet startup Akamai, to build and deploy what is set to be the world’s fastest payment network, far superior to Visa and Bitcoin, which are currently the largest fiat and crypto networks.
If the experiment succeeds in time for the Olympics, it would signal a new era of financial innovation in a country still dominated by cash transactions despite the world leading electronic transaction infrastructure that is obtainable in many of its Asian neighbors like South Korea and China. It would also become the first large-scale deployment of a blockchain payment solution in Japan following similar experimental efforts by Mizuho Financial Group and SBI Holdings.
Japan’s Cash Problem
Despite its reputation for world-leading technology innovation in so many areas, Japan’s financial system remains a stubborn holdout, in part due to a stubborn cultural preference for paying in cash for goods and services. Japanese citizens are the world’s most prolific users of physical cash, with the cost of running the country’s 200,000-strong ATM network along with cash registers and bullion vans estimated at $18 billion annually.
While the Japanese financial industry may be willing to endure the cost of this status quo in exchange for keeping its stranglehold on the famously patriotic Japanese consumer market, the siting of next year’s Olympic Games in Tokyo will make the situation untenable. With hundreds of thousands of international visitors expected in Tokyo alone.
As many of these visitors are from countries where electronic transactions are par for the course, it is estimated that Japan could miss out on hundreds of millions of dollars which the stolid Japanese economy could really use at this point.
Primed to Leapfrog?
MUFG may likely have its eyes on some key facts about cryptocurrency use in Japan that has convinced it that this is the way to go. First of all, while Japanese consumers might be notorious for their cash preference, cryptocurrency is also wildly popular in the country, and at one point the defunct bitcoin exchange Mt. Gox processed as much as 70 percent of the world’s bitcoin exchange transactions.
The Japanese Financial Standards Agency (FSA) is also one of the world’s most experienced authorities in the field of cryptocurrency regulation, and MUFG’s bet is that these factors make Japan uniquely positioned to leapfrog from cash to cryptocurrency, skipping two decades worth of legacy electronic transaction technology in the process.
The only existing reference for leapfrogging on such a grand scale is probably the GSM revolution in sub-Saharan Africa which saw the world’s last population to come online become one of the tech-savviest in the space of 15 years, by leapfrogging legacy telecoms technology and going straight into GSM and CDMA networking. A similar move in Japan would see it overnight become the world’s biggest staging point for cryptocurrency adoption and a possible starting point for similar national or supranational network deployments around the world.