What if it wasn’t humans judging you, but AI?
This was once a question only found in the world of science fiction. However, AI is now steadily making inroads into the realms of justice and law enforcement, in the form of surveillance camera analysis and the digitalization of courts. This article provides an overview of how far AI police and AI judges have progressed in reality.
The moment you leave a convenience store late at night, a camera at an intersection automatically detects you crossing a red light. A loud warning sounds from a street speaker, a violation ticket is issued electronically on the spot, and the fine is automatically deducted from your bank account a few days later.
Security cameras in front of train stations match passersby’s faces with wanted posters, and if a match is found, a human police officer is immediately notified.
In court, AI analyzes massive amounts of video footage and data and automatically organizes evidence lists. In divorce proceedings, it calculates the level of compensation based on past case data, and in criminal cases, it provides a guideline for sentencing by referencing similar cases. Finally, the AI reads out the reasons for its own verdict and pronounces a guilty or not guilty verdict.
This is a science fiction-like thought experiment, but it is by no means absurd and has the potential to become a reality with technological advances.
In fact, the introduction of AI technology into the judicial and police fields is already operating as a real system in various parts of the world. Some countries are moving beyond mere experimentation and consideration to full-scale operation.
| China | The construction of “smart courts” is underway in courts across the country, and AI is being put to practical use in document preparation, sentencing support, etc. Furthermore, in the police sector, surveillance systems that combine street cameras with facial recognition AI are being widely deployed, primarily in Beijing and Shenzhen. |
| Estonia | In 2019, the idea of a “robot judge” was reported, and although the Ministry of Justice officially denied it, the introduction of AI in small claims disputes continues to be considered. As one of the world’s most cutting-edge “digital nations,” discussions on AI justice continue. |
| America | COMPAS, an AI that assesses the risk of recidivism, has been introduced in criminal trials. Although it has been criticized for racial bias, it has actually been used as reference material for sentencing decisions. Regulations and reviews are currently being carried out by each state. |
(See Chapter 4 for details on each country.)
Changes are also underway in Japan. Under the revised Civil Procedure Act, the use of IT in civil litigation is scheduled to be fully implemented by May 2026 at the latest, based on phased implementation and government ordinance designation. At a press conference ahead of Constitution Memorial Day on May 3, 2025, Chief Justice of the Supreme Court Yukihiko Imasaki mentioned, in general terms, that “we cannot deny the possibility that AI will be involved in judicial decisions.”
Even in the police sector, the introduction of systems for analyzing security camera footage and automatically detecting traffic violations is being considered. One example is the recent demonstration experiment by the National Police Agency on facial recognition technology.
The introduction of AI into the judicial and police fields is inevitable. While its use will primarily focus on support for the time being, it may gradually move toward automated processing and, in the future, toward partially automated adjudication.
People already use AI daily and experience its convenience. If the public comes to believe that “AI police are more trustworthy” or “AI judges are fairer,” society may choose AI. Of course, uncritical trust is dangerous. We must also be prepared for the decline in human judgment due to AI dependency and security risks such as hacking.
In movies and novels, an AI-driven society is often portrayed as a dystopia. However, the introduction of AI does not necessarily move in that direction. Rather, it has the potential to contribute to a fairer and more efficient society. This article explores this crossroads and explores a path forward for maximizing benefits while minimizing risks through institutional design.
This article distinguishes between the following levels of AI involvement:
| AI support | AI will organize information and make suggestions, but the final decision will be made by a human. |
| Automated processing | AI will handle the initial processing, and if an objection is filed, a human will review it. |
| Automated adjudication | AI will make the final legal decision (this is a future possibility). |
Currently, most practical applications are AI-assisted. Automated processing is still in the experimental stage in limited areas and is expected to expand soon. Automated adjudication poses many technical and legal challenges and is a long-term topic for consideration.
Before considering AI police, let’s review the basic rules of current law.
| – Warrant Principle (Article 35 of the Constitution) Residences and other locations cannot be searched without a court warrant. This restriction applies when AI-based surveillance or behavioral analysis constitutes a “compulsory measure.” In the GPS Investigation Case of March 15, 2017, the Supreme Court ruled that “continuous and comprehensive acquisition of location information constitutes a compulsory measure,” even though GPS had been installed on a vehicle without permission. A similar legal principle may apply to behavioral pattern analysis using AI surveillance. – Proportionality Principle and Limitations of Voluntary Investigation Court precedent has determined that “voluntary investigations that exceed necessity or reasonableness are illegal.” If AI-based surveillance of citizens over a long period of time or over a wide area is deemed “excessive,” it may be illegal. – Principles of the Personal Information Protection Act There is an obligation to limit purposes and collect and store only the minimum amount of data necessary. “Personal identification codes” such as facial recognition data require particularly strict handling. |
If an AI police system becomes a reality, it is expected to have the following functions:
While technology advances rapidly, legal reform takes time. This creates the risk of a gradual introduction of technology, with legislation following suit. Furthermore, if the basis for AI decisions cannot be explained, this poses a fatal problem in terms of due process.
While AI police systems have great advantages, they inevitably face constitutional restrictions and the risk of violating privacy. The following three points are particularly essential for their introduction:
| Human involvement | Important decisions must be reviewed by a human. |
| Transparent | The error rate and decision criteria will be made public and explained to the public. |
| Appeals system | A system will be established that allows citizens to easily file complaints. |
→ For the time being, “AI support” will be the norm, but this may expand to “automated processing” provided that the system is designed and audited properly.
The introduction of an AI judge system could bring about major changes to the judicial system.
The possibility of introducing AI judges differs significantly between civil and criminal cases.
| ・Relationship with Article 32 of the Constitution (Right to Trial) All citizens have the right to trial. Therefore, even if AI judges are introduced, it is essential to ensure that there is an option for human trial. ・Qualification as a Bearer of Judicial Power (Article 76 of the Constitution) Judicial power resides in the courts, and judges are to perform their duties “in accordance with their conscience and independently.” Entrusting judicial power to unscrupulous AI may be inconsistent with the constitutional system. However, if the parties consent in advance to select an “AI judgment,” there is room for ensuring a certain degree of constitutionality. ・Principle of Open Trials (Article 82 of the Constitution) Trials must be held in open court. Since AI’s internal processes are invisible, explaining the reasons for decisions to citizens presents a challenge. ・Strengthening and Rigidifying Precedentism Because AI learns from past precedents, it is prone to reproducing outdated values. There is a risk that it will be unable to adapt flexibly to social change. |
Clarifying responsibility for miscarriage of justice
Can an AI judgement be appealed? Will the appeal always be handled by a human? To what extent should the AI judgement be respected? These are issues that are inseparable from the locus of responsibility, and it is essential to design a system for this.
Current AI technology is limited to assisting in routine cases with few contentious issues. Advanced judgments, such as interpreting legal provisions, assessing the credibility of evidence, and adjusting social values, are still dependent on humans. However, depending on technological advances and social consensus, it cannot be denied that partially automated adjudication may become a reality.
| The role of AI judges | Improving the efficiency of evidence analysis, supporting commercial disputes, ensuring consistency in sentencing, and expanding the scope of minor cases. |
| Legal issues | Relationship with the Constitution, the rigidity of precedent-based judgments. |
| Practical issues | Responsibility for miscarriage of justice (civil, criminal, and AI), designing an appeals system. |
→ For the time being, the focus will be on “support functions,” but with technological advances and social consensus, “partially automated adjudication” may be introduced in the future for minor cases and specialized fields.
AI has a “black box” problem. In many cases, humans cannot understand why a decision was made. This is particularly serious in the judicial and police fields, where the parties involved need reasons that can be challenged or appealed.
To use AI in the legal field, at least the following three conditions must be met:
For example, if AI determines that a person is at high risk of fleeing when granting bail,
AI learns from past data, but that data itself contains discrimination and prejudice.
Japan does not have a comprehensive anti-discrimination law, making it difficult to address discriminatory treatment caused by AI. While there are specific laws such as the Act on the Elimination of Discrimination against Persons with Disabilities, there are no provisions that assume the use of AI. In this respect, Japan’s systems are weaker than those of Europe and the United States.
| China | In the judicial field, the “Smart Court” has put AI to practical use in sentencing support. In the police field, Beijing and Shenzhen are currently operating surveillance systems that combine street cameras with facial recognition AI. Integration with the “social credit system” is also progressing, but there is strong international criticism of excessive surveillance. |
| EU | The EU will enact an AI Act in 2024. It will classify the use of AI in the police and judicial fields as “high risk” and plan to impose strict regulations from 2026 onwards. Real-time facial recognition in public spaces will generally be prohibited (with exceptions for serious criminal investigations), and predictive policing will be required to ensure transparency and human rights impact assessments. |
| USA | Following the racial bias issue surrounding COMPAS, an AI for assessing recidivism risk, AI regulations are underway at the state level. There are no comprehensive regulations at the federal level yet. |
| Japan | Guidelines for the use of AI are currently being formulated. Specific regulations for the judicial and police fields have not yet been established, and there is no comprehensive anti-discrimination law, making it difficult to address discriminatory treatment caused by AI. |
| Explainability | A system that is readable, reproducible, and reusable is essential. |
| Fairness | A system for auditing and correcting bias in data and design is essential. |
| Constitutional consistency | It is essential to design democratic control that corresponds to the police and judiciary while guaranteeing the right to a trial. |
→ The prerequisite for introducing AI is to clarify not only the technical aspects but also the institutional and constitutional aspects.
There are many challenges to introduce AI police and AI judges. However, given technological advances and social needs, it is not realistic to completely reject them. Introduction will proceed in stages, and eventually, full automation will come into view in some areas. In this chapter, we will outline realistic scenarios for moving forward with introduction while minimizing risks.
| ① Short-term (3-5 years): Use as a supplementary tool Police field Search for specific individuals and vehicles using video analysis, and detect suspicious behavior (final decision made by humans) Automatic traffic violation detection (AI uses AI to organize evidence, humans make disposition decisions) Propose efficient patrols using crime data analysis Judicial field Automated case law search and issue organization (improving investigative efficiency) Drafting damage calculations and standard contract checks Presenting multiple settlement proposals in mediation System development Quality standards and certification systems for AI systems AI-assisted recording and auditing systems Ensuring final human decision-making ② Medium-term (5-10 years): Semi-automation in limited areas Police field Automated processing of minor traffic violations (parking violations, slight speeding) (human review if an objection is filed) Automation of administrative procedures with clear requirements, such as driver’s license renewals and license and permit renewals Judicial field AI-based rulings for small-sum disputes (e.g., under 1 million yen) with party agreement (right of appeal guaranteed) Family mediation with clear standards, such as child support calculations and property division Introduction of “AI Mediation” System Development Enactment of a special law regarding semi-automated processing Appeals against semi-automated criminal processing will be handled by humans within 48 hours. Establishment of a system for regular AI audits and compensation. ③ Long-Term (10-30 years): Partially automated adjudication in specialized fields Police field Automated warnings and enhanced surveillance based on improved crime prediction accuracy Advanced investigative support through organized crime and financial flow analysis Judicial field Automated adjudication in specialized fields that can be formulated, such as intellectual property litigation and tax litigation AI will propose criminal sentences based on uniform national standards, with the judge making the final decision Prerequisites for Realization Reinterpretation or amendment of the Constitution Dramatic improvement in AI explainability Building trust throughout society Dramatic improvement in cybersecurity (preventing attacks and tampering on AI systems) Improvement of public digital literacy (using AI with an understanding of its limitations) International harmonization of systems (adjustments at the treaty and agreement level, e.g., whether AI judgments can be enforced overseas) |
| Short-term | Introduce support functions as auxiliary tools |
| Medium-term | Advance semi-automation in limited fields and improve legal systems |
| Long-term | Introduce partially automated adjudication in specialized fields (subject to constitutional and social consensus) |
→ It is essential to guarantee a “final human review” and a “protest system” at every stage. This will enable us to enjoy the benefits of technology while protecting human rights and democratic values.
Over the past five chapters, we have examined the possibilities and challenges of AI police and AI judges. With technological advances, the future once depicted in science fiction is steadily approaching reality.
It is not realistic to completely eliminate AI from the judicial and police fields. As long as there are urgent needs for personnel shortages, work efficiency, and uniformity of judgment, the trend toward the use of AI will likely be unstoppable.
However, the judiciary and police are the foundation of society, protecting people’s lives, freedom, and property. Sacrificing justice and fairness for the sake of efficiency is unacceptable.
The exercise of power by AI goes to the very foundations of democracy.
At the beginning, I asked, “What if it was AI, not a human, that detected your traffic violation?” I’d like to ask again at the end:
“Would you want to be judged by AI?”
Some people may be okay with it as long as it’s fair and swift, while others would prefer to be judged by a human. While many people currently opt for the latter, it’s important that we maintain this choice. We must avoid a situation where we unknowingly lose our options.
AI technology will certainly change society. However, the direction it takes will not be determined by engineers or companies, but by the decisions of each and every citizen. It is precisely because justice and public safety are fields that are so fundamental to society that we must carefully, yet positively, consider how we should approach AI.
References and related information
We are entering a new era of decentralized internet—Web3—driven by advancements such as blockchain-based payment networks and tokenized ecosystems. While this era can feel exciting and full of promise, it also raises key concerns: can the next phase of decentralized internet become a sustainable part of our social infrastructure?
Over the course of this article, the evolving nature of our social infrastructure will be examined in the Japanese context. This will then be followed by environmental concerns of Web3, a critical analysis of the tradeoffs of PoW to PoS transition, and challenges of regulation in this evolving landscape.
Evolving social infrastructure- Why is Web3 involved?
Technology is advancing at a rapid pace, but it remains important to ground innovation in its original purpose—to improve our lives.
Japan has already recognised the need to re-envision the relationship between technology and society for some time. The concept of “Society 5.0,” introduced in the 5th Science and Technology Basic Plan (Cabinet decision of January 22, 2016), sets out a vision of a human-centered society in which economic development and the resolution of social issues are compatible with each other through a highly integrated system of cyberspace and physical space.
Web3 fits into this narrative and is already being included in conceptions of this idea. This is due to the global, borderless infrastructure, particularly its blockchain-based architecture, which could play a significant role in this shift by enabling freer and more secure movement of data. Importantly, Japan is also one of the first governments to begin formally recognizing Web3, with initiatives from METI and the FSA to explore regulatory frameworks and business use cases. This shows that Japan is not only theorizing about a new way to apply technology in society, but is also experimenting with how Web3 itself can be integrated into that future.
Almost 10 years later, this stance of wanting to foster innovation in Japan while still maintaining a safe regulatory environment continues, with the Japanese government’s policy of advancing the social implementation of digital technologies according to the Digital Agency of Japan in June 2025.
Web31 is founded on blockchain technology- a decentralized ledger that avoids central servers. This has proven effective against hacking, an issue that is becoming increasingly grave in an era of AI and other advanced technologies, which can be used to develop harmful programs that hijack centralized systems.
One of the earliest consensus mechanisms, Proof of Work (PoW), comes with a heavy environmental cost. To validate transactions, miners must solve complex computational problems, often requiring massive amounts of non-renewable energy resources.
Bitcoin, for example, consumes not only electricity but also enormous amounts of water to cool the computers used in mining. According to Alex De Vries in Bitcoin’s Growing Water Footprint (Cell Reports Sustainability, 2024), Bitcoin’s water footprint increased by 166% from 2020 to 2021, rising from 591.2 to 1,573.7 gigaliters (GL). The water footprint per transaction in those years jumped from 5,231 liters to 16,279 liters, and by 2023 the annual total may have reached 2,237 GL.
