Progress Reportof the Digital
Currency Forum
July 2023

Digital Currency Forum03

Introduction
Hiromi Yamaoka
Chairperson, Digital Currency Forum

1. Previous activities of The Digital Currency

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2. Member’s voice09

3. Steps towards the practical use of Digital

12[1] Regional Currency Subcommittee[2] Administrative Affairs Subcommittee[3] STC Subcommittee[4] Electric Power Transaction Subcommittee[5] Wallet Security Subcommittee[6] Expantion of DCJPY

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19
23
32
36

Progress Report / The Digital Currency Forum

Index

Forum

Currency

4. Message

38

Shinichiro Matsuo
Research Professor, Department of Computer Science, Georgetown University

5. Column

40

The potential of digital Regional Currency
Hiromi Yamaoka
Chairperson, Digital Currency Forum

Conclusion

42

Toshihide Endo
Senior Advisor, Digital Currency ForumAppendix
1 Forum member
2 PoC in 2022
3 Previous report

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45
48

About the name of the Digital Currency
The digital currency being developed by the Digital
Currency Forum is tentatively called as “DCJPY”.
The Forum will continue considering how its digitalcurrency should be entitled.

02

The Digital Currency Forum was established in 2020 by leading Japanese companies
and financial institutions in order to contribute to the development and efficiency ofthe economy and industry by building cutting-edge financial infrastructure suited tothe digital age. Since then, the Forum has continued to grow steadily and the scope of
its activities has expanded.
The Digital Currency Forum publishes the details of its activities through its “Progress
Reports” in order to ensure the transparency of its activities, to widely share theknowledge gained, and to contribute to the development of the economy and society.
This is the third Progress Report, following the first and second reports issued at theend of 2021 and the start of 2023 respectively.

Progress Report / The Digital Currency Forum

Introduction

In recent years, under the global inflationary pressures and with the support of public
opinion, the purpose of macro policy of major overseas countries has shifted significantly from dealing with disinflationary trends that lasted for over a decade after the
global financial crises to fighting against inflation. This fact evidences that people
always seek stability in the value of currencies.
Owing to currencies human beings are able to transform various goods and services
into abstract values that can be compared, aggregated and subtracted. Through such
abstraction, human beings have dramatically enhanced the efficiency of processing
information and data in economic transactions. However, in order for a currency toperform such a function of efficient processing of information and data, its value must
be stable. The Digital Currency Forum, being fully aware of this, aims to realize adigital currency with stable value.
The functions of currency, which are a unit of account, a store of value and a medium of exchange, are interlinked and inseparable. The Digital Currency Forum’s plan
to issue digital currencies as an advanced form of on bank deposits has the great
advantage, since there will be no need to impose strict quantitative ceilings on theirtransactions so as to make their usage into small payments. Indeed, it will be quite
important to maintain the functions of the currency mentioned above as a whole,
without separating its functions of storing value and mediating exchanges.
Nowadays, “generative AI” such as “Chat GPT” is attracting attention as a new digitaltechnology that can bring about major changes in the economy and society. These
technologies have the potential to further automate transactions.
Finance can be regarded as a bundle of advanced information and data processing
functions, and in recent years new challenges to human beings have enhanced economic and social needs for advanced financial functions.
In response to global warming and the global trend toward carbon-neutralization,
financial institutions are required to assess not only traditional risks but also therisks to natural environments. Moreover, they have to deal with new types of market
transactions such as trading of emissions rights. These new financial services andtransactions require more advanced information and data processing than in thepast. Accordingly, it is becoming necessary for financial service provider to utilize
advanced digital technology in order to satisfy such economic and social needs fortheir services. It can also be said that the development of digital technology has enabled human beings to tackle with the global environmental challenges. Furthermore,
applying advanced digital technologies to financial infrastructure is crucial for the

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Many countries are now conducting researches and experiments on digital currencies including central bank digital currencies (CBDCs). These efforts are useful todeepen understanding of the payment and settlement system and to consider how
financial infrastructure can contribute to people’s well-being and the development of
the economy. Through the process of these researches and experiments on CBDCs inwide-ranging countries, the importance of the role of the private sector in payment
and settlement infrastructure and their innovation has been reconfirmed and increasingly emphasized.
The bankruptcy of Silicon Valley Bank in the United States in the spring of 2023
showed the potential risk of “digital bank run.” Connected to this, we would also like to
add that digital currency based on bank deposits, which the Digital Currency Forum is
working on, does not in itself accelerate liquidity crises in the banking sector.

Progress Report / The Digital Currency Forum

revitalization of regional economies and the deterrence of financial crimes.
In this regard, the two-tiered digital currency platform “DCJPY (tentative name)” designed and implemented by the Digital Currency Forum can utilize “programmable”
business areas so as to facilitate various entities to make use of advanced technologies including generative AI in accordance with economic and social needs. The Forumis collaborating with a wide range of economic entities in order to facilitate innovation
led by private sector initiatives.

The two-tiered digital currency platform DCJPY, which is planned and implemented by
the Digital Currency Forum, is designed to coexist with CBDCs if they are issued. As
DCJPY has two layers of its “Common Area” and “Business Process Area,” DCJPY canuse its Common Area to facilitate inter-operability with CBDC. The Digital Currency Forum are working proactively on what can be done by the private sector to create better
financial infrastructure, so that economic entities do not fall into the “wait-and-see”
phase of deliberations on CBDCs and do not delay the digitalization and innovationof payment and settlement infrastructure in Japan. We hope that discussions at theForum and those on CBDCs will create positive synergies and lead to the upgrading ofJapan’s financial infrastructure.
The Digital Currency Forum will continue to actively promote private sector initiatives
to contribute to the digitalization of payment and settlement infrastructure and theassociated development of the economy. Through these efforts, we will strive to makeJapan’s financial infrastructure the most advanced in the world to meet the demandsof the people and the economy.

Hiromi Yamaoka
Chairperson,
Digital Currency Forum04

Previous activities of
The Digital Currency Forum- Up to now, we have implemented PoCs and theoretical validations with the forum
members of more than 60 companies, local governments, and organizations. The
progress has been made in the validation of the practical application for DCJPY andthe expansion of use case area. -Progress Report / The Digital Currency Forum

Part 1

The Digital Currency Forum started in December 2020. It is a forum to examine thevalue and significance of digital currencies aimed at solving social and industry issues
in which more than 100 companies, local governments, and organizations participate.
It is an effort to popularize digital currencies in a private sector-driven manner thatis unparalleled globally.
More than 60 companies have participated so far (total number of participating companies, compared to the end of January 2023, an addition of about 20 companies. The
number of actual companies was more than 40), and proofs of concept (hereinafterreferred to as “PoC”) and theoretical validations were carried out. In the PoC of theRegional Currency Subcommittee and Administrative Affairs Subcommittee, we also
conducted trial issuance of the digital currency DCJPY (hereinafter referred to as“DCJPY”) by banks and confirmed the practical needs and feasibility of the two-tiered
digital currency platform.

Figure 1: Step towards practical use

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The Digital Currency Forum aims to achieve:(1) Innovation of settlement infrastructure using digital technology(2) Contribute the digitalization for the Japanese economy and to the realization ofvarious associated forms of value creation

Progress Report / The Digital Currency ForumIn FY2023, companies that have implemented PoCs and theoretical validations so far
are pursuing activities toward practical use in 2024, such as detailed validations forpractical application, preparation for implementation, and formulation of test plansfor practical use.

(3) Digital Payment as a Service*1
Based on the use cases formulated by the predecessor Digital Currency Study Group(started in June 2020) from the perspectives of “cost reduction for the economy andsociety,” “risk reduction for economic transactions,” and “promotion of innovation andeconomic advancement,” participating members in each subcommittee of the Digital
Currency Forum have discussed the use of digital currencies, studied use cases, andcarried out PoCs and theoretical validations in solving social issues including carbon
neutrality and regional revitalization, solving industry issues including improving
efficiency in the supply chain, as well as new business areas such as security tokens
and NFTs.
*1 The ability of various business and economic activities to provide payment and settlement ser vices as
one of a wide range of services by incorporating the functions of digital currency in accordance with theirrespective needs.

