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Japanese Police Adopt Cybersecurity Software to Trace Bitcoin Transactions

After several instances of cryptocurrency-based crime and a stark increase in the use of cryptocurrencies as a money-laundering tool, Japan’s National Police Agency (NPA) revealed it would launch a crypto-tracking software to trace digital currency transactions in the country.

Japan’s Push for Cryptocurrency Legitimacy

According to the country’s public broadcasting organization NHK, the special software is a wholly-funded effort from the NPA to prevent propagation of as an illicit financial vehicle.

Historically, Japan has been liberal in regard to cryptocurrencies and was the first major economy to recognize Bitcoin as a legal tender in April 2017. However, the onslaught of criminal activities and hacks–the $500 million dollar NEM hack occurred in Japan–is causing the country to introduce stricter rules for the volatile asset class.

Due to security measures, privacy-centric cryptocurrencies like Monero, Dash and Zcash are banned from trading on Japanese crypto exchanges, courtesy of their anonymous features that make it substantially difficult to trace a user’s transaction history.

The new software reportedly costs over $315,000 (~35 million yen) per year to maintain. The NPA is seeking a comparable increase in the department’s security budget for the next fiscal year.

Reverse Tracing Suspicious Accounts

Police forces state suspicious transactional data can be extracted by sophisticated software, which can then be compared to exchange records to track a user’s identity, as the country requires KYC regulations to enable buying and selling. An undisclosed, private tech company is behind the software.

Crypto-security concerns remain at a high in Japan, however. In August, Tokyo-based cybersecurity firm Trend Micro found Bitcoin ATM malware was available online for a relatively cheap price.

That said, one could obtain the malware and a ready-to-use card with near-field communication features, enabling scammers to receive the equivalent of 6,000 euros, dollars or pounds in BTC.

Meanwhile, Toshihide Endo, commissioner of Japan’s Financial Services Agency, stated the crypto ecosystem needs to find a “balance” between technological innovation and consumer protection for gaining prominence.

The watchdog added it had “no intention” to curb the rising industry, but intends to define a robust regulatory framework before widespread adoption.

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