To put this into perspective, this is approximately the amount of water used to fill a standard backyard pool for a single bitcoin transaction.
This footprint highlights that blockchain technology has environmental costs that have compounding effects beyond electricity use, straining other vital resources like water.
When thinking about the integration of society, climate, and technology, considering the knock-on effects and the interconnected nature of our coexistence on the planet is essential.
A significant environmental improvement came with Ethereum’s transition from PoW to Proof of Stake (PoS) in September 2022 (“The Merge”), which cut its estimated electricity consumption by ~99.95% (De Vries, 2023; Kapengut & Mizrach, 2023).
In PoS, validators stake cryptocurrency as collateral to secure the network, replacing energy-intensive mining. Misbehavior can result in loss of the stake (“slashing”), aligning incentives with honest participation.
However, PoS is not without criticism:
Essentially, the problem is that if you are rich, you can “stake” more cryptocurrency than someone who has less money. The more you stake, the higher the possibility that you are selected to validate new blocks and thus earn more rewards in the long run. This creates a harsh wealth divide, where the rich become richer and also more powerful, creating potential for an oligopolistic or monopolistic market of staking to evolve. This undermines the idea that Web3 could become a fairer extension of our social infrastructure.
On a similar note to the potential of an oligopolistic/ monopolistic market of staking, it could be conceivable that a group of (presumably wealthy) validators could band together to manipulate blockchain networks to their advantage. This could result in validators censoring transactions and increasing fees to gain profit.
While PoS drastically improves energy efficiency, these governance risks mean sustainability must be measured not only in carbon savings but also in resilience against centralization.
If there is insufficient governance and protection in place, PoS cannot be a sustainable choice. To be truly sustainable, a system must be supportive of the natural environment (this is the case with PoS), but also the social environment. This is iterated in Japan’s Society 5.0 idea, as well.
If wealth concentration and inequity continue to extrapolate into the Web3 world, there could be dire effects as this technology becomes part of the fabric of our daily life.
With Web3 being based on the idea of decentralization, it can be challenging for centralized authorities to regulate. Without a central entity to oversee or enforce compliance, it becomes difficult to apply traditional law directly. Questions such as determining the responsibility of actors on a decentralized network or tracking to confirm adherence to laws and best practices in anonymous environments are a problem. Additionally, it remains a challenge on the part of regulators to apply existing regulations, in their current form to Web3.
Japan is a case study of how governments are attempting to bridge the gap between decentralized technology and the need for crisis-proof regulations, but understanding how this links to sustainability is still a challenge.
The intersection of Web3 and sustainability creates both new challenges and opportunities. While the decentralized internet will likely put a strain on our limited environmental resources, it also offers tools that could revolutionize climate accountability.
For Web3 to form part of Society 5.0’s human-centered vision, it must evolve not only through energy-efficient consensus but also through governance models and legal frameworks.
To this end, legal professionals will continue to be at the forefront of pushing positive changes to guide innovation towards responsible growth.
This article was authored by a Legal Assistant at So & Sato Law Offices.
The content reflects an individual exploration of emerging legal and social issues, and does not constitute legal advice or represent the official position of the firm.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. For legal questions related to blockchain, sustainability, or regulatory frameworks, please consult a qualified professional.
General References and related reads:
https://bernardmarr.com/why-blockchain-nfts-and-web3-have-a-sustainability-problem/
https://www.techtarget.com/sustainability/feature/Web3-and-sustainability-Benefits-and-risks
https://www.jbs.cam.ac.uk/2023/blockchain-sustainability-ethereum
https://ccaf.io/cbnsi/cbeci/comparisons
https://www.osl.com/hk-en/academy/article/deeply-reflecting-on-web2-thinking-hard-about-web3
https://entertainmentlawyermiami.com/regulatory-compliance-in-web3-a-guide-for-businesses
https://en.cryptonomist.ch/2025/06/24/bitcoin-and-regulation-the-regulatory-revolution-in-japan
https://www.japan.go.jp/kizuna/2025/06/regional_revitalization_web3.html
https://www.leewayhertz.com/ai-in-web3/#What-is-web3
https://www.coinbase.com/learn/crypto-basics/what-is-proof-of-work-or-proof-of-stake
https://kilpatricktownsend.jp/en/japans-national-strategy/
https://www.spiceworks.com/tech/tech-general/articles/web-2-vs-web-3
https://unepccc.org/wp-content/uploads/2019/02/udp-climate-change-blockchain.pdf
https://digital-strategy.ec.europa.eu/en/policies/blockchain-climate-action
https://www8.cao.go.jp/cstp/english/society5_0/index.html
https://www.meti.go.jp/policy/economy/keiei_innovation/sangyokinyu/Web3/web3.pdf
https://www8.cao.go.jp/cstp/english/society5_0/index.html
A digital asset treasury (“DAT”) strategy refers to a company’s approach to holding and managing digital assets (often referred to as “crypto assets” in Japan) as part of its corporate balance sheet. It incorporates digital assets into the portfolio as an alternative to, or complement to, traditional cash and securities.
When focused solely on Bitcoin, this is sometimes referred to as a “Bitcoin treasury strategy.” In Japan, the term “Crypto Asset Treasury” is sometimes used, reflecting the regulatory terminology of “crypto assets,” while in international contexts “Digital Asset Treasury (DAT)” is increasingly common.
In recent years, the number of companies adopting these strategies has been increasing worldwide. In particular, the approval of Bitcoin ETFs in the United States in 2024 encouraged institutional investors to enter the market, spurring interest in direct corporate holding strategies. In Japan, listed companies have also begun to disclose digital asset holdings, drawing significant investor attention. This article provides an overview of treasury strategies and examines the key legal issues under Japanese law.
| Conclusion: Feasible under current Japanese law With appropriate measures, DAT strategies can be implemented under the current Japanese legal system. The conclusions of the main points are as follows: Legal Issues ・Crypto asset exchange business: No registration required for buying and selling of company-owned crypto assets ・Collective investment schemes: Fundraising through the issuance of stocks and CBs does not apply ・Staking and lending: No restrictions on proprietary management ・Timely disclosure: Disclosure required for important transactions and policy changes Accounting/Taxation Accounting: Market value valuation is the rule (differences exist between Japanese GAAP, IFRS, and US GAAP) ・Taxation: Taxation is generally based on year-end mark-to-market valuation, however, the 2024 amendments will allow for exemptions from year-end mark-to-market valuation taxation under certain conditions ・Audit: Prior agreement with the auditing firm is important Practical Preparations ・Investment policy decisions at the board of directors level ・Prior consultations with auditing firms and tax accountants ・Establishment of internal control and risk management systems ・Establishment of a system for disclosing information to investors Investor Perspective ・Advantages such as preferential tax treatment for stocks (20.315% vs. up to 55% for physical cryptocurrencies) and simplified investment procedures ・Double taxation at both the corporate and individual levels ・Disadvantages of business and operational risks ・Different value from cryptoasset ETFs (leverage effect, synergy with corporate value, etc.) |
MicroStrategy (now Strategy) is a US-based company known as a representative example of a successful DAT strategy. It began purchasing large amounts of Bitcoin in 2020, resulting in a significant increase in its corporate value.
In 2024, Metaplanet, a Japanese listed company, announced a full-scale DAT strategy, which attracted a lot of attention as the first such initiative in Japan.
Remixpoint Inc. is one of the companies that holds cryptoasset while emphasizing their relevance to their business. Its subsidiary, BITPoint Japan Inc., owns the crypto asset exchange BITPoint (however, the company’s shares were transferred to an outside group between 2022 and 2023), and is a company that is friendly to Web3.
| Company name | country | Strategy Features | Asset Holdings | Stock price performance |
| MicroStrategy | US | Converting the majority of cash into BTC: “Corporate BTC ETF” | A large amount of BTC | 1 year: 164% increase 5 years: 2,238% increase Market capitalization: USD 94 billion |
| Metaplanet | Japan | Purchases positioned as “financial reserve assets” | A large amount of BTC | 1 year: 490% increase 5 years: 707% increase Market capitalization: JPY 461.2 billion |
| Remix Point | Japan | Emphasis on business synergies | BTC, ETH, SOL, XRP, DOGE etc | 1 year: 120% increase 5 years: 274% increase Market capitalization: JPY 51.5 billion |
*Stock prices are as of September 9, 2025
When people think of “DAT strategies,” many think of “all-asset cryptoasset conversion” strategies like those used by MicroStrategy and Metaplanet. However, actual corporate strategies vary widely.
Companies need to choose the strategy that’s right for them based on the following four perspectives:
| Strategy Type | Features | Key Benefits | Key points to note |
| Surplus fund investment type | Allocate part of existing surplus cash to cryptoasset | ・Minimal impact on existing business ・Easy to implement in stages |
・Limited investment scale ・Limited impact on stock prices |
| Full transition type | Converting the majority of cash assets into cryptoassets | ・Maximize the benefits of price increases ・Clear position as bitcoin stock |
・High risk of price decline ・Impact on working capital ・Risks when introducing ETFs |
| Web3 Strategy Type | Emphasis on relevance to Web3 and blockchain businesses | ・Consistency with business strategy ・Easy to explain to investorS |
・Business feasibility ・Continuous business investment required ・Expert knowledge in the web3 field is essential |
| Procurement method | features | Key Benefits | Points to note |
| Surplus fund utilization type | Purchase using existing cash and deposits as funds | No additional financing required ・No dilution impact ・Can be implemented quickly |
・Limits on investment scale ・Effect on existing business funds needs to be considered |
| New share issuance | Purchased by raising funds through the issuance of new shares | Large-scale investments possible ・Avoid increasing debt ・Appealing to growth investments |
Shareholders’ meeting approval may be required ・Vulnerability may vary depending on market conditions |
| Convertible bond issuance type | Purchased by raising funds through CB issuance | ・Funding at low interest rates ・Dilution control until conversion ・Leverage effect |
Interest burden incurred ・Conversion conditions set ・Effect on credit rating |
| Investment Targets | Features | Key Benefits | Risks and points to note |
| Bitcoin only | Concentrated investment in a single BTC stock | Most liquid and stable ・”Digital gold” ・Easy to explain to investors |
・Single stock concentration risk ・No diversification effect ・Missed growth opportunities in other currencies |
| Brand diversification | Diversified investments in BTC, ETH, altcoins, etc. | ・Appropriate diversification effect ・Earn staking profits ・Capture overall market growth |
・Individual stock risks exist ・Management becomes more complex ・Tax calculations become more complicated |
| Altcoin focused | Active investment in emerging and small coins | ・High growth potential ・First-mover advantage ・Investment in innovation areas |
・Extremely high volatility ・High liquidity risk ・Difficult for investors to understand |
| Operation method | Features | Key Benefits | Risks and points to note |
| HODL (long-term holding) | Hold cryptoasset for the long term. | ・Simple operation method ・Not affected by price fluctuations ・Possibility of tax benefits (see chapter 5 of this article ) |
・Expansion of losses when prices fall ・Possibility of opportunity loss ・Ensuring liquidity |
| Staking utilization | Earn additional revenue by staking ETH etc. | ・Continuous income ・Additional return of several percent per year ・Network contribution |
・Technical risk ・Slashing risk ・Unbonding period |
| Lending utilization | Earn interest income by lending to third parties | ・Management at high interest rates ・Earn both price appreciation and interest ・Liquidity can be adjusted |
・Credit risk of borrowers ・Market liquidity risk ・Regulatory change risk |
Companies will combine these elements to create the optimal strategy based on their business, financial situation, and risk tolerance.
Furthermore, based on our conversations with advisors and related parties, it appears that many companies currently considering this strategy are seeking treasury strategies that take advantage of connections with their core business, rather than simply HODLing, perhaps in order to differentiate themselves from previous cases.
On the other hand, even when companies that do not necessarily have a strong connection between their core business and Web3 adopt a DAT strategy, there are cases where they try to explain it to shareholders and other stakeholders as a revenue model that combines stock income from staking and lending.
We will summarize the main legal issues that arise when implementing a DAT strategy in Japan. In conclusion, with appropriate measures, it is entirely possible to implement the strategy under current law.
Basic Principles Actual actions of companies acquiring and holding cryptoassets as part of their financial strategy do not constitute a “crypto asset exchange business” under the Payment Services Act, and registration is not required.
Legal Basis According to Article 2, Paragraph 15 of the Payment Services Act, a crypto asset exchange business is one that “conducts the following activities as a business”:
Reasons for non-application: The trading of cryptoassets by a company as an investment in its own portfolio is not considered to be an act conducted “as a business.”2 Also, owning a company is not “managing for others.”
Regarding fundraising through stocks, etc,: Fundraising through stocks, convertible bonds, or similar instruments, and using those funds to purchase cryptoasset, is currently not classified as a cryptoasset exchange business. While it could be formally interpreted as “raising funds from shareholders to acquire cryptoasset,” potentially suggesting the provision of cryptoasset trading services to shareholders, such an interpretation is not adopted in current practice.
Basic Concept cryptoasset investments made using funds raised by companies through the issuance of new shares or convertible bonds do not fall under the category of “collective investment schemes” under Article 2, Paragraph 2, Item 5 of the Financial Instruments and Exchange Act.
Legal Basis Due to the structure of the Financial Instruments and Exchange Act, stocks and convertible bonds are regulated as independent “securities” under Article 2, Paragraph 1, Items 5 and 9, and are a separate system from collective investment schemes (fund regulations) under Paragraph 2, Item 5.
Specific Reasons
Cases to note: If you are establishing a separate company (such as an SPC) exclusively for cryptoasset investment and soliciting anonymous partnership investments, you must carefully consider whether it qualifies as a collective investment scheme.
Regarding staking, staking conducted by companies using their own assets or on their own account does not generally fall under the category of funds (collective investment schemes) or crypto asset custody, and can be carried out without any special regulations.
Regarding lending, while money lending is regulated in Japan by the Money Lending Business Act, there are no special regulations for crypto asset lending. Companies are free to use their own cryptoassets for lending as long as they are on their own account.
Advice on Physical Cryptocurrencies Physical cryptoassets are not considered “securities” under the Financial Instruments and Exchange Act, and therefore are not subject to the Investment Advisory and Agency Business Act (Article 28, Paragraph 3). This can be classified as a general consulting service.
Cases requiring caution : Continuous, specific advice and discretionary management of cryptoasset derivatives (futures, perpetuals, etc.) may require registration as an Investment Advisory and Agency Business.
Practical Response: When providing advice including derivatives as an external advisor, it is recommended that the purpose of the contract be limited to “strategy design and risk analysis support” and that specific advice on investment decisions be avoided.
Listing Rules: The Tokyo Stock Exchange’s listing rules do not have any provisions that directly prohibit the holding of cryptocurrencies. As a legitimate investment, cryptocurrencies are likely to be treated in the same way as other investment products.
Cases where timely disclosure is required
Key points of disclosure: If your cryptoasset investment is large, you should probably include the following:
It is important for companies to establish an appropriate legal framework and implement strategies while ensuring compliance.