Figure 2

Figure 306

Progress Report / The Digital Currency Forum

From FY2021 to the first half of FY2022, each subcommittee of the Digital Currency
Forum has explored solutions with DCJPY to the social issues through various industry issues in a range of industries, such as:

In addition, the Wallet Security Subcommittee has considered issues such as identifying basic security requirements and risks for using digital currency in a safe andsecured environment.
In the second half of FY2022, from February to March 2023, we carried out the following PoCs:

In 2023, we are making progress in considering expanding the application areas of DCJPY,
and there is also a move to launch new subcommittees and use case study meetings in theinsurance industry and e-commerce related fields.
The validation content and results of the PoCs carried out in February-March 2023 aredescribed in detail in “3. Step towards the practical use.”
In addition, we have presented the specifications and workflow of the necessary functions
for the issuance of DCJPY, and the connection specifications that summarize the basic
structure of the platform, such as the architecture and infrastructure summarizing therequired functions to private sector banks that are the issuers of DCJPY, and continue tohold detailed discussions with them. Various information for banks and service content
and technical product updates related to the practical application of the two-tiered digitalcurrency platform will be announced in a whitepaper (issued by DeCurret DCP Inc.) within
the year.

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We have moved on from the discussion of whether digital currencies will be issued ornot, to the discussion of how digital currencies can be used and how they can solve
problems, which relate to how our lives will change and how we can change the worldin the future.
In response to this trend, the Digital Currency Forum will continue to disseminate
information to relevant parties such as the private sector and central banks in Japanand overseas.

Progress Report / The Digital Currency ForumThe activities of the Digital Currency Forum have been published in many media, andthe English version has been disseminated. We have received inquiries not only fromJapan but also from major overseas countries, and there is interest and praise about
private sector-led initiatives and two-tiered digital currency platforms.

The Secretariat of the Digital Currency Forum, which aims to implement initiatives
under the all-Japan system, is planning to increase the number of meetings organizedby the Secretariat, such as an orientation meeting to exchange opinions on use caseswith participating companies, and to launch new subcommittees and use case study
meetings for new participants in this activity based on an understanding of activities
up to now and basic understanding about DCJPY. We look forward to receiving inquiries from companies, local governments, and organizations.
The Digital Currency Forum will continue to actively work with participating companies
to digitize the role of all currencies and values, and will actively work to ensure thatthe initiative contributes to people, benefits the economy and society, and contributes
to the creation of a prosperous society.

08Member’s voice
Among the inquiries to the Digital Currency Forum Secretariat, there have been many
opportunities to receive questions relating to feedback about the Forum and the opinions of active participating members.
In response to such requests, we have collected “Views of Participants” from volunteer
members about their feelings regarding past activities and future activity policies.

Progress Report / The Digital Currency Forum

Part 2

Internet Initiative Japan Inc.
We are participating in seven subcommittees with 30 staff. Through intense
discussions and hypothesis validation with the participating companies,
we have realized the magnitude of the business impacts brought by digitalcurrencies. In the future, we look forward to raising the level of Forum
activities for early implementation in society, including the resolution ofissues such as the development of social systems and laws, as well as thetechnical aspects. As a company that provides the Internet, we will continue to actively participate in activities to contribute with new infrastructuretechnologies and ideas that support digital currencies.

INTEC Inc.
We are participating in the Retail and Distribution Subcommittee. By
participating in a PoC , we were able to confirm the effect of problem solving (digital linkage of business flow and settlement) in the supply chain
between manufacturers, wholesalers, and retailers using digital currency(automatic clearing of accounts receivable and accounts payable andoptimization of the payment cycle, etc.), which was very meaningful. In the
future, we would like to promote the use of our EDI (data exchange between
companies) services.

09Participants from companies in different industries were able to hold frank
discussions and gain new perspectives. Although the potential of businessis likely to expand more than imagined due to the application of digitalcurrency, we felt through our activities that there are many regulatory andother issues. We would like DCJPY to gain a presence and position among
settlement methods by deepening cooperation with banks and improving
usability because it is a reliable settlement method for deposits linked tocurrencies.

Progress Report / The Digital Currency ForumThe Kansai Electric Power Company, Incorporated

DAIDO LIFE INSURANCE COMPANY
Through our activities in the Digital Currency Forum, we have not only
deepened our knowledge about digital currencies, but also exchanged
opinions with people from different industries who we do not usually interact with on a wide range of topics such as environmental value trading
and regional revitalization, and we feel that the Forum is very meaningful.
Many companies, including those in subcommittees in which we have notparticipated, have been able to discuss use cases, and we hope that thisactivity will lead to innovations in settlements.

Nomura Holdings, Inc.
We have participated in the activities of the Digital Currency Forum andwere involved in the establishment of the STC Subcommittee. Together
with company representatives from other industries, we were able togather professional knowledge and consider it in depth, making it a very
meaningful subcommittee. Collaborations with other companies may becreated through the Forum and subcommittees, and we are very excitedabout future developments.

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It is an environment where we can hear about the efforts and examples
of companies that we do not normally interact with, so we feel that thevalue is high from the viewpoints of providing a trigger for us to review
our own initiatives and improving our perspective. Through cooperation
with financial institutions, we expect DCJPY to be developed as one type ofsettlement method.

Progress Report / The Digital Currency Forum

IT/BPO-related company

Retail-related company
We expect that in the future, it will be possible to use a POS-linked digitalcurrency and settlement system that does not require staff to check manually and judge each time at stores. Currently, settlements in the retailand distribution industries are POS-linked, and if they can be automatically
identified and processed in physical stores, it will lead to reduction ofworkload. On the other hand, there is a concern that the flexibility will be
reduced if the POS connection is unified due to the recognition that POS
connection and automatic distinction are not possible in the system withthe ongoing project for local government initiative. However, by working onsuch issues with various companies participating in the Digital Currency
Forum, we would like to improve the settlement data environment for
multiple companies, solve the system and accounting workload issues ofeach company, and aim for convenience.

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Steps towards the practical use
of Digital Currency[1] Regional Currency Subcommittee- Aiming to solve regional issues and revitalize regions withdigital currency -Progress Report / The Digital Currency Forum

Part 3

We carried out a PoC involving citizens and enterprises for the
implementation of a “digital regional currency” in the Aizuwakamatsu
region to identify issues from the perspective of users
More than 40 companies and local governments have participated in the Regional
Currency Subcommittee, which has been actively working with the aim of solving
regional issues and revitalizing regions using DCJPY.
The “digital regional currency” that this subcommittee aims to achieve is a mechanism that promotes the revitalization of local economies and mutual assistance byseamlessly connecting local stakeholders such as citizens, local businesses, local
governments, and regional financial institutions.
In the fiscal year before last (FY2021), we validated the core functions of DCJPY as
a currency and the functions of regional wallets as a user interface in a small-scale
PoC simulating a childcare benefit coupon*1. This experiment used simulated users
and stores, but last fiscal year (FY2022), we carried out a PoC in the Aizuwakamatsu
area with actual participation by citizens and enterprises in anticipation of full-scalesocial implementation.
Specifically, in the business of using purchasing data at local supermarkets to promote health, DCJPY was used in conjunction with the local currency “Aizu Coin” tosettle funds. In addition, DCJPY was used in the same way to settle charges generated
by transactions using the platform called “Jimonomikke!®” *2 service that matches
farmers and restaurants in the region. Through these PoCs, the benefits of digitalregional currencies can be felt by the local community, and the issues are extracted
from the perspective of users for practical application.
In addition, five banks, Mizuho Bank Aizu Branch, Toho Bank, Aizu Shinkin Bank, Aizu
Commerce and Industry Credit Union, and Japan Post Bank, participated in the experiment as issuing financial institutions. These regional financial institutions, which
are assumed to be the issuing entities when the “digital regional currency” is put into
practical use, are expected to validate the business of the financial institution side andcommit to the region through financial services by actually experiencing the issuance.
The following shows a summary of the PoC scenarios in FY2022. Both run from March
3 (Fri) to March 16 (Thu), 2023, and the locations are smart city AiCT, financial institution offices, and York-Benimaru headquarters (PoC 1). In addition, the process ofaggregation and transfer instructions implemented in any of the following PoCs is anarea that can be automatically processed by using smart contracts when implementing digital currency, and we will consider further efficiency improvements in future
PoCs.

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Use of digital currency in the healthcare business using purchasingdata(1) The General Incorporated Association AiCT Consortium*3 aggregates theamount of the regional currency “Aizu Coin” used in York-Benimaru.
(2) The General Incorporated Association AiCT Consortium gives an instruction to transfer the settlement amount in digital currency to the YorkBenimaru headquarters using the “ID Settlement Platform” provided by
TIS Inc.

