Japan to Propose New Regulations for Cold Wallets of Crypto Exchanges


Japan is at the forefront of crypto regulations. The country’s crypto regulatory authority, Financial Services Agency (FSA) is considered one of the most proactive agencies in the world. It is actively involved in developing the crypto regulations and according to the latest news; the agency is working on to make cold wallets of the cryptocurrency exchanges more safe and secure. To that effect, it is going to propose a new regulatory mechanism specifically focused on cold wallets. This has come close on the heels of growing concern about the safety of the cold wallets and in order to reaffirm the investors, the FSA has decided to step in and come with the new set of regulations. Analysts and experts agree that the step is in the right direction and right spirit but also strike a cautious note that undue interference and unfriendly regulations could also backfire and harm the prospects of cryptocurrency adoption in the country.

Coming back to the issue of cold wallets which are conventionally considered as a safer option than the hot wallets for storing investment. Unlike the latter, the former is not attached to the internet and hence, chances of forgery and online thefts are significantly less. That said cold wallets have their own set of challenges that need to be considered in a holistic manner. One such challenge is the internal theft within the organization, an issue which FSA is concerned about. As of now, most of the cryptocurrency exchanges in Japan do not have the policy to rotate the workforce responsible for the safety of the cold wallets and that could turn out to be a source of a potential problem in the future.

After controlling the limit of investment that can be stored in hot wallets in October last year, the FSA is now turning its attention towards establishing the safety procedures for the cold wallets. The agency is worried as it has found that cryptocurrency exchanges don’t have any policy to safeguard cold wallets. For example, organizations don’t rotate the managers neither they have multiple keys for cold wallets. In addition to these challenges, the very basic form of cold wallets also makes them vulnerable. For example, the cold wallets on the paper can be easily destroyed or in case of storage on a magnetic device, it can be demagnetized. Therefore, in order to ensure the safety of the investors’ fund, FSA is going to announce new safety and compliance framework soon which will ultimately help the crypto industry to grow in the long run.

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