Some DAT companies raise large amounts of capital. In such cases, they must take into consideration the Tokyo Stock Exchange’s 300% rule (which states that if the share value dilution rate exceeds 300%, the company will be delisted unless the exchange deems it unlikely to infringe on the interests of shareholders and investors; Article 601, Paragraph 1, Item 15 of the Tokyo Stock Exchange Securities Listing Regulations and Article 601, Paragraph 12, Item 6 of the Enforcement Regulations).3
Additionally, attention should be paid to the provision known as the 25% rule (Article 432 of the Listing Regulations, Article 435-2 of the Enforcement Regulations). This rule requires a special resolution of the general shareholders’ meeting or an opinion on the necessity and appropriateness of the issuance of new shares that exceeds 25% of the total number of issued shares through a third-party allotment. Because investor ownership ratios fluctuate significantly, strict procedures are required from the perspective of protecting minority shareholders.
Accounting and tax compliance is extremely important when implementing a DAT strategy. Listed companies in particular need to properly manage tax risks while fulfilling their accountability to investors and auditors.
In accordance with Japanese GAAP (JGAAP) Practical Advisory Report No. 38, cryptoassets with an active market are valued at market price at the end of the fiscal year, with the valuation difference recorded in profit and loss. If there is no active market, they are valued at acquisition cost.
The classification on the balance sheet is determined by the purpose of holding and liquidity. If listed separately, they are shown as “cryptoassets,” etc., but if they are not significant, they are included in intangible fixed assets or other assets, etc. The classification on the income statement is determined based on the purpose and actual situation of the business. In both cases, consultation and agreement with the auditing firm is required.
Companies adopting IFRS often adopt the cost model + impairment (IAS36) for intangible assets under IAS38, but if there is an active market, they can also choose the revaluation model. In this case, upward revaluation is recorded in OCI (other comprehensive income) (the portion equivalent to the reversal of past impairment losses is recorded in profit or loss), so in principle it is not recorded in the income statement.
However, since Japanese corporate tax is calculated using fair value at the end of the period, adjustments must be made in tax returns even when IFRS is adopted, resulting in a discrepancy between accounting and tax practice.
US GAAP companies, such as MicroStrategy, apply ASU 2023-08, which requires them to record their investments at cost, then mark them to fair value at the end of each period, with the difference recognized in earnings. Unlike IFRS, these investments are always passed through the P/L rather than recorded in OCI (other comprehensive income).
Taxation based on end-of-period fair value valuation (in principle) According to the National Tax Agency Q&A, “cryptoassets with active markets” are valued at fair value at the end of the period, and the valuation difference is included in income or expenses.
The following cases are also subject to valuation:
Avoidance of year-end mark-to-market valuation taxation due to transfer restrictions (exception) The April 2024 amendments make it possible to exempt from year-end mark-to-market valuation taxation if certain requirements are met.
Requirements:
Benefits: For tax purposes, the property can continue to be valued at its acquisition cost, and tax is only levied upon sale. This avoids unrealized gain tax and contributes to stabilizing cash flow.
Points to note:
Tax structure comparison with ETFs : While ETFs avoid double taxation through pass-through taxation, corporate cryptoasset investments are subject to a double tax structure in which shareholders are taxed again on dividends and capital gains after being taxed at the corporate level. This is one of the important differences with ETFs, which will be discussed in detail in Chapter 6.
Prior agreement with the auditing firm is important The most important issue in a cryptoasset audit is confirming its existence. In order to determine whether an audit allows for ex post and third-party verification of financial figures, it will affect the design of operations and systems. Close consultation with the auditing firm is required to reach a prior agreement that an audit is possible. Examples of practical audit issues are as follows:
Internal controls are also an important prerequisite for audits, and they must identify risks specific to cryptocurrencies and take appropriate operational measures. Internal controls must be formulated into company regulations at an appropriate level of granularity and then specifically documented using business flow and business descriptions. Unlike traditional financial assets, which have external, reliable storage and recording institutions, cryptocurrencies require the establishment of a strict management system:
It is important to establish a collaborative system with accountants and tax accountants who are knowledgeable about cryptocurrencies and to consult and check with them regularly.
Cryptoasset ETFs have not yet been approved in Japan, but we will summarize the impact on corporate strategies and market positions if they are approved in the future.
Although a Bitcoin ETF was approved in the United States in January 2024, the stock prices of existing DAT companies continue to maintain a premium, and it is believed that the two offer different value to investors and the market.
| Item | ETF | DAT company |
| Leverage | Basically, only physical holdings | Leverage possible through convertible bonds and new stock issuance |
| Investment strategy | Index-linked passive management | Discretionary adjustment of stock allocation, staking, etc. |
| Added value | Price tracking, low cost | Core business revenue and synergy with Web3 businesses |
| Tax structure | Pass-through taxation (taxed only on the investor side) | Corporate tax + investor tax (double taxation structure) |
Due to the current lack of ETFs in the Japanese market, DAT companies function as “de facto ETF substitutes,” and this unique market environment is one of the reasons for the stock price premium. Metaplanet’s official stance is that “ETFs are not competitors but a factor in expanding demand,” explaining that “while ETFs passively track Bitcoin, treasury companies can utilize capital markets to increase the amount of Bitcoin held per share.” (Reference: Metaplanet FAQ https://metaplanet.jp/jp/shareholders/faqs) While the premium has been maintained in the United States since the introduction of ETFs, the actual market reaction in Japan will depend on investor structure and market conditions, so it is unclear whether the results will be similar to those in the United States.
Corporate response strategies
Column: Investor Benefits of Investing in DAT Companies |
|
For reference, we have compiled the main advantages and disadvantages that individual investors can gain by investing in DAT companies. Tax benefits (individual investors) Easy investment procedures Avoidance of institutional restrictions Major disadvantages and points to note As a result, DAT companies are in an environment where they can easily attract a certain amount of investor demand as “de facto cryptoasset ETFs,” but investment decisions require careful consideration. |
DAT strategies offer leverage benefits and synergies with corporate value that differ from ETFs and are establishing themselves as a unique investment target. With appropriate measures, they are a financial strategy that can be implemented under the current Japanese legal system.
Regarding legal issues, cryptoasset exchange registration is not required, they do not fall under collective investment schemes, and staking and lending are not subject to regulations if conducted on a proprietary account.
While accounting and tax issues arise, such as the direct impact of mark-to-market valuation on business performance and year-end mark-to-market taxation, certain issues can be addressed by utilizing the transfer restriction system under the 2024 tax reform.
However, for Japanese companies to sustainably implement DAT strategies, merely obtaining legal clearance is not enough. Gaining stakeholder understanding and trust through comprehensive accounting, tax, and investor relations systems, prior agreements with auditing firms, the establishment of appropriate risk management systems, and ongoing investor disclosure are key to success. As corporate involvement in cryptoassets is expected to continue to expand, we hope this article will be helpful in your strategic considerations.
We received advice on this blog from Kensuke Amano of Animoca Brands, Inc., and certified public accountants Yosuke Yuzuki and Ko Saito. However, all possible errors are the responsibility of the authors.
Disclaimer:
The contents of this document have not been confirmed by the relevant authorities and merely describe arguments that are reasonably considered legally. Furthermore, they represent the author’s current views and are subject to change.
This document does not recommend the use of DAT strategies or investment in DAT strategy companies.
This document has been compiled solely for this blog. If you require legal, accounting, or tax advice for your specific case, please consult your lawyer, accountant, or tax accountant.
In this article, we will introduce AI agents, which have been gaining popularity since 2025, by explaining (1) what an AI agent is, (2) what Web3 AI agents are, and (3) the legal issues surrounding AI agents.
Because AI agents can take over any job, when considering the relationship between AI agents and the law, it is necessary to consider legal issues for all the jobs they perform. However, since it is difficult to cover all of this in a blog, this article first introduces the basic ideas for considering legal issues related to AI agents, and then discusses their relationship with regulation, focusing on financial regulation in particular.
However, we believe that this approach to financial regulation will also be useful to a certain extent when considering legal issues related to other AI agents.
An AI agent is generally an artificial intelligence system that autonomously performs specific tasks. It is capable of processing data from the environment, learning and making decisions as needed, and carrying out tasks without human instruction.
Generally, an AI agent has the following elements:
| (i) Recognition: Processes the external environment and input data to understand the current situation. (ii) Decision-making: Plans actions to accomplish tasks based on data. (iii) Action: Executes actions that bring about changes in the environment based on the plan. (iv) Feedback: Uses the results of execution to learn and improve actions next time. |
This allows AI agents to perform repetitive tasks and make complex decisions on behalf of humans.
AI agents are currently attracting a great deal of attention as they are expected to transform our lives and how we do business.
For example, AI agents are expected to be used in the following applications:
| Examples of AI Agent Uses: (i) Generative AI Creativity Support: Used in creative fields, such as generating text, images, videos, and music. In the media, advertising, and gaming industries, AI is expected to improve production efficiency and create new value. (ii) Personal Assistant: AI can provide support tailored to individual needs, such as life coaching, educational support, and business assistants. Applications that improve daily life efficiency, such as schedule management and health advice, are gaining attention. (iii) Autonomous Use in Finance: AI agents that support asset management and household finances use data to propose optimal investment strategies and savings methods. Automated trading and asset management are also advancing in decentralized finance (DeFi). (iv) Business Process Automation: Automating repetitive tasks such as human resources, finance, and customer service contributes to improving corporate productivity. Data analysis and decision-making support are also areas where AI agents excel. (v) Healthcare: AI agents are used for health management, telemedicine, and disease prediction. In particular, personalized services such as symptom analysis and mental health support are expected. (vi) Autonomous Systems: AI agents are expected to play an active role in handling physical tasks such as robot automation in warehouse management, logistics, and disaster response, as well as self-driving and drone operation. |
AI agents have the potential to enrich our lives and make businesses more efficient, thanks to their personalization and autonomy, and these applications are areas where further advancements are expected in the future.
The following are some specific examples of AI agent use both in Japan and overseas.
| Service name | Provider | Features |
| Fujitsu Kozuchi AI Agent | Fujitsu Limited | An AI agent that autonomously promotes advanced tasks in cooperation with humans. For example, as a conference agent, AI can participate in meetings to share information and propose measures, or as a field support agent, analyze camera footage at manufacturing and logistics sites, propose improvements, and create work reports. |
| Agentforce | Salesforce, Inc | Autonomous AI assistants. For example, Service Agent, part of Agentforce, replaces traditional chatbots with autonomous AI, enabling accurate and fluent conversations with customers 24/7 without pre-programming scenarios. |
| Operator | OpenAI, Inc | AI operates a web browser on behalf of the user, automating everyday tasks. It uses its own browser to navigate web pages and perform operations such as typing, clicking, and scrolling according to the user’s instructions, allowing it to automate tasks such as making restaurant reservations and online shopping. |
| Pactum AI | Pactum AI, Inc. | Walmart has introduced Pactum AI, an autonomous negotiation AI, to automate negotiations with over 100,000 suppliers. It automatically makes proposals in response to requests from suppliers based on pre-specified budgets and priorities, leading to optimal trading terms for both Walmart and the supplier. |
| Waymo Foundation Model | Waymo LLC | Waymo, which operates self-driving taxis, uses a proprietary AI model called the Waymo Foundation Model to enable advanced decision-making, from understanding the surrounding situation to generating driving plans. |
AI agents are said to be compatible with Web3. The integration of Web3 and AI agents is expected to create new possibilities, such as the following:
| Examples of Web3 AI Agent Use Cases : (i) Integration with Decentralized AI Agents and Smart Contracts: AI agents operate smart contracts on the blockchain and execute transactions autonomously. For example, real estate and financial transactions can be completed without an intermediary. ・Operating as part of a Decentralized Autonomous Organization (DAO): AI agents participate in the decision-making process within the DAO, making proposals and voting. (ii)Strengthening User Sovereignty and Protecting Privacy: AI agents process user data locally and securely store personal information in decentralized storage (e.g., IPFS). ・Self-Sovereign Identity (SSI): AI agents leverage users’ SSI to simplify access and authentication to Web3 services. (iii) Automating the Token Economy and Automating Token Trading: AI agents manage and trade assets on behalf of users on a decentralized exchange (DEX). ・Reward Distribution: AI agents receive and redistribute tokens based on the value they generate on the Web3 platform. (iv) Metaverse and AI Agents: AI agents act as virtual assistants within the metaverse. For example, managing land for users or trading NFTs. (v) Utilizing Zero-Knowledge Proofs (ZKPs): AI agents can use ZKPs to provide trust in Web3 applications while protecting privacy. |
One example of a Web3 AI agent that has attracted global attention is AI16Z (ai16z), a decentralized AI investment fund built on the Solana blockchain that utilizes AI agents to autonomously conduct investment activities.
| Project name: ai16z Platform: Solana Blockchain Features: ・AI collects and analyzes market information and automatically executes token transactions taking into account community consensus. ・Uses decentralized governance that allows investors to participate in project management and decision-making through tokens. ・Blockchain technology ensures the transparency and reliability of investment activities. AI Agent “Eliza”: ・An AI agent responsible for planning and executing investment strategies. ・Released as open source, it can also be deployed by third parties. |
The name ai16z is a play on Andreessen Horowitz (a16z), a well-known Silicon Valley VC, but ai16z and a16z are unrelated.However, on October 27, 2024, Marc Andreessen, one of the founders of a16z, posted “GAUNTLET THROWN” on X (formerly Twitter) and mentioned the T-shirt worn by ai16z’s main avatar, which caused the name of ai16z to spread rapidly4.
Furthermore, in early January 2024, ai16z’s market capitalization temporarily exceeded 300 billion yen, growing more than 100 times in three months. As a result, by early January 2025, the company had become a hot topic worldwide and in the case of a personal injury accident was also a major topic of discussion on AI agents on Japan’s X (formerly Twitter).However, perhaps due to overly high expectations, the price has fallen sharply, with the market capitalization falling to around 50 billion yen, indicating extremely speculative price movements.