Progress Report / The Digital Currency Forum

PoC 1:(3) York-Benimaru uses the “Two-tiered Digital Currency Platform” provided
by DeCurret DCP Inc. to burn the digital currency and deposit it into the
yen account of a financial institution to complete the fund settlement.

PoC 2:

Utilization of digital currency for business-to-business settlements
in an agriculture seller-buyer matching service(1) The Aizu edition Jimonomikke! operator (intermediate wholesaler: Aizu
Chuo Seika Co., Ltd.) aggregates the amounts traded in “Jimonomikke! ®”provided by Toppan Inc.
(2) The Aizu edition Jimonomikke! operator notifies the actual consumer(Ayumu Café) of the charge amount, and the actual consumer utilizes
the “ID Settlement Platform” provided by TIS Inc. to settle the amount indigital currency, and gives an instruction to transfer the amount to the
Aizu edition Jimonomikke! operator. An instruction is also given in thesame way to transfer the settlement amount to the producer (AIZU NOTE).
(3) The Aizu edition Jimonomikke! operator receives the transfer information
and receives the settlement matching the Aizu coin balance in digitalcurrency using the same system. Similarly, the producer receives digitalcurrency matching the transfer amount.
(4) The Aizu edition Jimonomikke! operator and producer use the “Twotiered Digital Currency Platform” provided by DeCurret DCP Inc. to burnthe digital currency and deposit it into the yen account of the financial
institution to complete the fund settlement.

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Progress Report / The Digital Currency Forum

PoC Currency and Data Flow

Figure 4

Aizuwakamatsu City’s “Cooperative Smart City Promotion Project Using Multi-disciplinary Data Collaboration” was adopted as the FY2022 Digital Garden City Nation
Initiative (Type 3), and “smart” and “attractive” urban development using ICT and digital technology is being promoted. In FY2023, business development in a wide rangeof fields such as the environment, administrative procedures, and revitalization of
shopping streets is planned, and the subcommittee will continue to implement PoCs
to validate a wide range of areas, including unvalidated areas, with a view to the social
implementation of DCJPY.
In addition, this subcommittee includes many companies that are already developing
regional currency services as their own business while seeking to further expand
their functions, as well as local governments and leading regional companies thatare seeking to revitalize regions through DX. In FY2023, we will work with these companies and local governments to develop and deepen “digital regional currencies,”
and will also deepen discussions on creating common platforms and standardization
among various regional settlement services in Japan.

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carried out in FY2021.
Press release from Aizuwakamatsu City and the General Incorporated Association AiCT Consortium
https://www.aict.or.jp/blog/368b3ccb37e
Press release from Kesennuma City
https://www.kesennuma.miyagi.jp/sec/s002/020/030/050/020/100/12/20220323sangyousenryakuka.pdf*2 Jimonomikke! ®
A platform developed by Toppan Inc. that connects producers of agricultural products with regionalcustomers (actual demand entities) such as accommodation facilities, nursing care facilities, andrestaurants with a dedicated app to match production information with demand information.

Progress Report / The Digital Currency Forum*1 Please refer to the following for more information about the PoC that simulated childcare benefit coupons*3 General Incorporated Association AiCT Consortium
Please refer to the following.
https://www.aict.or.jp/

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-Developing Digital Transformation by digital currency Explored PoCs on subsidies for enterprises using DCJPY, extract issues
related to public fund payment, and validate the effects
The Administrative Affairs Subcommittee is examining how DCJPY can be used to solve
issues and improve the efficiency of administrative procedures involving the transfer
of funds, such as tax payments and the delivery of various benefits and subsidies. In
addition to the perspectives of related parties such as the national government, local
governments, financial institutions, and citizens who receive administrative services,
the subcommittee is also identifying issues from the perspective of policy areas suchas health and welfare, and studying use cases that take advantage of the unique characteristics of DCJPY, such as programmability and traceability, as well as improving
administrative efficiency through digitalization.

Progress Report / The Digital Currency Forum[2] Administrative Affairs Subcommittee

In the fiscal year before last (FY2021), we carried out a PoC on the delivery of coupons
using DCJPY assuming temporary special benefits for child-rearing households in
Aizuwakamatsu City and Kesennuma City *Note. In the last fiscal year (FY2022), with thecooperation of the Tokyo Metropolitan Government (hereinafter referred to as “TMG”),
we have been carrying out a PoC on subsidies for businesses using DCJPY.
Specifically, we used DCJPY to deliver subsidies to enterprises pay expenses to subcontractors from enterprises, simulating subsidy projects in TMG. The subsidies were
granted in digital currency prior to the commencement of the project based on the
grant application and were controlled to be paid only for the subsidized expenses
according to the subsidy rate. After the completion of the project, data such as payment recipients and payment amounts required for the preparation of the project
report were automatically output and submitted to TMG, and unused subsidies were
reimbursed to TMG. For enterprises, it is expected that the administrative workload
related to reporting to TMG on subsidies and various procedures will be reduced,
and for TMG, it is expected that the workload related to the review of subsidies andpayment affairs will be reduced by controlling the use of funds and the automatic
creation of data related to project reports.

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Date:March 28, 2023 (Tue)Place:
		TOKYO UPGRADE SQUARE(25th Floor, Shinjuku Sumitomo Building)Participants: TOPPAN Edge Inc.
		
(Administrative Affairs Subcommittee Secretariat)
		

TIS Inc. (provision of wallet app, etc.)				Mizuho Bank, Ltd. (cooperation and support
related to the issuance and burning of digital currency)		* Tokyo Designated Financial Institution		Tokyo Metropolitan Government (provision of PoC location,
cooperation and support for the implementation of the PoC)		

DeCurret DCP Inc. (provision of digital currency platform)

Progress Report / The Digital Currency ForumThe following shows a summary of the PoC scenarios in FY2022.

(1) TMG utilizes the two-tiered digital currency platform provided by DeCurret
DCP Inc. to issue and hold digital currency backed by the ordinary deposit
account of Mizuho Bank, Ltd. Similarly, subsidized enterprises issue andhold digital currency backed by their own deposit accounts.
(2) TMG issues a subsidy (grant decision amount) to the enterprise in digitalcurrency. Enterprises are not allowed to burn or cash out the issued
digital currency in their own bank deposit accounts.
(3) The Enterprise pays the expenses for the subsidized project that havebeen decided in advance by TMG in digital currency. For payments, theamount paid as a subsidy from TMG and the out-of-pocket amount paidby the enterprise are automatically calculated according to the subsidy
rate. In addition, payments can be made to subcontractors that have been
approved by TMG and described in the subsidy application form in advance, but payments cannot be made to any other party. Subcontractors
can burn and cash out the received digital currency in their bank deposit
accounts.
(4) Each time a payment is made, information such as the payment amount,payment date, payment recipient, and expense items are recorded on
the blockchain, and the use status of the subsidy is shared between TMG
and the enterprise, and both parties can check it at any time. After thecompletion of the project, the information is output as relevant data in the
project report and submitted to TMG.
(5) TMG reviews the performance report and finalizes the subsidy amount. If
there is a difference between the finalized subsidy amount and the estimated amount granted in advance, an adjustment process will be carried
out.

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Progress Report / The Digital Currency ForumPoC Digital Currency and Data Flow

Figure 5

Through this PoC, we were able to extract issues related to the payment of publicfunds using digital currency and validate the effects. In FY2023, with a view to thesocial implementation of digital currencies, we would like to proactively conduct PoCs
unique to DCJPY that are of social significance, not only for deposits and withdrawals
such as benefits and payments, but also for presenting use cases that lead to the automation and improved efficiency of general administrative services and procedures
such as tax payment certification and cooperation with medical and nursing care.
*Note Please refer to the following for more information about the PoC that simulated childcare benefit
coupons conducted in FY2021.
Press release from Aizuwakamatsu City and the General Incorporated Association AiCT Consortium
https://www.aict.or.jp/blog/368zb3ccb37e
Press release from Kesennuma City
https://www.kesennuma.miyagi.jp/sec/s002/020/030/050/020/100/12/20220323sangyousenryaku
ka.pdf

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The STC Subcommittee examines the practical application of digital currency settlement in ST* transactions.
Although the Digital Currency Forum previously had a STO Subcommittee (Security
Token Settlement Practice and System Study Subcommittee), which achieved certain
results, the new STC Subcommittee started in 2022 to further promote the study of
the ST area.
In FY2022, the STC Subcommittee examined ST transaction ordering, contracting, andsettlement operations, validated the feasibility of ST-based DvP settlement operations,systems, and laws and regulations using digital currency, and compiled and publishedthe results in a report. The following is a summary of the results of the study compiled
and published in the report.