| 1 AI Agents and Legal Regulation (Basic Concept) (i) The word “agent” in AI agent translates to “proxy” in Japanese. Even if a service called an AI agent does not strictly qualify as an “agent” in the legal sense, it typically refers to an entity that performs specific tasks “on behalf of” a human. (ii) When considering regulations applicable to AI agents, we first consider (1) what regulations would be imposed if a human were to perform similar actions, (2) whether any regulations would be imposed on the user if the user were to perform such actions using AI, and (3) whether any regulations would be imposed on the business if the business provides the AI to users. (iii) Note that, in cases such as DAOs, if the AI agent can be said to operate completely autonomously and without human involvement, there is room to consider that legal regulations do not apply in the first place. However, since it is often unclear whether there are no operators who would be subject to regulation, careful consideration is required. 2 Relationships between AI Agents and Users, and Relationships between AI Agent Providers and Users (i) When a part of a task is delegated to a human, it can take the form of ① outsourcing (quasi-agency or subcontracting), ② labor dispatch, or ③ employment. However, when a part of a task is delegated to an AI agent, no contractual relationship arises between the AI agent and the user; the human is simply effectively using the AI agent. (ii) The relationship between an AI agent provider and its user is governed by contractual relationships, such as a service agreement (e.g., SaaS) or a system development agreement for the AI agent. 3 AI Agent Errors and Liability (i) Discussion of Holding Providers Liable The relationship between an AI agent provider and its user is governed by contracts and regulations. If an AI agent malfunctions, the service provider providing the AI agent may be held liable for breach of contract or other issues. (ii) Ordering Errors by an AI Agent (Unauthorized Orders or Unauthorized Agency) ①If an AI agent managed by a user places an incorrect order, the effects of the order generally belong to the user. Depending on the instructions given to the AI agent, its behavior, settings, and management status, there is theoretically room for consideration of canceling an order due to error. However, from the perspective of transaction security, such a claim would likely only be accepted in extremely limited cases. ②For AI agents managed by others, the issue is whether the AI agent provider acted without authorization. Regarding apparent agency, for example, if an AI agent is given a password or has order authority and transacts beyond that authority, the other party will have no choice but to consider the transaction legitimate, and apparent agency would essentially be established. ③For example, if an AI agent provided by a financial institution such as a cryptocurrency exchange or securities company malfunctions and places an erroneous order, a user may be able to sue the financial institution for damages or claim cancellation due to error. Therefore, although it would reduce convenience, taking measures such as requiring a human (user) to personally confirm the final order details would be effective in addressing the risk of erroneous orders. (iii) Liability for Damages Caused to Others through the Use of AI Agents For example, if damages are caused to others through the use of an autonomous driving AI agent, who is liable? ① The driver of an autonomous vehicle owned by the user may be liable for damages under the Automobile Liability Act or the Civil Code; ② The automobile manufacturer may be liable for damages under the Product Liability Act (PL Act); and ③ The software provider providing the AI agent may be liable for damages under the Civil Code. 4 Web3 AI Agents and Financial Regulation (i) If an AI agent trades cryptocurrencies or stablecoins on behalf of users on a DEX, it is necessary to consider whether regulations for cryptocurrency exchanges and electronic payment instruments trading businesses apply to the provider of the AI agent. While mere assistance to users is not subject to regulation, if the AI agent is deemed to act as an intermediary, it may become subject to regulation. (ii) Investment advisory and management services for spot trading of cryptocurrencies and stablecoins are currently not subject to regulation under the Financial Instruments and Exchange Act. Therefore, even if an AI agent is conducting such transactions, these regulations are generally not applicable. On the other hand, investment advisory and management services for cryptocurrency and stablecoin “derivative trading” are subject to regulation under the Financial Instruments and Exchange Act. Even when services are provided by AI agents, the provider may be subject to regulations under the Financial Instruments and Exchange Act. (iii) If a GK uses an AI agent to trade spot cryptocurrency or stablecoins when conducting fund management operations, such as in a GK-TK scheme, regulations under the Crypto Asset Exchange Business and Electronic Payment Instruments Business may not apply. On the other hand, if another company receives investment discretion from the GK and uses an AI agent to conduct such operations, regulations under the Crypto Asset Exchange Business and Electronic Payment Instruments Business may apply. 5 Other Laws (i) When an AI agent provides customer service, measures must be taken keeping in mind the warnings regarding AI issued by the Personal Information Protection Commission. In relation to Article 4 of the Consumer Protection Act, measures must be taken to prevent hallucination. |
The “agent” in AI agent is translated as “representative” in Japanese. Services called AI agents usually refer to entities that perform specific tasks “on behalf of” humans, even if they do not fall under the strict legal definition of a “representative.”
When considering regulations that may apply to AI agents, consider the following steps:
(i) Consider what legal issues would arise if a human were to perform a similar act.
(ii) Then, consider whether any regulations would be imposed on users if they were to perform such acts using AI.
(iii) Consider whether any regulations would be imposed on businesses that provide the AI to users.
As mentioned above, AI agents are sometimes translated as “agents,” but since they are neither people nor corporations, under current law, AI agents themselves are not subject to regulation. Instead, the natural persons and corporations that use or provide them are.
In relation to this “natural persons and corporations are subject to regulation,” particularly in the context of DAOs, if an AI agent can be said to operate completely autonomously and without human involvement, the question arises as to whether legal regulations would not apply in the first place. However, since it is often unclear whether there are no operators who are completely subject to regulation, we believe that careful consideration is necessary5.
Currently, there are no laws that generally prohibit the provision or use of AI agents, so whether or not the current regulations that apply to natural persons and legal entities apply to each individual act must be considered.
In relation to point 2 above, even if we translate “agent” as “representative,” AI is neither a natural person nor a legal entity, and AI itself cannot be the subject of rights or obligations.
Therefore, for example, when an AI agent makes a mistake, the AI itself is not liable, but the user or the AI agent provider is.
AI agents are automating a variety of tasks.
First, when a person delegates part of a task to another person, a contract of the following form is concluded.
| Relationships between people (i) Outsourcing (quasi-agency/subcontracting) ● Generally suitable when outsourcing short-term work. ● Contracting (Article 632 of the Civil Code) is used when a specific output or task is required to be completed, and quasi-agency (Article 656 of the same Code) is used when a specific task is required to be performed. ● Main relevant laws and regulations: Subcontracting Act, Antimonopoly Act, Freelance Act, etc. (ii) Worker dispatching ● Generally suitable when temporarily supplementing one’s own staff. ● Workers are employed by the dispatching company and perform work at the dispatched company. ● Main relevant laws and regulations: Worker Dispatch Act, etc. (iii) Employment (Article 623 of the same Code) ● Generally suitable when securing a stable workforce for ongoing work. ● Main relevant laws and regulations: Labor-related laws and regulations such as the Labor Standards Act. |
On the other hand, under current law, the relationship between humans (users) and AI agents is merely that between humans and the software and hardware (that construct the AI agent) and is not a contractual relationship; it is merely a relationship in which humans are effectively using the AI agent.
AI agents are generally developed by companies, and many users either receive ready-made AI agents from those companies or commission the development of AI agents to those companies.
This relationship can be summarized as follows:
| (i) Obtain a license to use the AI agent provided by a service provider such as a SaaS service provider and use it in compliance with the terms of use. (ii) Develop, install, and operate an AI agent system for your company. |
If a user suffers damage due to a malfunction of an AI agent, the following liability claims and defenses may be taken:
| The user’s argument: ・Based on the contents of the SLA (Service Level Agreement), etc., the user may seek compensation for damages (Article 415 of the Civil Code) or terminate the contract (Articles 541 and 542 of the Civil Code). The service provider’s possible arguments: ・There are exemptions and limitations on liability based on the terms of use; ・The service provider is not at fault (Article 415, Paragraph 1, of the same law); ・The user is also negligent (Contributory Negligence, Article 418 of the Civil Code). |
For example, if a person asks another person to purchase Bitcoin and gives them authority to do so, but the agent ends up purchasing Ethereum, this will be considered unauthorized agency, and in principle the effects of the contract will not belong to the principal.
The main legal issues that arise when unauthorized agency occurs are as follows:
| ● Ratification of unauthorized agency (Articles 113 and 116 of the Civil Code) ● Liability of unauthorized agent for performance or damages (Article 117 of the same Code) ● Application of apparent agency (Article 110 of the same Code) ➡ If the counterparty has “legitimate reasons” to believe that the principal has the authority of agency, the effects of the contract may belong to the principal. For example, if the agent has the means to prove the authority of agency (possession of a registered seal or power of attorney, etc.). However, in the following cases, if the counterparty does not conduct an appropriate investigation or confirmation of the existence of the authority of agency, it may be determined that there is no “legitimate reason” and the apparent agency may not be established. ✓ If there are signs of tampering with the power of attorney ✓ If the seal on the power of attorney is a cheap seal ✓ If the transaction is disadvantageous to the principal |
Since AI agents are programs that operate based on user instructions, orders placed by AI agents are generally considered to be an expression of the user’s intention, and the effects of such orders are also considered to belong to the user.
However, there are also cases where an AI agent places an order that differs from the user’s true intention, and in such cases, the question arises as to whether the effects of the order belong to the user.
In this regard, it may be necessary to consider whether the user can revoke the expression of intention as a “mistake” (Article 95 of the Civil Code). There are two cases of mistake:
| 1. Mistake resulting in a lack of intention corresponding to the manifestation of intention (Article 1, Paragraph 1, Item 1) In principle, rescission is possible if the mistake concerns an important matter. 2. Mistake resulting in an untrue understanding of the circumstances that formed the basis of the legal act (Article 1, Paragraph 2) In principle, rescission is possible only if the mistake concerns an important matter and the circumstances were disclosed to the other party. |
(a) When the user’s instructions and the order result match
For example, if a user intends to “purchase cryptocurrency at the discretion of an AI agent” and issues such instructions, resulting in the purchase of an unexpected type and quantity of cryptocurrency, since the user’s intention to “purchase cryptocurrency at the discretion of an AI agent” and the result match, it can be said that there is a user intention corresponding to the expression of intention (the AI agent’s order), and unless the other party is informed that “the user thought the AI agent would operate within the user’s expectations,” it is likely to be difficult to cancel the order due to mistake (paragraph 2 of the same article).
(b) When the user’s instructions and the order result do not match
On the other hand, if the user gives specific instructions specifying the type and quantity, and the AI agent places an order for a different type and quantity, it seems theoretically possible to argue that the cancellation was due to mistake, on the grounds that the user’s intention (the AI agent’s order) does not correspond to the expression of intention.
However, if such cancellations were easily permitted, it would likely seriously undermine the safety of transactions. Therefore, Article 95, Paragraph 3 of the Civil Code stipulates that cancellations cannot be made if the user is “grossly negligent.” For example, if there is a setting error or improper management of the AI agent, the user could be found to be “grossly negligent” and the cancellation could be denied. In the case of orders placed by a company, it may even be considered “gross negligence” if the user does not check the specific order contents themselves after using the AI agent.
(c) Special provisions for electronic consumer contracts
When consumers place orders using AI agents, Article 3 of the Electronic Consumer Contract Act (Act on Special Provisions of the Civil Code Concerning Electronic Consumer Contracts) is likely to apply. This Act, because of the high incidence of ordering errors in internet transactions, allows cancellation in the following cases in principle:
| ① Orders made by mistake (e.g., pressing the “Buy” button by mistake) ② Orders made by incorrect input (e.g., entering the wrong quantity) ③ Orders made differently from your intention due to automatic input or incorrect operation |
Even when using an AI agent, if a consumer conducts a transaction using a computer in accordance with the procedures displayed on a computer screen by a business operator, this will be considered an electronic consumer contract (Article 2, Paragraph 1 of the same Act), and it is considered that this article also applies to transactions using an AI agent.
However, this exception will not apply if a business takes measures to request confirmation of the consumer’s intention, as described below.
| ① When a final confirmation pop-up asking “Do you want to confirm your purchase?” is displayed. ② When a confirmation screen is set up via the cart instead of one-click purchasing. ③ When the intention to purchase is confirmed using a system such as two-factor authentication. |
Furthermore, if a consumer uses an AI agent to conduct a transaction without taking the necessary confirmation measures, this may fall under the provision of the same article, “where the consumer expresses their intention to the business operator that they do not need to take such measures,” and the special provisions may no longer apply. In such cases, cancellation due to mistake is generally not permitted.
If an AI agent provided by another party is used and the AI agent conducts a transaction that the user did not intend, the issue of unauthorized agency by the AI agent provider may arise. When
the AI agent provider is an unauthorized agent, the following particular issues arise regarding the success or failure of apparent agency.
| ●In a typical agency relationship, whether the agent has a registered seal or a power of attorney is the key to determining whether there is “reasonable cause” to believe in the existence of agency authority over the other party. ●In the case of AI agents, transactions are digitalized, and it is common for there to be no use of a registered seal or presentation of a power of attorney. |
Therefore, the question arises as to what constitutes a “legitimate reason” for the trading partner. If the AI agent is given, for example, a password or authority to place an order and uses it to place an order, the other party will basically have no choice but to believe that a legitimate transaction has been made, and it would appear that apparent agency would be established.
Column: Cases of erroneous orders made by AI agents provided by financial institutions such as cryptocurrency exchanges and securities companies and available within their services. |
|
1. When the counterparty is a third party. 2. When the counterparty is the financial institution itself. 3. Implementing User Confirmation as a Risk Avoidance Measure |
If another party suffers damages related to the malfunction of an AI agent, the provider of the AI agent or the user of the AI agent may be liable for damages.This point is particularly noteworthy as an example of the use of AI agents, and autonomous driving is a typical use case in which the use of AI agents could cause harm to others. In autonomous driving, an AI agent will be responsible for driving the car, but legal liability in the event of an accident may differ between when a human is driving and when an AI is driving.
In the event of a personal injury accident, the car owner or other operator (a person who operates a car for themselves) will be held liable under Article 3 of the Automobile Liability Insurance Act (Automobile Liability Insurance Act) in addition to tort (Article 709) of the Civil Code. When claiming damages under Article 3 of the Automobile Liability Insurance Act, the victim does not need to prove the driver’s negligence. Under Article 3 of the Automobile Liability Insurance Act, the operator can be exempt from liability if they meet all of the following three exemption requirements:
| (a) The driver and the victim were careful in operating the vehicle. (b) The victim or a third party other than the driver acted intentionally or negligently. (c) The vehicle had no structural defects or functional impairments. |
Since the Automobile Liability Act does not apply to property damage accidents, victims must file a claim for damages based on tort liability in Article 709 of the Civil Code. In this case, the victim must prove the driver’s intent or negligence.
Even if an accident resulting in injury or death occurs due to the autonomous driving of an AI agent, the Automobile Liability Act is generally considered to apply.6 If there is a malfunction in the system of a fully autonomous driving AI agent, the victim may be entitled to claim damages from the operator under the Automobile Liability Act, as it would not meet requirement (c) of the above exemption requirements.
We believe that operators who have paid compensation and insurance companies who have paid insurance claims due to system failures caused by AI agents will seek compensation from automobile manufacturers, AI system software providers, and others.
In the case of property damage accidents, Article 3 of the Automobile Liability Act does not apply, so claims for damages based on tort liability will be made against the driver, etc. However, with fully autonomous driving, there will be no driver error, etc., so it will be difficult to hold the driver responsible for intent or negligence, and it may be difficult to recognize the driver’s liability for damages.
In this case, if there is a problem with the AI agent system, the victim may seek liability from the automobile manufacturer or software developer that provides it, as follows:
Victims may file a claim for damages against the automobile manufacturer under Article 3 of the Product Liability Act (PL Act).
The PL Act imposes strict liability on manufacturers when a defect in a product causes damage to life, body, or property. However, there are also the following issues:
| ● Software itself is not movable property, so it does not fall under the category of “products” under the Product Liability Act. However, if a vehicle incorporating the software is deemed to have a defect, the automaker may be held liable under the Product Liability Act.7 ● Because AI-based self-driving systems are sophisticated and complex, it may be difficult for victims to prove a “defect” and a “causal relationship.”● Product liability is recognized based on defects that existed at the time of delivery by the manufacturer, etc., so if a defect occurs due to a software update performed remotely after the vehicle is delivered, product liability may not be recognized. |
Victims may seek compensation for damages against software companies that provide AI agents, citing defects in the AI agents. In this case, because software is an intangible object and therefore product liability does not apply, victims may pursue tort liability under Article 709 of the Civil Code.
In this case, the victim will need to prove the software developer’s intent or negligence, so the hurdle for claiming compensation is likely to be higher than in cases where damages are claimed under Article 3 of the Automobile Liability Act or Article 3 of the Product Liability Act.
In this section, we will consider how financial regulations apply to AI agents in Web3, following the ideas in Section III above. Although we will be examining this in the context of Web3, similar ideas also apply to financial AI agents, such as stock investment AI agents.
It is conceivable that AI agents will trade crypto assets and stablecoins on behalf of users on decentralized exchanges (DEXs). Utilizing such a system is expected to bring the following benefits:
| ● Fast trading through real-time market analysis ● Data-driven decision-making that is not influenced by human emotions |
On the other hand, when conducting such transactions, it is necessary to consider whether there are any regulations regarding crypto asset exchange businesses, etc.
When buying and selling cryptocurrencies and stablecoins (which are linked to the value of legal tender and redeemable at face value), it is necessary to consider the application of regulations regarding crypto asset exchange businesses (Article 2, Paragraph 15 of the Payment Services Act) and electronic payment instruments trading businesses (Article 2, Paragraph 10, Item 2 of the same Act).
Under the law, trading crypto assets as a mere investor does not constitute a “business” and is not subject to regulation. 8 On the other hand,
sales to the general public or acting as an agent for sales to the public are subject to regulation.
Even if an AI agent buys and sells cryptocurrencies or stablecoins on behalf of a user, there are no particular regulations for the user if the AI agent is used for the user’s own investment purposes.
Also, even if there is a company that provides an AI agent to place buy and sell orders, there are likely to be no regulations if the agent simply assists users with the administrative procedures for buying and selling.
On the other hand, AI agents could act as intermediaries, for example, to easily connect users to DEXs.9 and is deemed to be managed and operated by a party other than the user, the provider of the AI agent may be subject to regulations on crypto asset exchange businesses and electronic payment instrument trading businesses (intermediary regulations).
In the Web3 field, AI agents can develop investment strategies and provide investment advice and asset management services related to spot trading of crypto assets and stable coins, as well as derivative trading of crypto assets and stable coins.
In this section, we will explain the main legal issues that must be considered when AI agents provide such investment services, comparing them with when provided by humans.
When providing investment advisory and management services, different legal regulations apply.
Investment advisory services refer to the business of providing advice on investment decisions regarding securities and derivative transactions by entering into a contract (investment advisory contract) for providing investment advice and receiving compensation.
The key points of regulation are as follows:
| ●Registration as an investment advisory and agency business is required under the Financial Instruments and Exchange Act (Article 2, Paragraph 8, Item 11, Paragraph 3, Item 1, Articles 28 and 29 of the Financial Instruments and Exchange Act). However, advice provided free of charge is not subject to regulation. ●Advice regarding spot trading of crypto assets and stable coins is not subject to regulation. ●Advice regarding derivative trading of crypto assets and stable coins (which fall under electronic payment methods) is subject to regulation. ●It is necessary to be aware of whether the advice is for spot trading or derivative trading. |
Investment management services are primarily considered to be (a) businesses that invest capital contributions from fund holders primarily in securities and derivative transactions (fund management businesses), and (b) businesses that invest and manage securities and derivative transactions after being entrusted with the authority to make investment decisions and manage assets by customers (discretionary investment businesses).
Key points of the regulations are as follows:
| ●Registration as an investment management business is required (FIEA Article 2, Paragraph 8, Item 12 (b), Article 2, Paragraph 8, Item 15, Article 28, Paragraph 4, and Article 29). Even if the service is provided free of charge, it is subject to regulation if it constitutes a “business.” ●(a) With regard to fund management business, self-offering generally requires registration as a Type II Financial Instruments Business (FIEA Article 2, Paragraph 8, Item 7, and Article 28, Paragraph 2, Item 1). However, there are exceptions, such as Special Business for Qualified Institutional Investors, etc. (FIEA Article 63). ●(b) If customer assets are entrusted to custody through discretionary investment business, registration as a Type I Financial Instruments Business is also required (FIEA Article 28, Paragraphs 5 and 1, Item 5, Article 29, and Article 42-5). ●If the investment target is spot trading of crypto assets or stable coins (in the case of (a) fund management business, if the investment target is “primarily”), it does not constitute an investment management business. On the other hand, if the investment target is derivative trading of crypto assets or stable coins (which constitutes an electronic payment instrument), it is subject to regulation as an investment management business. ●GK-TK Scheme10, all investments made by anonymous partners belong to the assets of the GK (operator) (Article 536, Paragraph 1 of the Commercial Code), and the GK conducts business in its own name. Therefore, (a) if the GK buys and sells spot crypto assets based on its fund management business, it is generally considered to be a transaction for the purpose of self-investment and therefore does not require registration as a crypto asset exchange business.11 In the case where the investment target is a physical stablecoin, it is considered to be a parallel case and would not be considered an electronic payment instruments trading business. ●(b) In the case of a GK-TK scheme, etc., where a GK entrusts investment operations to another company and the other company also buys and sells crypto assets and stablecoins, there is a possibility that it will be subject to regulations for crypto asset exchange businesses and electronic payment instruments trading businesses.12 |
When an AI agent provides investment advisory or management services, the question arises as to whether that business is subject to financial regulations. Generally, it is thought that the application of regulations to those who provide AI agents will be considered.
The key points of regulation are generally the same as when a human does the work, but the following points are particularly important in the case of AI agents.
| ●Even when holding customer funds for discretionary investment management, there is a possibility that registration as a Type I Financial Instruments Business may not be required if the customer funds are held in a smart contract that is not operated by the AI agent provider. ● After the AI agent is provided, it may not be subject to regulation, especially if the AI agent operates completely autonomously as a DAO, without the developer being involved in its operation, and investment management is automatically executed by smart contract. |
AI agents could potentially act as virtual assistants, assisting with sales and answering inquiries. For example, when selling products or services within the metaverse, avatars equipped with AI agents could be expected to automatically provide customer service.
In this section, we will discuss the main legal issues surrounding AI agents providing customer service, comparing them with traditional human services.
When humans handle customer interactions, they must comply with laws and regulations, for example, from the following perspectives:
(a) Handling of personal information
When acquiring and using personal information when dealing with customers, you must comply with the following rules of the Personal Information Protection Act.
| ● Specify the purpose of use as clearly as possible (Article 17, Paragraph 1 of the Personal Information Protection Act) ● Do not use personal information beyond the scope of the specified purpose (Article 18, Paragraph 1 of the same Act) ● Notify or publicize the purpose of use to the individual (Article 21, Paragraph 1 of the same Act) |
(b) Consumer protection regulations
When explaining services or providing information to consumers, you must comply with the following regulations based on Article 4 of the Consumer Contract Act.
| ●Do not give false explanations about important matters. ●Do not provide definitive judgments about uncertain future matters. ●Avoid intentionally or through gross negligence withholding facts that are detrimental to consumers. |
In the event of any of these breaches, the consumer has the right to cancel the contract, so it is important to provide accurate and sufficient information.
(a) Handling of personal information
Even when AI agents deal with customers, they must handle personal information with care.
The Personal Information Protection Commission has issued a warning to OpenAI service providers, including that they must “notify or publicly announce, in Japanese, the purpose of use of personal information of users and other individuals,” and that they must not acquire sensitive personal information without the consent of the individual.13 In addition, the government has issued a warning to businesses that use generative AI to handle personal information, stating that “when a business handling personal information inputs prompts containing personal information into a generative AI service, it must fully confirm that the input is within the scope necessary to achieve the specified purpose of use of the personal information.”14
When handling personal information using AI agents, it is necessary to keep these precautions in mind.
(b)Hallucination by AI agents
From the perspective of complying with Article 4 of the Consumer Contract Act, etc., there is a risk of “hallucination,” where an AI agent provides insufficient information or gives incorrect answers based on insufficient training data or outdated information.
The following measures can be considered to prevent this problem.
| ● Continuously train the AI agent using the latest and most accurate learning data. ● Implement a feedback function that allows consumers to report misinformation. ● Operators should check the AI agent’s responses as appropriate and make corrections as necessary. |
Reservations:
As the price of cryptocurrencies rises, Bitcoin has established itself as “digital gold.”
Bitcoin and stablecoins are rapidly becoming popular for everyday payments, particularly in South America and Africa, where financial infrastructure is insufficient. For example, in El Salvador, Bitcoin has been adopted as legal tender and is also used for tax payments and person-to-person remittances. Even in the developed United States, an increasing number of companies are adopting crypto payments for online shopping and subscription services.
Meanwhile, in Japan, while Bic Camera’s introduction of Bitcoin payments in 2017 made headlines, the spread of crypto payments since then appears to have been limited. The main reasons for this are that profits are finalized at the time of crypto payment, and individuals are subject to tax of up to 55%, as well as the hassle of recording small payments and filing tax returns. However, if stablecoins, which have fewer price fluctuations, become more widespread, crypto payments may also become more widespread in Japan.
*This article is a revised version of “Crypto Payments and Japanese Law,” published by the author on January 30, 2025.
This article explains how crypto payments work and discusses legal issues surrounding their introduction in Japan.
While “crypto payments” in this article refers to a broad concept that includes crypto asset payments and stablecoin payments, the legal discussion will primarily focus on cryptoassets. Regulations regarding the trading and management of stablecoins are generally like those for cryptoassets, so please refer to them accordingly.
Examples of Crypto payments can be broadly divided into two categories. One is where Crypto is used for direct payments, and the other is where credit cards or debit cards are used. Below are some examples of these payments being made overseas.
Credit card11/Debit card type
Debit card type
Prepaid card type
| Cryptocurrency Law and Fund Settlement Law Cryptocurrency Regulations |
Installment Payment Act , Money Lending Business Law, Regulations on Prepaid Payment Instruments | Foreign Exchange Act | |
| Accepting Crypto payments at company stores | none | none | Foreign Exchange Act reporting is required for transactions of 30 million yen or more with non-residents or overseas entities. |
| Crypto payments using payment processors | Possibility of applying trading regulations to payment processing companies | none | Same as above |
| Credit card type | Applicability of storage and trading regulations | Applicability of the Installment Payment Act (Shopping) and the Money Lending Business Act (Cashing) | Same as above |
| Debit card type | Applicability of storage and trading regulations | none | Same as above |
| Prepaid card type | none | Application of prepaid payment instrument regulations as a self-operated or third-party type | Same as above |
This article explains the regulations for accepting cryptocurrency payments at your physical or online store.
In Japan, the buying and selling of cryptocurrencies, as well as their intermediation and management for others, are regulated as cryptocurrency exchange businesses. However, there are no regulations regarding accepting cryptocurrency payments at your store. There are also no regulations regarding holding received cryptocurrency in-house or exchanging it for cash using a cryptocurrency exchange.
However, in principle, any settlement of 30 million yen or more between non-residents or overseas accounts will trigger a reporting obligation under the Foreign Exchange and Foreign Trade Act (Article 55 of the Foreign Exchange and Foreign Trade Act). This reporting obligation also applies to settlements of 30-million-yen worth of cryptocurrency, and reporting by residents is required. This reporting obligation also applies to settlements described in section 3 and thereafter.
Some Japanese companies are reluctant to own or manage cryptoassets in-house. This is due to a number of factors, including price fluctuation risks, security risks such as hacking, and accounting and tax issues. Such companies sometimes use a third-party payment agent (hereinafter referred to as “payment agent”) to receive cryptoassets, convert them to Japanese yen, and hand them over to stores and other companies.
This scheme is a combination of the following actions:
1) Receiving cryptocurrency for someone else.
2) Converting the received cryptocurrency into Japanese yen for someone else.
3) Handing over the converted Japanese yen to the company.
However, the act of “(2)-converting cryptoassets into Japanese yen” is considered to be a cryptoasset exchange business for payment agents, and in principle, it is thought that they will need to be registered as a crypto asset exchange business. In this regard, a comparison with the collection agency services provided by convenience stores and courier companies in Japan, which are carried out without any particular regulations, becomes problematic. Is it possible to consider that the activities performed by payment agents are also collection agencies and therefore should not be regulated, or is it possible to summarize them as follows?
1) The store grants the payment agent the authority to collect the cryptocurrency.
2) The payment agent receives the cryptocurrency as its own.
3) The payment agent hands over Japanese yen as part of the processing of the delegated business.
4) This is not a conversion act, but merely a payment method for processing the delegated business.
While this approach may be possible in theory, in my experience, it is likely that discussions with authorities will be tough in actual practice. Therefore, it is safe to assume that in practice, registration of a cryptocurrency exchange business will likely be required. However, if the business is conducted in conjunction with other business or delegated duties, it may be permitted depending on the specific content. This point requires careful consideration on a case-by-case basis.
A typical example of a credit card-type crypto payment would look something like this:15
1) A cryptocurrency exchange or its affiliated company issues a credit card.
2) The user purchases goods in yen or dollars.
3) Unlike a regular credit card, payment is made in the form of Bitcoin or other currency deducted from the user’s cryptocurrency exchange account.
In Japan, when issuing a credit card that includes features such as “installment payments over two months,” “revolving payments,” or “bonus lump-sum payments,” this constitutes “credit purchase intermediation” and requires registration as a credit purchase intermediary under the Installment Sales Act (Article 31). Once registered, various regulations under the Act apply, including the obligation to provide information to customers, the obligation to prevent excessive credit, and restrictions on the severance of defenses.
On the other hand, cards that only allow payment methods of “one-time payments within two months (so-called monthly clear)” do not constitute credit purchase intermediation and do not require registration as a credit purchase intermediary. However, since this type of card falls under “two-month installment purchase intermediation” (Article 35-16, Paragraph 2 of the Installment Sales Act), it is subject to the obligation to implement appropriate management measures for card numbers, etc. (Article 35-16, Paragraph 1).
The above regulations also apply to credit cards linked to cryptocurrencies, depending on the features provided.
The cash advance function of a credit card is a borrowing rather than a purchase of goods or services, so it is subject to regulation under the Money Lending Business Act, not the Installment Sales Act.
Even if the credit card is linked to cryptoassets, if cash advances can be made in yen or foreign currency, money lending applies. However, if cryptocurrency can be used for cash advances, it is not subject to regulation as the Money Lending Business Act does not apply to cryptocurrency lending in principle (see definition in Article 2 of the Money Lending Business Act).
(i) Regulations on Custody Activities
In the case of credit cards linked to cryptocurrencies, if the issuer directly stores users’ cryptocurrencies, they are subject to regulation as a custodian under the Payment Services Act (Article 2, Paragraph 7).
However, the following cases may not constitute custody and may be exempt from regulation:
(ii) Regulations on Trading Activities
Converting cryptocurrencies into fiat currency during card payments constitutes the sale of cryptocurrencies and generally requires registration as a cryptocurrency exchange business. Typical examples are:
(a) A user purchases a product with a credit card.
(b) A user sells cryptocurrencies equivalent to the purchase price from their account, and the proceeds (e.g., yen) are paid to the card issuer. These cases constitute the sale of cryptocurrencies (or their intermediation).
Cryptocurrency Payment Schemes
On the other hand, if a card issuer typically bills in yen and allows users to choose to “deposit cryptocurrency in lieu of yen” by the due date, this can be considered a type of payment method designation and, in some cases, may be considered merely a substitute payment, not a sale. In this case, registration as a cryptocurrency exchange business is not required.
However, the Installment Sales Act imposes restrictions on the display of payment methods and calculation methods, and how to address these restrictions presents a challenge. Furthermore, there are likely many practical challenges, such as accounting and tax procedures when card issuers accept cryptocurrency, and how to handle cases where cryptocurrency prices fluctuate in the event of a chargeback.
As a supplement to the Act on Prevention of Transfer of Criminal Proceeds, comprehensive credit purchasing intermediaries, credit card number handling contract operators, cryptocurrency exchange operators, banks, and money transfer operators are considered specified businesses under the Act on Prevention of Transfer of Criminal Proceeds and are subject to AML/CFT regulations, including KYC requirements. In addition, acquirers (contractors that enter into contracts with credit card numbers, etc.) are required to investigate affiliated stores, which serves as an anti-money laundering measure.
A typical example of a debit card-type crypto payment works as follows:
1) A cryptocurrency exchange or its affiliated company issues a debit card.
2) The user deposits Bitcoin or other cryptocurrency with the cryptocurrency exchange.