Progress Report / The Digital Currency Forum[3] ST-Coin (STC) Subcommittee

The STC Subcommittee plans to study the ST secondary distribution market and theimplementation methods of various systems for the practical application of digitalcurrency settlement in detail from FY2023 onwards. For the specific study policy,
ST and digital currency will be issued to carry out the validation assuming actual
operation, and a series of business flow demonstrations are planned. Details will be
discussed at future subcommittee meetings.
* ST (security tokens) are securities that are issued using electronic means such as blockchain in lieu
of traditional mechanisms such as stocks and corporate bonds. In Japan, due to the revision of the
Financial Instruments and Exchange Act on May 1, 2020 and the revision and enforcement of the relevant
government/ministry ordinance, “Electronically Recorded Transferable Rights to Be Indicated on Securities,etc.” are stipulated, and ST can be handled in accordance with laws and regulations, and have actually been
issued.

FY2022 Validation Results Summary
The STC Subcommittee examined ST transaction ordering, contracting, and settlement operations, and validated the feasibility of ST-based DvP settlement operations,systems, and laws and regulations using digital currency.
As a result, it confirmed a certain level of feasibility of the introduction of digitalcurrency in ST transactions, and compiled and published a report on the results ofthe study.

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In examining the transaction/settlement process in detail, the subcommittee conducted a detailed examination of the business flow of the three transaction patterns
that are expected to be realized (see the figure below, hereinafter referred to as the“validation scenario") from the perspective of the provider of the escrow function torealize relative transactions/exchange transactions and DvP.
This validation was carried out assuming the use of the digital currency platform
developed by DeCurret DCP Inc. and the ST platform developed by BOOSTRY Co., Ltd.

Progress Report / The Digital Currency Forum

1.Validation target, assumed transactions

Figure 6

2. Validation items and results
For the validation scenario, the subcommittee conducted validation from the following
three perspectives. The following shows a summary of the validation results.

Item

Validation results

Business
Validation

・ Create three patterns of detailed business flow related to securities companies, exchanges, ST platforms, digital currency platforms, and banks.
・ Practitioners validate the practical application method of digital currency settlementin ST transactions.

Technical
Validation

・ Conduct technical validation of the basic functions of the digital currency platform.
・ Determine the data items to be linked with the ST platform, and confirm the operationof the digital currency platform using the test data of the data items.

Legal
Validation

・ Conduct a legal investigation into whether acts related to the transfer of digital currencies may be subject to regulation under the Financial Instruments and Exchange Act,
the Banking Act, and other business laws.
・ DeCurret DCP, the operator of the digital currency platform, confirmed that it can be
implemented without legal problems by entrusting the transmission of instructions tothe bank pertaining to the transfer of digital currency as an electronic payment service
provider .

Figure 7 For details on the validation results, refer to “STC Subcommittee Annual Report 2022”
URL: https://www.decurret-dcp.com/.assets/stc_report_2022.pdf

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Progress Report / The Digital Currency Forum

Example of report contents (P5)
Two-tiered Digital Currency DCJPY (tentative name)Figure 8

Example of report contents (P11)
Positioning after FY2023

Figure 921Securities companies● Nomura Holdings, Inc.＊● Daiwa Securities Group Head Office＊ST platform● BOOSTRY Co., Ltd.＊

Progress Report / The Digital Currency Forum

Participating companies

Digital currency platform● DeCurret DCP Inc.＊

Settlement banks● Sumitomo Mitsui Banking Corporation● MUFG Bank, Ltd.
● Resona Bank, Limited

Exchanges● JPX Market Innovation & Research, Inc.
● Osaka Digital Exchange Co., Ltd.

Securities system● Daiwa Institute of Research Ltd.
● Fintertech Co. Ltd.
● Nomura Research Institute, Ltd.

Law firm● Anderson Mori & Tomotsune LPC＊

Secretariat

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- Accelerate the carbon neutrality by using digital currency Using digital currency for “P2P” trading of electricity and environmental
value, and utilizing electric power transaction data for green finance
The Electric Power Transaction Subcommittee is exploring new business models for
decarbonization by using DCJPY for the transaction of electricity and the environmental value in which DCJPY will help the buyer to be proved automatically of purchasing
renewable electricity, and also has done a demonstration of purchasing goods orservice by using DCJPY earn from electricity or environmental value transaction.
By applying blockchain and distributed ledger technology, it will be possible to track
how electricity is produced and how it is valued, leading the business that promotes
carbon neutrality. Up to now, the subcommittee has processed the cases to accelerate
the decarbonization such as clarifying the purchase and transaction of renewableelectricity by transferring “electricity tokens” and “environmental value tokens” linked
to green energy in the Business Process Areas.
This is expected to allow companies to choose and procure green energy effectively
and to streamline the administrative work involved in such procurement. It will also
be easier for them to prove that their corporate activities are consistent with carbon
neutrality, and to expand into areas of corporate funding such as green finance. It isthought that these activities will become even more important in the near future forall the countries, including Japan, to achieve carbon neutrality.

Progress Report / The Digital Currency Forum[4] Electric Power Transaction Subcommittee

Receive service, by using environmental value based on digital currency
This subcommittee is studying a mechanism and completed PoC to apply bank-issued
digital currency in Japanese Yen for the electricity peer-to-peer (P2P) trading platform
where to trade electricity and environmental value and to be settled in real-time andoperated seamless.

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Progress Report / The Digital Currency Forum

This subcommittee is studying a mechanism and completed PoC to apply bank-issued
digital currency in Japanese Yen for the electricity peer-to-peer (P2P) trading platform
where to trade electricity and environmental value and to be settled in real-time andoperated seamless.
The use case for FY2022 is for consumers to pay the services by digital currency
obtained through the resale of environmental value, which will expand the scope ofsettlements using digital currency and advance the possibility of business utilization.
Although the current system has limitations on the secondary use (resale) of environmental value, the PoC was implemented without considering this point for the time
being, to study the potential of digital currencies.
Specifically, the PoC was held by assuming bus rides as a service, as shown in Figure
10.

(1) As a first step, the prosumer sells electricity derived from renewableenergy (electricity + green energy) to the user (consumer) and receive
digital currency in exchange for electricity fee and environmental valuefee.
(2) The user not needed carbon offset, consumes the electricity and transfers the unnecessary environmental value to the bus company via theelectricity P2P trading platform.
(3) Since the environmental value can be obtained from this platform any
time instead of getting from the market, the bus company adds a premiumon the environmental value and purchases it, and pays the consideration(environmental value fee + premium) to the user in digital currency.
(4) The user rides the bus with the obtained digital currency and pays thefare. As a result, payment for the service (bus ride) by environmental
value succeeds.

Figure 10: Bus rides based on environmental value

24

Here, the key point is how to reflect the transaction content to the digital currency.
This is handled by setting custom tokens in the Business Process Areas and stipulating the exchange rate with the digital currency for each. When the electricity fromrenewable energy source is sent from the prosumer to the consumer as shown in
Figure 11, the electricity and environmental value are transferred by the electricity
P2P transaction, and in return, the digital currency is transferred from the user tothe prosumer based on the remittance instruction from the electricity P2P platform.
In order to reflect this transaction at the same time, the electricity token set in theBusiness Process Area (electricity coin in Figure 11) and the environmental value
token (environmental value coin in Figure 11) are transferred. This makes it clear thatthe digital currency transferred from the user to the prosumer is a consideration forelectricity and environmental value.
Next, when the user is transferring the environmental value to the bus company, theenvironmental value will be transferred with P2P transaction exchanged to digitalcurrency. When the bus company pays the premium in this transaction, the environmental value coins and premium coins are transferred together with the digital currency in the Business Process Area as shown in Figure 11. This will clearly show thatthe digital currency transferred from the bus company to the user is the consideration
for the transaction with the premium added to the green certification.

Progress Report / The Digital Currency Forum

From above, this use will be new for the user to utilize the environmental value. In
addition, the bus companies will be able to reduce their CO2 emissions [offset emissions in reports based on the Act on Promotion of Global Warming Countermeasures(Warming Countermeasures Act)] by acquiring environmental value by providing theirservices. Furthermore, it can also be considered for use in green finance related
to bus companies by using the history record of their environmental initiative acts
recorded in the digital currency platform.

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Progress Report / The Digital Currency Forum

Figure 11: Clarification of the transaction content by setting the token to the Business Process Area

In order to achieve such use of the service, DeCurret DCP Inc. developed an app for
the PoC which gives a remittance instruction for coins in the Business Process Area.
As shown in Figure 12, the app screen now displays the amount of digital currency,
environmental value coins, and premium coins held. Then it shows the environmental
value coins and premium coins to be transferred by proceeding the payment by digitalcurrency.

Figure 12: Payments and coin transfers with the app

26

In addition, the Electric Power Transaction Subcommittee of the Digital Currency Forum is studying use cases utilizing for corporates business and funding etc., by using
data of sourcing renewable energy and environmental values.
For example, it may be possible to accumulate transaction data from renewableenergy, environmental value, and elements that are environmentally friendly on a
blockchain and use them for financial aspects such as fundraising.
In the initial stage, the subcommittee used virtual data to obtain, score, and visualize
electric power transaction results, assuming small and medium-sized enterprises(hereinafter referred to as “SMEs”) in the manufacturing industry (chemical industry
and food manufacturing industry) and their employees, and validated those data
based on the use case from the perspective of financial institutions.

Progress Report / The Digital Currency Forum

Green finance based on digital currency

Figure 13: Example of financial services using renewable energy electric power transaction data

However, simply providing green finance based on digital currency using renewableenergy and environmental value data has limited significance to proceed PoC andaddressing subsequent services, so it was thought necessary to deepen the study ofpossible schemes for the following carbon neutrality issues.

< Considered issues for carbon neutrality >(1) Increasing importance of reducing greenhouse gas emissions across the
supply chain(2) High response costs for SMEs to tackle decarbonization(3) Required to improve administrative costs and service quality by financial
institutions to provide services to SMEs
(4) Procuring renewable energy from power plants that are not actuallyenvironmentally friendly will increase reputation risk for companies

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Progress Report / The Digital Currency Forum

During the discussions, the subcommittee was able to evaluate the active use ofrenewable energy by consumers, and decided to study a service that simulates asustainability link loan (hereinafter referred to as “SLL”) as a financial service thatutilizes power purchase destination information that includes third-party evaluation
information.
SLL is a loan that encourages borrowers to achieve ambitious sustainability targets(hereinafter referred to as “SPTs”). Borrowers of loan funds act towards achieving theambitious SPTs they have set and the degree of improvement is linked to the terms of
the loan. A key characteristic is that, unlike green loans, the use of funds is not limited
to a specific project. Most of the goals are set to reduce greenhouse gas emissions,but also the cases where the goal is to obtain employee paid holidays or childcare
leave.
Financing service can be provided to encourage customers to take proactive decarbonization actions by providing financing for decarbonization targets that set the amountof greenhouse gas emissions reductions and the percentage of electricity purchasedfrom evaluated power plants, and by monitoring the use of renewable energy andenvironmental value by customers. The study also found that using characteristics
of digital currencies such as limiting application the loan funds and minimizing theadministrative cost will help to provide service to SMEs that are working on decarbonization.
The P2P electric power trading platform developed by ENERES Co., Ltd. implements
some of the functions of financial services, monitors the usage record of renewableenergy and environmental value of consumers, and executes loans from financial
institutions, etc. using DCJPY. If the consumers who take out the loans use the digitalcurrency for the construction of new renewable energy systems, etc., it is possible tocreate a cycle of value while solving the problems towards carbon neutrality, and thesubcommittee decided that it would be meaningful to carry out a PoC.
The PoC assumes an actual service and following scenario shown in Figure 14. Virtual
data is used in the PoC.

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(1) Electricity transaction data acquisition
1. Assuming that User C is an SME, in addition to User C’s electric powertransaction performance data, User C's power purchase destination
power supply type, power generation area, and power plant information, etc. are recorded on the P2P electric power trading platform.
(2) Loan execution

Progress Report / The Digital Currency Forum

Implementation datails

1. Assuming that User D is a financial institution, etc., User D refers to the		 information of the P2P electric power trading platform, and executes a		 loan in digital currency the application of which is restricted to User C.
2. User D provides User C’s sustainability target data and interest ratetable data to the P2P electric power trading platform.
3. User D also provides interest rate table data to the Business Process
Area similar to the P2P electric power trading platform.
(3) Use of loan
1. User C who received the loan uses the digital currency for payments
such as buying and selling with the User E who is a counterparty in line
		 with the purpose of the loan.
(4) Collecting the interest
1. The actual data of the electric power transaction conducted by User C,
and the information about the power purchase destination of User C
will be kept on the P2P electric power trading platform continuously
after the loan execution.
2. At the timing of interest rate collection after a certain time, the interest rate of User C is automatically calculated on the P2P electric power		 trading platform, and the interest rate is collected from User C in adigital currency other than the digital currency financed by User D.
3. Automatically calculate and apply the interest rate for the next period
for User C on the P2P electric power trading platform.

Figure 14: PoC on financing using digital currency DCJPY with the use of electric power transaction29

Progress Report / The Digital Currency Forum

This PoC implemented an example of a use case in which data on renewable energy
and environmental value acquired by consumers are used for the business cases andfunding. It was found that it is highly possible to use digital currency to create a cycleof value through the following process: (1) Financial institutions, etc. provide financial
services in digital currency that reflect real-time electricity accurate data, (2) New
renewable energy power plants are built with the digital currency, (3) Consumers procure renewable energy generated from the power plants, and (4) Digital currency isused to pay for those transactions. When the use case utilized in this PoC is developed
into real services, it is expected to accelerate efforts to decarbonize the entire supply
chain, including SMEs.

Future activities
The PoC on the tokenization of environmental value has succeeded in validating theeffect of preventing double counting of environmental value using tokenization andblockchain technology as tools to digitize environmental value on two-tiered digitalcurrency platforms and P2P electric power trading platforms.
In another PoC in which the data of renewable energy and environmental value
acquired by consumers is utilized for the business and financing, it was confirmedthat creating a cycle of value can support to accelerate companies effort towards
decarbonization.
In FY2023, to study a new business model to accelerate the decarbonization, whichis the activity policy of this subcommittee, we will take advantage of the results validated in this PoC and proceed with the subcommittee on the theme of considering
the digitalization of carbon credit, which is an environmental value, and the businessmodel for its practical application.
The subcommittee will continue to study business models using DCJPY, led by Kansai
Electric Power Company, Inc. and ENERES Co., Ltd., and will continue to promote theintegration of DX (Digital Transformation) and GX (Green Transformation) in the energy
field, aiming to develop practical services for corporates to accelerate the carbon
neutral.

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Progress Report / The Digital Currency Forum

Figure 15: World view of the Electric Power Transaction Subcommittee

Participating companies● The Kansai Electric Power Company, Incorporated● ENERES Co., Ltd.
● Internet Initiative Japan Inc.
● DAIDO LIFE INSURANCE COMPANY● Chubu Electric Power Co., Inc.
● Tokyo Metropolitan Government● Hankyu Hanshin Holdings, Inc.
● Sumitomo Mitsui Banking Corporation● MUFG Bank, Ltd.
● Lawson, Inc.