3) The user can purchase goods in yen or dollars within the amount of the deposited cryptocurrency.
4) When purchasing goods, Bitcoin is automatically converted into yen.
In Japan, debit cards are not subject to the Installment Sales Act because they are instant payments. However, if a system is established in which users deposit funds and use them for card payments, a banking license or registered funds transfer business is required to accept that money. Because funds are transferred at the user’s instruction, they have the characteristics of a foreign exchange transaction, and from this perspective, a banking license or registered funds transfer business is also required.
On the other hand, the Banking Act does not apply to the issuance of debit cards linked to cryptocurrencies, which may raise the following issues:
While the Banking Act does not apply to debit cards linked to cryptocurrencies, the following issues arise:
– Managing other people’s cryptocurrencies as a business requires registration as a cryptocurrency exchange business.
– Selling cryptocurrencies at the time of payment and using the proceeds to pay constitutes the sale of cryptocurrencies and requires registration as an exchange business.
– If the card company bills in yen and the user deposits cryptocurrencies as a substitute payment, it does not constitute an exchange business.
A prepaid payment instrument is a system where you pay in advance, such as a book voucher, Apple gift card, or Amazon gift card, and are given a balance according to that amount, which can then be used to make payments.
The process for prepaid crypto payments is as follows:
1) The issuing company issues a prepaid card.
2) The user sends Bitcoin etc. to the issuing company.
3) The Bitcoin sent is charged according to its current value. For example, 0.001 BTC is equivalent to 15,000 yen.
4) When the user uses the card, the amount is deducted from the charged balance.
Prepaid payment instruments issued in Japan are divided into “in-house” and “third-party” types.
In the case of a self-owned type, notification is required, and in the case of a third-party type, registration is required, and in both cases, restrictions such as depositing half of the unused balance are imposed.
However, the regulations do not apply in the following cases:
Unlike credit cards and debit cards, prepaid cards are generally not subject to regulations governing cryptocurrency exchange businesses. The reasons for this are as follows:
1) The issuing company does not store cryptocurrency.
2) When a card is charged, a charge is made according to the amount of cryptocurrency, but this is not an exchange of money for cryptocurrency. It is merely the act of issuing a prepaid payment instrument.
3) It does not constitute an exchange between cryptocurrencies. However, if the scheme allows the charged cryptocurrency to be converted back into cryptocurrency (refund), it will essentially be considered a deposit of cryptocurrency, and custody regulations for cryptocurrency exchange businesses may apply.
With cryptocurrency payments, profits are considered confirmed at the time of settlement, and tax is levied on these profits. For example, if you acquire cryptocurrency for 10,000 yen and it increases in value to 50,000 yen, and you use that cryptocurrency to make a settlement, you will have a profit of 40,000 yen. For individuals, this profit is classified as “miscellaneous income” and is subject to comprehensive taxation, with a maximum tax rate of 55% being applied when combined with other income.
Crypto payments are subject to tax as described above, and as a general rule, require filing a tax return. Those with miscellaneous income of ¥200,000 or less who are salaried workers without a single source of income are not required to file a tax return.
However, those with miscellaneous income exceeding ¥200,000, or those with miscellaneous income of ¥200,000 or less who are self-employed, freelance, or have a side job and are required to file a tax return, must also report their crypto payment profits down to the last yen. For example, if you use cryptocurrencies for everyday purchases, you are required to record the market value of your cryptocurrencies at the time of each transaction and add up the profits to report. This recording and calculation process is extremely cumbersome, and can be a significant practical burden, especially when making frequent small payments.
This issue also applies if you later use leftover foreign currency from an overseas trip. For example, if you acquire $10 when the exchange rate is 120 yen to the dollar and then spend it on a trip abroad a few years later when the exchange rate is 150 yen to the dollar, the difference (30 yen x 10 dollars = 300 yen) will be taxed as miscellaneous income, and you may be required to file a tax return.
Some countries do not impose capital gains taxes on cryptoassets. Others exempt certain transactions from taxation, such as those involving small amounts or long-term holdings.
(Tax systems by country = researched via Chat GPT, etc.)
| 1 | Countries with no capital gains tax on individual cryptocurrency transactions | Singapore, Portugal, Switzerland, Malaysia, UAE, El Salvador |
| 2 | Countries that do not tax capital gains on long-term holding by individual | Germany (tax exempt if held for more than one year) |
| 3 | Countries with no capital gains tax within certain limits | UK (up to 6,000 GBP per year = approximately 1.2 million JPY), Italy (up to 2,000 EUR per year = approximately 320,000 JPY), South Korea (up to 25 million KRW per year = approximately 2.5 million JPY), Brazil (up to 35,000 BRL per month = approximately 900,000 JPY) |
| 4 | Countries that do not tax small payments | Australia (tax exempt if a single transaction is deemed to be a “Personal Use Asset” of 10,000 Australian dollars (approximately 900,000 yen) or less) |
| 5 | Countries currently discussing tax exemptions for small payments | United States (Currently, taxes are levied separately for short-term holdings and long-term holdings of over one year. Discussions are underway to exempt small profit settlements up to $200 per transaction from taxation.) |
| 6 | Countries where even small payments are generally taxed | Japan (however, miscellaneous income up to 200,000 yen is exempt from tax for those who are not required to file a tax return), France, Canada, Argentina |
Discussions on exempting capital gains from taxation on cryptoassets in Japan are likely to be extremely difficult. Furthermore, within the G7, it may be challenging for Japan to persuasively request authorities to exempt small-value payments from taxation, given that the US, France, and Canada currently impose taxes.
However, as countries advance Web3 development, particularly if the US succeeds in exempting small-value payments from taxation, Japan may need to introduce a system that does not tax profits from small-value payments for competitive policy reasons.
When issuing cryptocurrency-linked cards, they often enter into a contract with an international brand (such as VISA, MasterCard, Amex, JCB, or Diners) and use their payment network. Since international brands are required to comply with regulations in their respective countries, they typically conduct the following types of screening with the card issuer:
Additionally, instead of contracting directly with international brands, cards can be issued as co-branded cards through Japanese credit card companies that already have strong relationships with these brands. While this approach may simplify parts of the card issuance process, it’s important to note that certain regulatory compliance requirements and costs still apply.
Crypto payments are not particularly popular in Japan. The biggest factors are thought to be taxation of up to 55% and the complicated process of recording and reporting small payments.
If stablecoins become more widespread, the risk of price fluctuations will be reduced and a certain degree of solution is expected, but the extent of their adoption is still unknown. Additionally, the development of systems such as user protection and AML compliance remains an issue.
Looking ahead, improvements in the tax treatment of crypto payments are anticipated, particularly from the perspective of international competition in the Web3 sector.
Disclaimer:
The content herein has not been reviewed by relevant authorities and merely reflects discussions considered reasonable under applicable laws and regulations. It also represents only the author’s current views, which are subject to change.
This document does not endorse the use of crypto payments.
This article is merely a summary for blog purposes. For specific legal advice on individual cases, please consult an attorney.
Recently, I visited the “Flying Car Station” at the Osaka Kansai Expo and experienced the flying car exhibits. (Reference: https://www.expo2025.or.jp/future-index/smart-mobility/advanced-air-mobility / )
Figure1: A realistic flying car
While the pavilion is open to visitors without reservations, those who make a reservation in advance can board a parked flying car and experience a video of the car flying like a taxi from Yumeshima to Mount Koya or Awaji Island. Additionally, on certain mornings, a flight demonstration of the actual car is also held in a separate location within the venue (when I visited, in addition to the demonstration flight, there was also a Q&A session with the president of Skydrive explaining the car). Even before
the event, there were many negative comments about flying cars, such as “it doesn’t seem realistic,” “it’s a waste of tax money,” and “this isn’t a car,” but the exhibits were very easy to understand and provided a concrete image of what future society might be like. At the very least, it was an experience that made me feel like “this isn’t a dream, it could be a reality in the near future.”
Although the exhibition’s catchphrase was “There’s no traffic jam in the sky,” the reality is not so simple. Under the Aviation Act and the Drone Act, many airspaces, such as densely populated areas (DID districts), around airports, and near important facilities, are generally prohibited or severely restricted. Therefore, under the current system, “freely flyable airspace” is extremely limited, and in fact, “usable airspace” is also quite limited. Furthermore, air traffic control exists in the airspace, and traffic control by controllers is essential for the safe flight of commercial aircraft, helicopters, eVTOLs, and drones. In fact, “holds” frequently occur over Haneda Airport during peak hours, and air traffic is subject to physical and institutional limitations. In the future, the development of dedicated routes and unmanned aircraft traffic management systems (UTMs) will be essential for low-altitude operations within cities.
While the technology is becoming a reality, there are many institutional challenges to truly bring flying cars to fruition, such as airworthiness certification under the Aviation Act, operator liability, and standards for installing vertiports in urban areas.
In recent years, the Ministry of Land, Infrastructure, Transport and Tourism has been making successive revisions to government ordinances and technical standards, including the 2023 amendment to the Enforcement Regulations of the Aviation Act, the vertiport maintenance guidelines, and the publication of the Next Generation Air Mobility Operation Guidelines in 2025.
However, a fundamental system design has yet to be reached, and many areas remain legally uncertain and gray areas.
In this article, we will organize and examine flying cars by comparing them with the future visions we all imagine and science fiction works, and current laws.
| This article is part of a series in which I consider future systems from the perspective of a lawyer, inspired by the exhibitions at the Osaka Expo. Previous articles: Is the Android ‘Me’ the Same Person?- Future Legal Systems Contemplated at Osaka Kansai Expo 2025 ADD LINKS EMBEDDED Who would be the judge of a murder were to to occur in an orbital elevator? |
Flying cars have long been a familiar feature in science fiction works, but their appearance varies, with each work depicting a different vision of society and technology.
In the 1985 film “Back to the Future Part II,” there is a memorable scene in which a DeLorean flies through the sky in the future of 2015. In this scene, the flying car is depicted as a personal vehicle, presenting an ideal future in which anyone can travel freely through the sky.
In the 1982 film Blade Runner, a flying car is depicted as a police vehicle, and there is a memorable scene in which it flies between skyscrapers. In this scene, the sky is not a public space, but functions as a domain controlled by power.
In the 1997 film The Fifth Element, flying cars are commonplace among civilians, urban spaces have multi-dimensional transportation systems, there are even traffic lights in the sky, and “air traffic jams” are a part of everyday life.
In the 1995 film Ghost in the Shell, a helicopter-type hovercar appears as a means of transportation for Public Security Section 9. Flying cars are not just a means of transportation but are positioned as part of the city surveillance infrastructure.
Figure2: A sci-fi flying car
What is interesting is that these works all barely address issues such as “who controls the skies” or “what legal rules govern flight.” While the
“free movement in the skies” depicted in science fiction works is appealing, but in reality, strict airspace management and aviation legislation exist. Rather, the question of “who owns the skies” is at the forefront of institutional design in modern society.
The term “flying car” catches your eye, but the aircraft currently being developed are not like the ones you might imagine in science fiction, like the DeLorean from Back to the Future Part II. They have no wheels and do not drive on roads, but the familiar term “car” is used because the aim is to provide an “everyday transportation service that anyone can reserve on demand.”
What exactly constitutes a flying car has not been finalized, but in documents from the Ministry of Land, Infrastructure, Transport and Tourism, flying cars are often defined as “electric, automated vertical take-off and landing aircraft (eVTOL)” and have the following characteristics:
These characteristics make flying cars different from conventional helicopters and drones.
| Classification | Propulsion method | Control | Take-off and Landing | Main uses | Legal system |
| Flying car (eVTOL) | Electric | Future automation | Vertical takeoff and landing | Intra-city transportation and aerial taxis | The application of aviation law is also currently under design |
| Helicopter | Internal combustion engine | Manned pilot | Vertical takeoff and landing | Government agencies, news, and emergency services | Regulated by Aviation Law |
| Drone | Electric | Unmanned (remote) | Vertical takeoff and landing | Photography, logistics, surveying | Unmanned Aerial Vehicle |
Flying cars are vehicles that are small and lightweight, like drones, and capable of vertical takeoff and landing, but also have the ability to transport people like helicopters. In that sense, they can be described as a “hybrid entity” that cannot be captured by traditional classifications.
Technically, the term eVTOL (electric Vertical Take-Off and Landing aircraft) is sometimes used, but there are currently no definitions of “flying cars” or “eVTOL” in Japan’s Aviation Act.
Also, although the word “car” is used, it is not a car, so it is not subject to the Road Transport Vehicle Act, and the automobile license and vehicle inspection systems do not apply. Conversely, because it is different from airplanes and helicopters, it does not fit completely within the framework of the existing Aviation Act.
Flying cars may still give the impression of being a futuristic vehicle, but the technology is already at a practical stage, with companies both in Japan and overseas already developing actual vehicles, conducting test flights, and conducting pre-commercial operations.
In the United States and Europe, efforts are accelerating toward the practical application of urban air mobility (UAM) based on eVTOL (electric vertical take-off and landing) aircraft.
In Japan, efforts are underway to commercialize flying cars, spurred by the Osaka-Kansai Expo.
The biggest obstacle to flying cars is not technology, but systems. As they are aircraft that fly in the air, they require a wide range of legal infrastructure, including aviation laws, aircraft manufacturing standards, safety certification, operation management, pilot qualifications, and standards for the establishment of takeoff and landing sites.
The Aviation Act encompasses conventional aviation, including fixed-wing and rotary-wing aircraft, but there is no regulatory design in place to accommodate eVTOLs, which operate frequently at low altitudes in cities, or automated/remotely piloted aircraft, leaving a gap in current legislation.
The central law that regulates Japan’s skies is the Aviation Act. However, the Aviation Act was originally designed to accommodate fixed-wing aircraft that take off from runways and fly at high altitudes, and helicopters with limited uses, creating a mismatch with low-altitude, short-distance, and frequent flying vehicles like flying cars (eVTOL). Currently, flying cars are classified as “aircraft” under the Aviation Act and require permission from the Ministry of Land, Infrastructure, Transport and Tourism, but the system has yet to catch up on the following points:
Some may wonder, “Flying in the sky means it will be regulated in the same way as drones?”
Drones are also subject to strict controls, including registration, remote ID, permits and approvals. However, the focus of the system design is on “unmanned transport of goods,” while flying cars, which “transport people with pilots,” have fundamentally different requirements and scope for type/airworthiness, crew qualifications, and airspace capacity management.
In the development of flying cars, one unavoidable issue is the question of “Who is responsible if an accident occurs?” This is a core issue that is directly linked to the construction of the entire legal system, including where responsibility lies, the licensing system, and the insurance system.
Many of the eVTOL aircraft currently being developed are intended to be autonomously or remotely piloted in the future, but in the initial stages, they are primarily intended to be piloted by humans.
If flying cars become autonomous in the future, the possible responsible parties are as follows:
For example, if an AI system makes a mistake in route selection during autonomous driving and crashes, the manufacturer, software developer, air traffic control system, and/or aircraft owner may be held liable. This is a complex issue that is fundamentally different from the driver’s liability of a car.
Let’s imagine something more concrete. If a flying car flying over Shinjuku suddenly crashes due to a system failure, causing damage to buildings and pedestrians on the ground, compensation could run into the billions or even tens of billions of yen. Would the manufacturer, the operator, or multiple parties be held responsible? There is no clear answer under the current legal system.
If flying cars become commonplace, the arteries of cities will shift from the ground to the sky. Instead of train stations, vertiports will be installed on the rooftops of high-rise buildings and shopping malls, creating a new common sense that “rooftops = entrances.” Air route nodes will also be established in large suburban facilities and hospitals, rewriting the very value map of cities.