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- Consideration of security issues when connecting blockchain
systems in the Business Process Area, assuming a business that
handles digital assets -Security challenges when connecting Business Process Area systems
to other blockchain systems

Progress Report / The Digital Currency Forum[5] Wallet Security Subcommittee

Purpose of the subcommittee activities (second phase) and activity details
The Wallet Security Subcommittee is working with the goal of formulating basic
security requirements centered on the management of private keys (signature keys),
software that uses signature keys, and users so that the companies and organizations
as a member of the Digital Currency Forum can handle digital currency platforms
safely and securely. Up to September 2022 was positioned as the first phase, andthe subcommittee mainly considered security issues and countermeasures guidelines in the management of digital currency platform signature keys in the Business
Process Area systems and compiled a security report. The Business Process Area
systems targeted in the first phase are systems managed by a Business Process Area
operator, which can be said to be a traditional service system. As discussed in othersubcommittees of the Digital Currency Forum, it is also possible for the Business
Process Area system to connect with other blockchain systems and link with otherservices and systems through them. When connecting to a blockchain system, there
are challenges specific to decentralized systems that go beyond the framework ofBusiness Process Area operators, so it is necessary to consider them differently fromconventional systems. Therefore, this subcommittee moved to the second phase andbegan discussions focusing on the security issues that could arise when building andoperating a Business Process Area system that connects to other blockchain systems.
There are many types of blockchain systems, so it is difficult to treat and discussthem as a single system. Therefore, the subcommittee conducted a survey on several
representative blockchain systems. According to the classification of ISO 23257: 2022
(Blockchain and distributed ledger technologies — Reference architecture), blockchain
systems were organized by the axis of public/private (whether the connection is public or not) and the axis of permissionless/permissioned (systems with or without anaccess control mechanism), and the public permissionless and private permissioned
blockchain systems with relatively high applicability were the main subjects of consideration. The subcommittee is examining the model diagram of the system assumed
in the Business Process Area system in the same way as the security considerationsin the first phase, and is identifying security issues based on this model diagram.

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Progress Report / The Digital Currency Forum

Figure 16 is a model of an example of a fictional operator XYZ company building
and operating a Business Process Area system connected to a public permissionless
blockchain system. This model assumes Ethereum as an example of a public permissionless blockchain. In the public permissionless blockchain, there are a wealth ofdevelopment tools, smart contracts, wallets (software/hardware), etc., and it is expected that various Business Process Area systems will be developed by using them,but on the other hand, there are also potential security risks of community-driven
blockchain systems, peripheral systems, and software groups that are beyond thecontrol of Business Process Area operators. It is also necessary to consider the
management of signature keys to access the blockchain system and the integrity oftransactions by DCJPY and additional domain coins on the digital currency platform,
and the processing performed on public permissionless blockchains.

Figure 16: Assumed system model when linking with a public permissionless blockchain

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Progress Report / The Digital Currency Forum

Figure 17 is a model of an example of XYZ company building and operating a Business Process Area system linked to a private permissioned blockchain. This model
assumes Hyperledger Fabric as an example of a private permissioned blockchain.
This private permissioned blockchain may be jointly operated by a business consortium of Business Process Area operators as an example. Although this model is also
influenced by blockchain systems that are not under the control of Business Process
Area operators, but comparing to the public permissionless type, it is possible to deal
with the problem by cooperating with business consortiums that operate the private
permissioned blockchain systems, etc. When operating jointly among multiple operators, it is necessary to consider clarifying the demarcation point of responsibility andstipulate the operation policy.

Figure 17: Assumed system model when linking to a private permissioned blockchain

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Using the currently assumed system model diagram, the subcommittee is discussing
security issues and their countermeasures (mitigation measures). In Figures 16 and17, the subcommittee is discussing NFTs as an example, but we believe that this
discussion can be considered as a countermeasure against security issues in dealing
with various digital assets including NFTs. Security is a common issue for various
digital assets, not only NFTs, but also environmental values that are being studied
by the Electric Power Transaction Subcommittee, and security tokens that are being
discussed by the STC Subcommittee, and it can be said that there are important
applications for handling digital currency platforms safely and securely. In addition
to the explanation of the above system model diagram, the identified security issues
and countermeasures will be prepared as Part 2 of the security report, and will be theresults of the second phase of activities.

Progress Report / The Digital Currency Forum

This report provides an overview of what is under consideration, and the Wallet Security Subcommittee will continue to deepen its consideration in the second phase.

Participating companies

Secretariat● SECOM CO., LTD.

Members● Internet Initiative Japan Inc.
● Intelligent Wave Inc.
● NTT DATA Japan Corporation● Keychain GK● SBI Security Solutions Co., Ltd.
● Sony Payment Services Inc.
● SoftBank Corp.
● NEC Corporation● Daiwa Institute of Research Ltd.
● DeCurret DCP Inc.
● Tokyo Kiraboshi Financial Group, Inc.
● Toppan Inc.
● HashPort Inc.
● The Hiroshima Bank, Ltd.
● PwC Consulting LLC● Future Architect, Inc.
● Resona Holdings, Inc.

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- Initiatives for new industries and fields The members of the Digital Currency Forum are also exploring new applications for
digital currencies. DCJPY is a digital currency that has advanced the feature of bankdeposits utilizing a “programmable” business field, and it is believed that it will enableprivate sector economic entities to incorporate digital technology and use informationand data according to their needs.
DCJPY is not intended to be used in a specific area, but is being studied for use in all
business areas linked to settlement.

Progress Report / The Digital Currency Forum[6] Expantion of DCJPY

Life insurance industry
In the life insurance industry, as various industries undergo major changes due tothe development of technology, in addition to providing new products and services
through AI, biosensing, and data analytics, processes are becoming automated as
well.
Since life insurance is based on the mechanism of executing payments and services
according to predetermined rules in contract conditions related to individual lives,“smart contracts” that are executed according to predetermined conditions that arecharacteristic of blockchain are similar to the structure that enables the execution of
automatic payments and services, and it is thought to be a very compatible combination.
In addition, it is characterized by the function of checking the maximum amount ofunderwriting for domestic death insurance for the purpose of suppressing crime, andjoint underwriting and reinsurance to ensure business continuity in the event of largescale disasters and other risks.
These are also supported by exchanging data mutually at the same time as remittancesettlements and advancing the individual contracting process of each company, and in
addition to digital currency settlements in this area, it is expected that these contracting processes will be automated.
At the Digital Currency Forum, we are considering whether we can contribute to
the development of the life insurance industry by utilizing the latest technology andblockchain technology, which is the basis for the introduction of digital currency, withthe participating members.

36

In the e-commerce industry, there is a desire to eliminate the inconveniences arisingfrom the diversification of settlement methods. From the merchant’s point of view,in the case of a credit card settlement, it takes a few days to several months fromthe day of the sale for the credit card company to deposit funds into the merchant’s
account. In addition, from the user’s point of view, if you want to make a payment
directly from your usual bank account, there is a problem that payment processes
such as for “pay-easy” and bank transfers are complicated and it is difficult to usethem for e-commerce site settlements.
In response to such issues, with DCJPY which offers advanced bank deposit features,the merchant can use DCJPY to receive funds immediately, which can be expected
to improve the efficiency of automatic reconciliation and settlement operations using smart contracts for order information. Users can pay without going through thecomplicated process of using DCJPY in their daily bank account, and compared to
identifying the debit date of the credit card company, there is also the freedom to set
the debit date to the date of their choice, which can increase convenience.

Progress Report / The Digital Currency Forum

E-commerce-related industries

This worldview is being discussed with the participants of the Digital Currency Forum,
and we are considering the use cases to make them more concrete.

37

Message
Shinichiro Matsuo
Research Professor, Department of Computer Science
Georgetown University

Progress Report / The Digital Currency Forum

Part 4

How to make the word “Crypto Winter” unnecessary
From 2022 to 2023, the term “crypto winter” is often used to describe the circumstances surrounding the blockchain industry and crypto assets. Terra/Luna and FTX
incidents in 2022 resulted in a turning point for the crypto asset industry. People say“crypto winter” just referring to the phenomenon where the price of crypto assets has
dropped or investment has cooled off. However, using words perceived as a change inthe season feels like a somewhat optimistic expression in the sense that it may givethe misunderstanding that the situation will naturally improve over time. The reality
is that for financial applications where blockchain technology is highly functional, theparts that are “still unqualified” have become clear, and sloppy operations have been
carried out in the parts that are insufficient. Entrepreneurs may say that “winter isthe time for development,” but very few people talk about what this “development”
should be.
The regulatory situation is also different in Japan from other countries. In the UnitedStates, Gary Gensler, the Chair of the Securities and Exchange Commission (SEC),
has been working on the strict application of securities regulations, centering on
the certification of crypto assets. In light of these developments, while some people
have objected that the US government is freezing out crypto assets and trying to stop
innovation, at the same time, traditional financial institutions, starting with Blackrock,have successively requested that Bitcoin’s physical ETF be certified by SEC. Federal
Reserve Chair Jerome Powell has said that “Stablecoins are a form of money,” addingthat “crypto assets will continue to have power as an asset class.” These circumstances suggest that, at least in the United States, the current position of blockchain
and crypto-asset technology and operations has been sorted out. It should be notedthat the terms “money” and “assets” are used, and the term “currency” is not used.
In other words, Bitcoin cannot be certified as a security in the Howey Test (a testof applicability as a security) and is classified as a commodity, and other coins aretreated as securities. Both are positioned as an asset, not money or currency. On topof that, stablecoins are not currencies, but are positioned as money tied to a currency(US dollars).
Recall that the word “currency” does not appear in Bitcoin papers. Since Satoshi Nakamoto’s definition of Bitcoin is a payment system using distributed timestamps, many
people feel that it behaves like money or currency, but there is still technologicallyunqualified and technical development is required to make it into a form of money orcurrency. What is happening now is no more than the fact that the results of 15 yearsof experiments have been sorted out following the 2008 Bitcoin paper. I believe that it
is a little shallow to call this a “winter.”38

Progress Report / The Digital Currency ForumThe United States announced in its March 2022 Executive Order on Digital Assetsthat it will invest in large-scale research and development and standardization to
make up for this inadequacy, and is currently developing its plan. It is expected that
this funding will lead to the development of various technologies created related
to blockchain and the advanced researchers and engineers who will support it. At
the same time, multi-stakeholder discussions in which businesses and regulators,
not just engineers and researchers, work to create such technologies, are currently
progressing. The Blockchain Governance Initiative Network (BGIN), which I chair, wasestablished in 2020 in response to the 2019 G20 communiqué and operates fortnightly
weekly working group meetings and three annual plenary meetings, with more than
10 publications to date. The creation of these documents has involved regulators,
businesses, researchers, and sometimes grassroots engineers who don’t talk to thegovernment. Coinbase, Circle, and others have also participated in the creation of
documents that seek to address issues like the depegging that occurred during the
Silicon Valley banking incident. The real stage for “winter is for development” is here.
The last plenary meeting of BGIN was held in Croatia in May 2023, and the next will
be held in Sydney in mid-November 2023. As with the IETF on the Internet, anyone
can participate in the discussion and documentation at any time without the need for
permission. Young Japanese engineers and regulators are already involved.
Again, it is more important to talk about how to make up for the inadequacy to generate more trust and new interest than to use the phrase “crypto winter” as a buzzword.
The US move is also part of this, and it is moving toward solving problems on its own,
including the entry of traditional financial institutions and the realization of executive
orders. Various technical and business studies and experiments are being conductedat the Digital Currency Forum, and it is a valuable forum globally that is grounded andfaces the issues of blockchain and digital currency head-on. I hope that the Digital
Currency Forum will continue to work for the development of this field and makeproposals for a multi-stakeholder governance forum such as BGIN, together with the
movement involving US academia and the trend of innovation hubs in Europe.

39

The potential of
digital Regional Currencies
One phenomenon that is now attracting attention with the digitalization of finance is theincrease in the number of “digital regional currencies” issued in Japan and overseas.
Many “regional currencies” have been issued in the past to promote the local economy
and strengthen the community, such as Germany’s “Chiemgauer.” However, these havegenerally remained relatively small-sized or short-lived.
The theoretical reason for this is, first of all, the strong “network externalities” inherent incurrencies and payment instruments. Since nation-wide payment instruments are likely
to be more convenient than those that can only be used in a limited area, many people
will choose to hold the national legal tender rather than regional currencies, especially ifthey are exchangeable one-on-one. In order to facilitate the use of a regional currency, it isnecessary not only to link its value with that of legal tender but also to provide incentives
such as “premiums” for its use in the region. The realization of such a mechanism, nonetheless, requires advanced information and data processing and the relevant costs. How
to cover these costs is one of the big challenges to regional currencies.
However, digital innovations such as blockchain, distributed ledger technology, big data
analytics, and AI are opening up new possibilities for regional currencies.
First, making digital currencies into digital forms instead of physical paper can save thecost for handling, storing, and conveying paper. It will also be possible to achieve highnetwork externalities in a region by building a dense network of terminal devices in it.
In addition to shopping in stores, digital regional currencies can be used also for thepurchases of local specialties online through e-commerce. Moreover, through digitizing
regional currencies, it becomes technically easier to realize a “Freigeld type” regional
currencies proposed by German writer and philosopher Silvio Gesell, whose value isscheduled to decline over time in order to stimulate consumption by their holders.
The digitalization of regional currencies will also greatly facilitate the utilization of information and data utilization. By using the platform of digitized regional currencies, itwill become possible to automatically collect and accumulate the information and dataattached to people’s daily transactions. Consequently, the digitized regional currency
platform will facilitate to analyze them while ensuring their anonymity, and to utilize themfor regional businesses and public policies in the region. This could help cover the cost ofoperating the regional currencies and giving out premiums to their users.
Moreover, the utilization of digital regional currencies by regional governments for public
policies enables targeted support for specific purchasing behaviors by specific entities
within a certain period of time. For example, digitized regional currencies facilitate
regional governments to subsidize the expenses for the purchases of childcare-related
goods and services within a certain period of time.
Digital regional currencies are expected to function as a data infrastructure that contributes to the development of the local economy. Furthermore, by making various digitalplatforms interoperable, it is possible to connect multiple digital regional currencies inorder to enhance the benefits stemming from network externality.
The Digital Currency Forum is carrying out “Proof of Concepts” (PoCs) on digital regional
currencies using the digital currency platform “DCJPY.” In the “Regional Currency Subcommittee” and “Administrative Affairs Subcommittee” in the Forum, PoCs have been carriedout in Aizuwakamatsu City and Kesennuma City to pay the benefits for the child-rearing

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Progress Report / The Digital Currency Forum

generation through digital regional currencies based on DCJPY. The Forum has also
implemented experiments on using digital currencies obtained through the purchases ofgreen energy for the payments and settlements of regional bus fares. In Aizuwakamatsu
City the Forum tried to utilize digital regional currencies for health projects and foodand agriculture matching. In Tokyo the Forum implemented the experiment of using
digital regional currencies for granting of subsidies to businesses. Through these PoCs
and experiments, it has been evidenced that new digital technology such as blockchain
and DLT can contribute to the reduction of costs and utilization of data, the granting of
incentives to users that have been the challenges for regional currencies. Also, digitalregional currencies will enable regional governments to stimulate targeted consumptions
in line with the purpose of public policies.
In the Japanese government’s “Digital Garden City Nation Initiative” along with the promotion of cashless settlements, marketing support using settlement data while avoiding“digital divide” is one of the key policy targets. The Digital Currency Forum will continue
to work on the revitalization of local economies using the digital currency platform DCJPY
from the perspective of creating the best-possible financial infrastructure incorporating
cutting-edge digital technologies to contribute to economic developments and people’s
welfare in regions.

Hiromi Yamaoka
Chairperson,
Digital Currency Forum41

We appreciate reading Progress Report No.3. As I wrote in the “Conclusion” ofProgress Report No. 1, I have participated in the Digital Currency Forum with thefeeling that “I wish to support the development of digital currency backed up by
blockchain as a socio-economic infrastructure and the development of businesses
related to digital technologies based on the infrastructure.” However, I feel that theareas of PoCs covered in this report, namely “regional currency,” “administrative
affairs,” “security tokens,” “Electric Power Transaction” and “wallet security,” areareas where their social implementation is becoming more realistic among theactivities of several subcommittees.