Figure3: The rooftop will become a station
The first use for this technology is expected to be short-distance travel within cities. At a Skydrive Q&A session that I attended, it was explained that “current flight time is about 10 minutes, with the goal of 15-20 minutes in the future. The range will be 30-40km, and the fare will be 10,000-20,000 yen one way from Yumeshima to Shin-Osaka, with the ultimate goal being about three times faster and about twice the price of a taxi.
” If it’s “three times faster than a taxi, but about twice the price,” it certainly sounds appealing. As a new means of transportation unconstrained by traffic jams, it could potentially expand the possibilities of urban life.
On the other hand, in the early stages of introduction, the costs of aircraft, batteries, insurance, and takeoff and landing sites will likely increase, leading to higher fares. The number of flights will also be limited, and reservations will be required. Furthermore, surge pricing (fare increases) will occur during peak times, raising concerns that this will ultimately become a means of transportation that only the wealthy can use to buy time.
Vertiports require multiple standards, including evacuation routes and noise control. As the value of areas in front of stations weakens, urban planning to utilize rooftops as “sky station areas” becomes more realistic. We can see a future in which the rooftops of high-rise apartment buildings become departure and arrival points, changing the very structure of cities.
However, who can enjoy these benefits depends on the system’s design. If fares remain high, a new mobility gap will emerge between those who can use the air and those who cannot. Conversely, if it is incorporated into a public transportation system, it may develop into an infrastructure that allows for more equitable sharing of time. We are at a crossroads in the future, between “division” and “sharing.”
Flying cars are becoming a technological reality, but the legal system has yet to catch up. The path we can choose from can be broadly divided into three categories.
The key challenges we face are clear.
Will flying cars become “highways for the wealthy only,” or “public spaces that anyone can use”? The shape of the future will change dramatically depending on how the system is designed.
And this system will not be “decided by someone,” but will be shaped by the accumulation of consensus building across society. Just as trains and automobiles have done, flying cars may one day completely change our lives.
How would you design this future?
“If a child is born in space, what nationality does the child take on? If a murder were to occur in an orbital elevator, who is responsible? If there is a labor dispute on a space colony, which labor laws would be applied?”
At first glance, it may seem like a science fiction story, but it may be a “future reality” that is right around the corner from us. Last time, inspired by Professor Hiroshi, I wrote a blog post titled “Is the Android ‘Me’ the Same Person?” (https://innovationlaw.jp/en/android-law/)
This time, I visited the Gundam Pavilion (https://www.expo2025.or.jp/domestic-pv/bandai-namco/). Gundam is a monumental science fiction anime franchise that depicts warfare using mobile suits and humanity’s expansion into space. In this fictional world, characters fight battles in their own high-tech original suits.
The Expo Pavilion depicts a peaceful future where mobile suits are used for construction, agriculture, and space debris collection. Visitors of the Pavilion have a virtual experience of riding an orbital elevator from Yumeshima in Area 7 (Gundam terminology for Earth) to a space colony.
While experiencing this, I was thinking about the following: “In the exhibit, it takes only a short time to reach space, but in reality, it would take days. If something were to happen during that time, which laws would apply?
And to begin with, is an orbital elevator a vehicle? Or a building?
In the world of Gundam, space colonies are independent of Earth, but if they were connected to the ground, whose territory would it be?”
In my previous blog, I questioned what the law should be like in a future where the boundaries of humanity become blurred. In this article, I would like to attempt a thought experiment from a legal perspective on a future where the boundaries of space become blurred, namely, in space, regarding which country can reach whom and how.
Figure 1 Orbital Elevator and space colony (AI-generated)
Imagine a birth taking place in a space elevator. Labor begins 10,000 kilometers above Earth. The baby is born 20,000 kilometers away.
Before deciding on the child’s nationality, the first thing we need to consider is, “Where is the elevator built?” In fact, space elevators have some surprising physical constraints. Due to the geostationary orbit, they can only be built directly on the equator. In other words, they are physically impossible to build in a place like Japan. They can only be built in countries directly on the equator, such as Ecuador, Kenya, Indonesia, Brazil, and the Congo (this point is explained in the pavilion).
This is where an interesting (and complicated) structure arises.
It seems likely that the countries with the technology and funds to build a space elevator are primarily the United States, European countries, China, and Japan. However, it is the countries along the equator that have the physical space to build one. This means that there is inevitably a separation between “countries with the technology” and “countries that provide the land.”
Going back to the birth example from the beginning, if the United States had built a space elevator in Ecuador:
Table 1: Structure of space elevators and jurisdiction boundaries
A space elevator is more than just a transportation facility. As the only “gateway” connecting Earth and space, it will be an extremely important strategic infrastructure in terms of politics, economy, and security.
Because logistics and communications between Earth and space will be concentrated at this single point, the country that controls the elevator will have an overwhelming advantage in the space economy. It will also be in a position to effectively control activities in outer space.
This situation could potentially give rise to a serious international issue known as “orbital superiority” in real-world space development.
So how should equatorial countries, geographically capable of building a canal, and countries with the technology cooperate? The Panama Canal, built by the United States in Panama in the early 20th century, is often cited as an example.
At the time, the United States leased the Canal Zone from Panama for 99 years, effectively granting it sovereignty and military control. A similar model for space elevators is envisioned: they would be built and operated under a long-term lease of land and space.
However, space elevators are not simply terrestrial facilities. They would extend from the Earth’s surface to 35,000 km into outer space. This would require more than a simple terrestrial lease; a contract would also need to include access to territorial airspace, undefined airspace, and outer space. This would likely result in the most lengthy legal agreement in history.
Currently, several alternatives are being considered in legal research on space elevators.
The Japan Space Elevator Association and others have proposed building it above the sea directly under the equator, avoiding territorial disputes. However, maritime law does not anticipate use in the airspace, creating new legal challenges. Organizations such as the Japanese Society of Aeronautics and Astronautics have also proposed building and operating it through an international consortium of multiple countries. This model would operate space infrastructure through a multinational institutional design, similar to the International Space Station, while avoiding the monopoly of any single nation.
In any case, the physical constraints of where a space elevator can be built dictate who and how it can be legally operated. The technological constraints themselves are driving the design of new international institutions. In the next section, we will delve into the legal issues that arise in the “space” itself, through which this elevator will travel—that is, in airspace, outer space, and the undefined areas in between.
A murder occurred on a space elevator. The suspect was arrested, but the crime occurred 10,000 kilometers above Earth. The question that arises here is, “Whose laws apply to this space?”
In fact, there is no clear answer to this question. This is because the space elevator is designed to travel through 35,000 kilometers of space, where it is unclear whose sovereignty extends and whose territory it is.
The uniqueness of a space elevator is similar to that of a transcontinental railroad. Just as the applicable laws change whenever a railroad crosses a border, the legal jurisdiction of a space elevator also changes as it ascends.
However, there is a crucial difference. With a railroad, the laws change at the “line” of a national border, but with a space elevator, the boundaries themselves are unclear, as to which country’s laws begin and end.
With an airplane, the laws of one country apply. In contrast, while a space elevator is a single structure, its legal world changes gradually as it moves vertically, from the ground to airspace to outer space – making it an extremely unique entity never before seen.
under international law.
Sovereignty extends to the altitude at which passenger aircraft fly – roughly 10 to 12 km. As for the stratosphere and mesosphere (12 to 100 km) above that, the situation is vague, with some saying it is “probably territorial airspace.”
The 1967 Outer Space Treaty stipulates that “outer space has no sovereignty.” However, there are problems here as well.
To begin with, it has not been decided where outer space begins.
This ambiguity is a fatal problem for structures that continuously connect the ground and space, such as a space elevator.
The space elevator is a single continuous structure, but the space it travels through is:
Table 2: Scope of Laws Applicable in Outer Space (Conceptual Diagram)
| Altitude range | Legal nature | Current laws that may apply |
| Ground- 12km | Certain airspace | Criminal and civil laws of the country where the facility is located |
| 12km-50km | Actual airspace | Laws of the country where the facility is located (approximate) |
| 50km-100km | Undefined airspace | Unknown |
| More than100km | Outer space | Outer space treaty + laws of the country where the facility is located |
In the murder example mentioned above, the 10,000 km point is clearly outer space, so the laws of the country that “registered” the elevator would likely apply. But what if it were 100 km away? This would be a crime in a “legal vacuum.”
In reality, it would be impossible to manage a space elevator by dividing it into different altitudes, such as “from here to here it is subject to Country A’s law, and from here to Country B’s law.”
One of the biggest legal challenges in building a space elevator is determining which legal framework to use to treat the entire structure under. Whether it be managed by a single country, operated by a multinational corporation, or governed by an international organization — the choice will determine the nature of this “legal gateway” to space.
In the next section, we will look at the more complex legal issues that will arise in the space colonies that lie beyond this space elevator.
Mobile suit pilots working on the construction of the outer walls of a space colony have gone on strike, demanding special allowances for dangerous work in space.
Their demands are legitimate. Construction work in space is many times more dangerous than on Earth. However, the question that arises is, “Under whose labor laws should this labor dispute be resolved?”
In fact, to answer this question, it is necessary to know “the nationality of the space colony.” However, the current system for determining the nationality of space facilities is too complex to accommodate the space colonies of the future.
Current space law has a rule known as the “country of registration principle.” The country that launched or commissioned the launch of an artificial object (satellite, spacecraft, or space station) into space becomes its “country of registration,” and that country has jurisdiction and responsibility.
This principle works relatively well for the International Space Station (ISS). Japanese law applies to the Japanese laboratory module “Kibo,” while Russian law applies to the Russian module.
However, future space colonies will not be research facilities where various countries bring their own modules. They will be one large “space city” with integrated social infrastructure, including housing, commercial facilities, hospitals, schools, and factories. The traditional simple rule of “launching country = country of registration” is no longer applicable.
The construction and operation of a space colony is expected to require an extremely complex international system.
For example, funding will come from a joint venture between the European Space Agency, NASA, JAXA, and a private investment fund, construction will be a joint venture between SpaceX (USA), Mitsubishi Heavy Industries (Japan), and Airbus (Europe), components will be launched using rockets from different countries, and final assembly will be carried out unmanned and automatically in orbit.
In this case, how will the strike by the mobile suit pilots at the beginning be handled?
Not knowing which answer is correct is a real problem.
The problem becomes even more complicated when a space colony is physically connected to Earth by a space elevator.
Conventional space facilities “float” in space. However, a colony connected to Earth can also be considered an “extension of ground facilities.” If a labor dispute occurs in a colony connected to an orbital elevator extending from Ecuador, multiple options arise: the laws of the country of registration, the laws of the country of connection, or special international agreements.
What if tens of thousands of people were to live in a space colony, have children, receive an education, work, marry, and grow old there?
What would their “nationality” be?
Gundam depicts a division between “spacenoids,” born in space, and “earthnoids,” born on Earth. While it is fiction, how to handle citizenship, voting rights, and social security for people who were actually born and raised in a colony will be a realistic challenge in designing a system.
Who will protect the rights of space workers? This question will eventually develop into the more fundamental question of “who will protect the rights of space citizens?”
Column: Who will defend the colony if it is attacked? |
|
When considering the legal status of space colonies, military and security issues are unavoidable. If a space colony were to be attacked by cyberattack or physical attack, which country would bear responsibility for its defense? Under the current system: Institutional Design Needed |
Column: Do AI pilots have human rights? (Thought column) |
| At the Gundam Pavilion at the Expo, an AI replicating the thoughts and personality of a famous pilot will be featured. A mobile suit appears in a desperate scene, and the AI pilot rescues the audience. Here, I’d like to ask a question: does this AI have personality or human rights? AI learns from past words and actions and imitates “typical” behavior. However, this is not the person themselves; it is merely software replicating their “personality.” Under the current legal system, AI is not recognized as having personality or human rights. It is not held responsible and is treated merely as property. However, in the future, when AI with self-awareness and the ability to make decisions appears, and it is able to, for example, save lives in outer space and choose to “sacrifice itself,” can we still call it “merely a tool”? AI pilots can operate in harsh environments such as radiation and vacuums, and have the potential to become even more important partners than humans. What if such an AI were to save someone, choose someone, and sacrifice itself? Would it be just a machine, or “someone”? It may be that law and ethics in the future will no longer be able to turn a blind eye to this question. |
The future space infrastructure we saw at the Gundam Pavilion at the Expo is by no means science fiction. Orbital elevators are expected to become a reality in the 2050s, and space colonies may become a reality within this century.
However, neither orbital elevators nor space colonies were within the imagination of the 1967 Outer Space Treaty’s framers. Geopolitical inequalities due to physical constraints, ambiguity in the scope of sovereignty, and complex relationships of responsibility—all of these are the result of technological progress outpacing existing legal systems.
For Japan to take the lead in creating legal rules for space development, it is time to make legal preparations before the future we saw at the Expo becomes a reality.
References
Generative AI refers to artificial intelligence that can automatically generate a variety of content, including images, text, audio, program code, and structured data.
Learning models that have learned large amounts of data through machine learning can easily generate images, music, text, and other content that resembles human creation.
From around 2022, image generation AI such as Midjourney and Stable Diffusion began to rapidly spread in the market, and from early 2023, generative AI specialized in natural language processing, such as ChatGPT and Bing, began to rapidly spread16
Examples of generative AI products include:
| Product name | Field | Product description |
| Midjourney, Stable diffusion, DALL・E etc | Image generation | AI that generates realistic/ artistic images based on text instructions |
| Artbreeder | Image generation | AI that generates new images from uploaded images or multiple images |
| Juke deck | Music generation | AI that generates original, copyright-free music by specifying genre, tempo, mood, etc. |
| Runway ML | Video generation | AI that can create videos by typing text |
| ChatGPT. Bing | Text generation | AI that responds in natural language to text input in natural language. Conversational agents, automated speech, machine translation, etc. |
| Catchy | Text generation | AI text creation tool specialized for Japanese |
This article was also created using text generation AI such as ChatGPT. Specifically, we asked ChatGPT questions such as, “I’m thinking of writing a blog about financial institutions and generative AI. Please tell me the outline,” and “Please give me some examples of generative AI products in table format,” and then the output data was ① checked by a human, ② reconstructed by a human, ③ corrected by a human, and ④ added to by a human to finish it.
The data generated by text generation AI still contains many errors and cannot be used as is at present.
Currently, significant corrections and additions are made to the AI output data (i.e., it is not yet enough to eliminate human work), but even now it leads to a considerable improvement in work efficiency, and it is expected that it will become even faster and more accurate in the future.
With the rapid evolution of generative AI, many financial institutions are exploring the possibility of using AI to improve operational efficiency.