Progress Report / The Digital Currency Forum

Conclusion

In March this year, I also had the opportunity to participate in the PoC of the Regional
Currency Subcommittee held in Aizuwakamatsu. The content of the PoC is describedin the main text, but many stakeholders, mainly financial institutions interested in
the implementation of regional currencies, rushed to the Forum from all over Japan.
I talked with these participants at the evening standing social gathering and I felt
truly reassured listening to their enthusiasm about revitalizing their local economies by building an ecosystem based on digital currency, and those who expresseda strong desire that “something interesting should be able to be done with digitalcurrency.” With the support of these people, I wonder if the worldview of the “regional currency” subcommittee will develop not only in Aizuwakamatsu but also in many
regions across Japan. It was a night that gave a glimpse of the future.
The discussion of “regional currencies” is closely linked to the subcommittee on“administrative affairs.” In October last year, I visited the former Yamakoshi Village
in Niigata Prefecture with a former colleague at FSA (Financial Services Agency),
and I was strongly aware of the cooperation between regional administration anddigital. Yamakoshi Village was severely damaged by the Chuetsu Earthquake in
Niigata Prefecture in October 2004, and population declined from 2000 to 800 bycontinuously outflow from the village. Against this background, the village is taking
on the challenge of a new form of regional reconstruction with the power of digital,
centered around a female leader of the Local Revitalization Cooperation Group. It
is an attempt to enliven the region by issuing an NFT with a Nishikigoi (coloredcarp) design, a specialty of the region, and positioning owners of the NFT as digital
villagers, utilizing not only real-world activities but also the metaverse space. The
weekend I visited Yamakoshi was the day of the Niigata Prefecture Chuetsu Earthquake Memorial Ceremony. Digital villagers participated as avatars in the metaverse
space installed at the venue together with the villagers and visitors. Some of thedigital villagers were IT engineers who visited Yamakoshi in person for the firsttime, and during the day, they were working right away to improve the accuracy ofthe metaverse. Now Yamakoshi Village has merged with Nagaoka City, and under
the leadership of the mayor and deputy mayor who are very enthusiastic about
digitalization and the use of IT in government, regions other than Yamakoshi are also
taking on various challenges.
What I learned again during my visits to Yamakoshi and Nagaoka City is the high affinity between improving government services and digitalization, the importance ofbuilding an open platform that cooperates with the private sector rather than closing42

I have talked about my experience with “regional currencies” and “administrative
affairs,” but I think that the enthusiasm and practical experience of the participants
have accumulated through the activities of the other subcommittees too. Let’s deepen the discussion and cooperate with everyone who has read and resonated withthis report to realize a new society supported by digital currency.

Progress Report / The Digital Currency Forumit down to only government agencies, attracting human resources with meaningful
skills to build a platform that resonates with people, and bringing together humanresources to create new business and entrepreneurial seeds that have the potential
to grow into a large economy with the power of digital.

Toshihide Endo
Digital Currency Forum
Senior Advisor(former Commissioner of FSA)

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Progress Report / The Digital Currency ForumAppendix 1
Forum member
Chairperson
Hiromi Yamaoka, Director, Future Corporation(Former Head of the Payment and Settlement Systems Department, Bank of Japan)

Participating from the Digital Currency Forum● Aioi Nissay Dowa Insurance Co., Ltd.

● Super City AiCT Consortium● Nomura Holdings, Inc.

● Aizuwakamatsu City

● SUMITOMO CORPORATION● HashPort Inc.

● Accenture Japan Ltd.

● SUMITOMO LIFE INSURANCE COMPANY● Panasonic Holdings Corporation● Asukoe Partners, Inc.

● Securitize Japan K.K.

● Hamamatsu City

● ABeam Consulting Ltd.

● SECOM CO., LTD.

● Hankyu Hanshin Holdings, Inc.

● AEON Co., Ltd.,● Seven Bank, Ltd. (Seven & i Holdings Co.,

● PwC Consulting LLC● AEON Financial Service Co., Ltd.

Ltd.)
● SOHGO SECURITY SERVICES CO.,LTD.		
(ALSOK)● SocioFuture, Ltd.
● Sony Bank Incorporated● Sony Payment Services Inc.
● SoftBank Corp.
● Sompo Holdings, Inc.
● DAIICHIKOSHO CO., LTD.
● DAIDO LIFE INSURANCE COMPANY● Dai Nippon Printing Co., Ltd.
● Daiwa Securities Group Inc.
● Daiwa Institute of Research Ltd.
● Chubu Electric Power Co., Inc.
● TSURUHA HOLDINGS INC.
● TIS Inc.
● DENTSU INC.
● Tokio Marine & Nichido Fire Insurance 		Co., Ltd.
● Tokyo Kiraboshi Financial Group, Inc.
● Tokyo Financial Exchange Inc.
● TOKYO METROPOLITAN GOVERNMENT● Toppan Inc.
● TOPPAN Edge Inc.
● THE NISHI-NIPPON CITY BANK, LTD.
● West Japan Railway Company● NS Solutions Corporation● The Mortgage Corporation of Japan, 		Limited● Japan Securities Clearing Corporation● NEC Corporation● Nomura Research Institute, Ltd.

● East Japan Railway Company● Internet Initiative Japan Inc.
● Industry One, Inc.
● INTEC Inc.
● Intelligent Wave Inc.
● ANA Group (ACD Inc.)● SBI Holdings, Inc.
● ENERES Co., Ltd.
● NTT Group● Future Innovation Group, Inc.
● au Kabucom Securities Co., Ltd.
● au Jibun Bank Corporation● au Financial Holdings Corporation● Osaka Digital Exchange Co., Ltd.
● Kao Group Customer Marketing Co.,Ltd● KATAOKA & KOBAYASHI LPC.
● The Kansai Electric Power Company, 		Incorporated● Keychain GK● Payments Japan Association, Incorporated● Kyushu Financial Group,Inc.
● QTnet, Inc.
● KYOCERA Corporation● Kumamoto Prefectural Government● xID Inc.
● KDDI CORPORATION● Kesennuma city
● CYBERLINKS CO.,LTD.
● SATUDORA HOLDINGS CO.,LTD.
● JCB Co., Ltd.
● JPX Market Innovation ＆ Research, Inc.
● SIGMAXYZ Inc.

● Hitachi, Ltd.
● BIPROGY Inc.
● The Hiroshima Bank,Ltd.
● FamilyMart Co., Ltd● Fintertech Co. Ltd.
● BOOSTRY Co., Ltd.
● Future Architect, Inc.
● Payroll Inc.
● Mizuho Bank, Ltd.
● MITSUI KNOWLEDGE INDUSTRY CO., LTD.
● Mitsui Sumitomo Insurance Co., Ltd.
● Sumitomo Mitsui Banking Corporation● Sumitomo Mitsui Trust Bank, Limited● Mitsubishi Corporation● MUFG Bank, Ltd.
● Mitsubishi UFJ NICOS Co., Ltd.
● Mitsubishi UFJ Research and Consulting

Co., Ltd● MIRAI Inc.
● Meiji Yasuda Life Insurance Company● Mori Hamada & Matsumoto● YAMATO HOLDINGS CO., LTD.
● JAPAN POST BANK Co.,Ltd.
● Rakuten Edy, Inc.
● Resona Holdings, Inc.
● Lawson, Inc.
● Laurel Bank Machines Co., Ltd.

(Total 104 companies, local governments,and organizations)Observers

Advisors• Financial Services Agency, Japan• Ministry of Internal Affairs and Communications, Japan• Ministry of Finance, Japan• Ministry of Economy, Trade and Industry, Japan• Bank of Japan• Masakazu Masujima Partner, Mori Hamada & Matsumoto• Tetsuya Inoue Chief Researcher, Nomura Research Institute, Ltd.
• Shuji Kobayakawa Professor, School of Political Science and Economics Meiji University• Kenji Saito Professor, Graduate School of Business and Finance Waseda University• Chikako Suzuki Certified public accountant

Senior Advisor• Toshihide Endo
(Former Commissioner of Financial Services Agency)

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PoC in 2022
Introduction to PoCs Implemented in 2022

Progress Report / The Digital Currency ForumAppendix 2

Details are provided on pages 12 to 33 of the Progress Report of the Digital Currency Forum No. 2（https://www.decurret-dcp.com/.assets/forum_20230131pr.pdf）.

For details of each publication, please visit https://www.decurret-dcp.com/dcforum/.

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Progress Report / The Digital Currency Forum46

Progress Report / The Digital Currency Forum47

Progress Report / The Digital Currency ForumAppendix 3
Previous report

デジタル通貨フォーラム世界観

2021
Progress Report of the Digital Currency Forumhttps://www.decurret-dcp.com/.assets/forum_20211124pr_en.pdf
Digital Currency DCJPY (tentative name) White Paper
https://www.decurret-dcp.com/.assets/forum_20211124wp_en.pdf

2022“Regional currency Subcommittee” (Interim Report) -The Potential of Digital Regional currencieshttps://www.decurret-dcp.com/.assets/chiiki_report202202.pdf

2023
NFT Subcommittee Review Report - Discussion on the Usefulness of DCJPY in NFT Trading and Exploration of 		
Realization Methods https://www.decurret-dcp.com/.assets/NFT_report202302.pdf
Progress Report of the Digital Currency Forum No.2
https://www.decurret-dcp.com/.assets/forum_20230131pr_en.pdf

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