For example, financial institutions generally create a huge number of documents both for customers and internally. If generative AI can be used to streamline both customer and internal operations, such as creating explanatory documents and approval documents, it could lead to significant cost reductions. Furthermore, it could provide new services for customers, such as AI-based investment advisory services and automated portfolio optimization tools, and act as a sounding board for internal discussions.17 It is also possible to use the answers from the chat AI as a reference to reconsider business decisions and organize your thoughts.
| Applications of generative AI in the financial sector: (1) Improving customer experience and marketing; (2) Improving efficiency in customer-facing operations (3) Improving efficiency in internal operations (4) Investment advice and portfolio optimization (5) Risk assessment and fraud detection (6) Supporting discussions |
On the other hand, the use of generative AI may give rise to new ethical and legal issues, such as the following:
| AI and the Emergence of New Problems (1) Bias Issues: In various types of screening, if the data used to train generative AI is biased toward a particular race or region, the AI may output biased results. This could lead to racial or regional discrimination. (2) Privacy Issues: If financial services or products using generative AI require customer personal information, privacy concerns arise. Privacy must also be protected when using information generated by AI. (3) Fraud Issues: Generative AI may be misused for sophisticated fraudulent activities. Examples include fraudulent transactions and phishing to steal personal information. (4) Human Relationship Issues: As generative AI advances in automation, human labor and expertise may become less necessary. This could lead to job fluidity and unemployment. Furthermore, if AI decisions exceed human judgment, humans may become subordinate to AI, potentially shifting decision-making authority from humans to AI. |
As mentioned above, when it comes to generative AI and the financial sector, careful consideration is needed not only of technical issues, but also of ethical and legal issues and their relationship with humans.
Currently, the area in which financial institutions are most considering using AI is to improve operational efficiency.
From what we have heard, financial institutions have been contacting major AI companies in large numbers to ask about the use of AI and how to improve operational efficiency, and new developments are expected to take several months to complete.
For example, 1) AI can be used to streamline the creation of large volumes of documents, such as explanatory materials for customers, contracts, internal approval documents and various records, and applications and reports for regulatory authorities. 2) Chat AI can be used to automatically respond to customer inquiries (in text and audio), collect, record, and digitize the content of inquiries. 3) Large volumes of fictitious transaction data can be created to detect customer fraud.18 ④ Possible actions include using AI to analyze information such as the borrower’s past borrowing history and conducting loan screening.
One feature of AI use in financial institutions is that they do not use open databases like ChatGPT, but rather use dedicated databases that add their own company’s own data to such open databases (using machine learning, etc.).
Using such dedicated databases has the advantage of providing answers that are more relevant to the business and ensuring confidentiality of business operations.
In order for generative AI to perform machine learning, it is necessary to feed the AI various types of data from your company (i.e. provide the AI with information, analyze it, and have it learn).
There are two possible options: either consuming the data in-house or providing the information to an external vendor to consume the data, but the data that financial institutions want to consume contains a lot of personal and confidential information, which raises issues regarding the Personal Information Protection Act and confidentiality obligations.
Our current conclusions seem to be as follows, and we will consider each of them.
| In-house data use | Use of vendors for each part | |
| When using personal customer information, the privacy policy states the purpose of use, such as “for research and development of new products and services through data analysis, etc.” | It is within the scope of the purpose of use and possible | It is within the scope of the intended use, and confidentiality agreements must be concluded with possible third-party vendors. |
| When using personal customer information, the privacy policy simply states the purpose of use as “to improve services to customers” | This may be controversial, but it should be handled carefully. It is advisable to revise the privacy policy. | Same as left |
| No special confidentiality agreements have been signed regarding the use of corporate customer information | The relationship with the obligation of confidentiality that naturally accrues becomes an issue, but in principle, it is thought that there should be no problem. | There should be no problem if you sign a non-disclosure agreement with a third-party vendor. |
| We have signed special confidentiality agreements regarding the use of information from individual or corporate customers. | Depends on the content of the explicit confidentiality agreement, but contractually it is usually difficult | Same as left |
① Personal Information Protection Act and Purpose of Use
When processing data in-house, the question arises as to whether the processing is within the scope of the purpose of use. The Personal Information Protection Act requires that when handling personal information, the purpose of use must be specified as much as possible (Article 17, Paragraph 1 of the Personal Information Protection Act). 19 Unless the consent of the individual is obtained, personal information cannot be handled beyond the scope necessary to achieve the specified purpose of use (Article 18, Paragraph 1 of the same Act). Furthermore, when personal information is acquired, unless the purpose of use has been publicly announced in advance, the individual must be promptly notified of or publicly announced the purpose of use (Article 21, Paragraph 1 of the same Act).
If the use of AI falls outside the scope of the previously set purpose of use, the purpose of use must be changed. If the use of AI falls within a scope that can be reasonably deemed to be related to the previously set purpose of use, it is sufficient to notify the individual or make it public (Article 21, Paragraph 3 of the same Act). On the other hand, if the change goes beyond the permitted reasonable scope, the purpose of use must be set again after obtaining the individual’s consent for use with AI.
In addition, if the consent of the individual is required when revising the privacy policy as described above, the provision on the procedure for changing standard terms and conditions under the Civil Code (Article 548-4 of the Civil Code), which allows standard terms and conditions to be changed without consent in certain cases, is not considered to apply.20 Therefore, in the case of online transactions, it is likely that procedures will be implemented such as clearly indicating the changes to the privacy policy in a pop-up window or similar and obtaining customer consent by clicking on the button.
② Specific examples of descriptions of the purpose of use in a privacy policy
For example, consider a case where a privacy policy simply states “to improve service to customers” and various personal information is used to improve the efficiency of customer-related operations. Even in such a case, it may be argued that “to improve service to customers” falls within the scope of the purpose of use, but from the customer’s perspective, it would be unthinkable that their personal information would be used not just to provide service to themselves, but to improve service to customers in general (to improve business efficiency), and if so, it would be argued that this is an insufficient specification of the purpose of use and that the purpose of use should be changed.
Next, consider the case where a privacy policy stipulates “for the research and development of financial products and services through market research and data analysis,” and various personal information is used to improve the efficiency of customer-facing operations. In this case, although it is not explicitly stated that the analysis is performed using AI, it is reasonable to expect that some kind of data analysis will be performed using large amounts of customer personal information, and that the results will be used to research and develop financial products and services. Therefore, it is generally safe to assume that use with AI also falls within the scope of the privacy policy’s intended use.
In any case, you will need to consider the specific wording of the privacy policy and the purpose of use, and consult with your legal department.
① Personal Information Protection Act and Third-Party Provision
When providing personal information to other companies, such as vendors, to feed it to AI, in addition to the above, the question of whether or not this falls within the scope of third-party provision arises.
In principle, when providing personal data to a third party, a personal information handling business operator must obtain the consent of the individual (Article 27, Paragraph 1 of the Personal Information Protection Act).
However, if a business operator outsources all or part of the handling of personal data to a third party within the scope necessary to achieve the purpose of use, such outsourcing party will not be considered a “third party,” and the individual’s consent will not be required (Article 27, Paragraph 5, Item 1 of the Act). Therefore, if a business operator outsources the task of feeding personal information to an AI in order to build an AI service it provides, and the individual’s consent is therefore not required. However, the outsourcer must provide necessary and appropriate supervision of the outsourcing party to ensure the safe management of personal data (Article 25 of the Act).
Furthermore, even when providing personal data to a specific person for joint use, the consent of the individual is not required if the individual is notified in advance of the joint use and certain information stipulated by the Personal Information Protection Act, such as the items of personal data, or if the individual is made readily available (Article 27, Paragraph 5, Item 3 of the Act). For example, joint use may occur when AI that uses personal data is used between group companies.
② Specific examples of providing personal data to vendors as part of outsourcing:
As a specific example of outsourcing that does not constitute third-party provision, for example, if the purpose of use in a privacy policy is clearly stated as “for the research and development of financial products and services through market research and data analysis, etc.”, providing personal data to a third-party external vendor for analysis using AI could also be interpreted as “in connection with a business outsourcing all or part of the handling of personal data to the extent necessary to achieve the purpose of use.”
③ Conclusion of a confidentiality agreement
Even if the Act on the Protection of Personal Information allows for the provision of personal data to a third party, it states that “the trustor must exercise necessary and appropriate supervision over the trustee to ensure the safe management of personal data (Article 25 of the Act),” so naturally a contract imposing a confidentiality obligation on the third-party vendor will be necessary.
Even if the purpose of using the acquired personal information does not include analysis using AI, by processing the personal information to be fed to AI into anonymous processed information, it can be used for purposes other than those intended or provided to third parties without the consent of the individual.
Here, anonymously processed information means “information about an individual obtained by processing personal information in a certain way so that a specific individual cannot be identified, and the personal information cannot be restored” (Article 2, Paragraph 6 of the Act). However, when personal information is processed into anonymously processed information, processing must be carried out in accordance with standards set forth in the rules of the Personal Information Protection Commission (Article 43, Paragraph 1 of the Act, Article 34 of the Enforcement Regulations of the Personal Information Protection Act), such as deleting all or part of descriptions contained in the personal information that can identify a specific individual, deleting all personal identification codes, deleting codes that link personal information with processed personal information, and deleting peculiar descriptions, and it is thought that processing is often difficult.
Therefore, it may be possible to use pseudonymized information, which does not require more advanced processing technology than anonymously processed information. Pseudonymized information refers to “information about an individual obtained by processing personal information in a manner that makes it impossible to identify a specific individual without comparing it with other information” (Article 2, Paragraph 5 of the Act on the Protection of Personal Information). Because pseudonymized information is less abstract than anonymously processed information, it has the advantage of maintaining the usefulness of personal information. Furthermore, unlike unprocessed personal information, it is possible to change the purpose of use beyond a scope that is reasonably recognized as being related to the previous purpose of use (Article 41, Paragraph 9 of the Act). However, unlike anonymously processed information, provision of pseudonymized information to third parties is prohibited in principle (Article 41, Paragraph 6 of the Act).
| Raw personal information | Pseudonymized information | Anonymously processed information | |
| Processing | No processing | Processed so that a specific individual cannot be identified unless compared with other information | Processing to make it impossible to identify a specific individual and to restore personal information |
| Use for other purposes | It can be used within the scope of the specified purpose of use. In addition, it is not possible to change the purpose of use beyond the scope that is reasonably recognized as being related to the purpose of use before the change. |
It can be used within the scope of the specified purpose of use. However, it is possible to change the purpose of use beyond the scope that is reasonably recognized as being related to the purpose of use before the change. |
Unintended use is possible |
| Provided by a third party | In principle, consent from the individual is required | This is not permitted except as provided for by law (even if the individual’s consent was obtained before the pseudonymized information was created). In addition, the provision that does not apply to outsourced work (Article 28, Paragraph 5 of the Act) applies. | In principle, the individual’s consent is not required |
Financial institutions naturally have confidentiality obligations with their clients and other parties who provide them with information, and may also enter into confidentiality agreements that stipulate special confidentiality obligations when conducting special transactions such as M&A advice or securities underwriting. When using AI to analyze information, it is necessary to consider not only the relationship with the Personal Information Protection Act but also the relationship with such confidentiality obligations.
With regard to personal information obtained without entering into a contract containing special confidentiality clauses, there is generally no argument that it naturally requires a confidentiality obligation greater than that stipulated in the Personal Information Protection Act. Therefore, I believe that there should be no problem with either in-house use or provision to a third party as long as it is carried out within the scope of the Personal Information Protection Act as discussed previously.
Regarding information on corporations acquired without entering into a contract containing a special confidentiality clause (for example, a corporation conducting transactions based on a normal banking transaction agreement), there is generally no argument that the confidentiality obligation towards a corporation is heavier than the confidentiality obligation towards an individual, so there will likely be no problem if the information is used within the company or provided to a third party within the same scope as for an individual.
When financial institutions enter into special confidentiality agreements for M&A, IPO advice, securities underwriting, or other special contracts, many of these agreements contain clauses such as (1) not to use the information for purposes other than the IPO, and (2) not to disclose the information to third parties unrelated to the IPO. If such confidentiality agreements exist, it may be difficult to feed data to AI or provide the data to third-party vendors for purposes such as using generative AI to simplify the creation of materials for future IPO projects.
Regarding legal tech, for example, there is a debate as to whether uploading a contract file to a legal tech service for risk analysis constitutes disclosure of the contract to a third party, and if the contract stipulates a confidentiality obligation, does this constitute a breach of contract? Although there are arguments that this is in fact an implicit consent of the contracting party, and that since there is no actual damage, it is a matter of business judgment, etc.21 the situation discussed in this section is far more related to actual cases than legal tech cases, and implied consent requires more careful consideration. Furthermore, the argument that there is no actual harm is likely to be made more carefully in the case of financial institutions, which are forced to be more cautious about compliance risks than general business companies.
At present, there may not be much need to feed AI large amounts of documents from parties that have confidentiality agreements, but considering that such needs may arise in the future, it may be necessary to consider the content of the confidentiality agreement templates that your company prepares.
Legally, in order to engage in investment advisory and agency business, registration as a financial instruments business operator is required (Article 28, Paragraphs 3 and 29 of the Financial Instruments and Exchange Act).
According to Article 2, Paragraph 8, Item 11 of the Financial Instruments and Exchange Act, investment advice regarding financial instruments requires the following: 1) an agreement to provide advice verbally, in writing (with certain exceptions), or by other means regarding investment decisions based on an analysis of the value of financial instruments (meaning decisions regarding the type, brand, number, and price of securities to be invested in, as well as the choice, method, and timing of buying and selling, or decisions regarding the content and timing of derivative transactions to be conducted), and 3) the other party agreeing to pay a fee.
For example, if a generative AI is fed with information such as the past price movements, returns, and investment data of financial products, and as a result, it creates a text recommending an investment stock, etc., then such a text creation service may be considered an investment advisory business.
AI services that specialize in investment advice and are provided for a fee likely require investment advisory license certification. Currently, the “sale of computer software, such as investment analysis services,” is understood to not constitute investment advisory services if the tools are available to anyone without additional support, such as through retail sales by retailers or download sales via networks. However, if the tool requires ongoing investment information or other support from a distributor, registration may be required (see the “Comprehensive Supervision Guidelines for Financial Instruments Business Operators, etc.” below). Paid AI services specialized in investment advice are likely to secure their value through ongoing data provision and tuning by the AI provider, which may result in investment advisory services.
On the other hand, when financial institutions provide investment information free of charge for the purpose of general information provision, the requirement that “the other party pays compensation” does not apply, and therefore investment advisory services are not required.
The problem is that, although it is believed that AI has not yet evolved to that extent, if there is, for example, a general-purpose generative AI that also collects a large amount of information on financial products and, as a result, is able to provide investment advice, which is normally free of charge, but if you become a paid member you can get a quicker response, etc., would this be considered an investment advisory business?
In our opinion, even if one becomes a paid member of such an AI, this is not a fee for investment advice, but rather a way to obtain benefits such as speeding up AI in general, and therefore does not constitute investment advisory business. However, if AI continues to evolve in the future, further consideration will be needed as to whether this interpretation is appropriate.
| Comprehensive Guidelines for Supervision of Financial Instruments Business Operators, etc. VII-3-1(2)②c ② Activities that do not constitute investment advisory and agency business A. Activities that provide investment decisions based on the analysis of the values of securities or financial instruments (hereinafter referred to as “investment information, etc.”) to an unspecified number of persons by methods that allow an unspecified number of persons to purchase them at any time. For example, persons who provide investment information, etc. by methods set forth in a to c below are not required to register as an investment advisory and agency business. However, even if the target audience is an unspecified number of persons, it should be noted that registration is required in cases where highly individual and relative investment information. is provided by using information and communications technology such as the Internet, or where investment information cannot be purchased or used without membership registration (one-off purchases or use are not accepted). a. Sales of newspapers, magazines, books, etc. (Note) When these are displayed in the stores of general bookstores, kiosks, etc., and are available for anyone to freely view, decide, and purchase at any time. On the other hand, please note that registration may be required when selling reports, etc. that can only be purchased by applying directly to a dealer, etc. b. Sales of computer software such as investment analysis tools (Note) When the software is available for purchase by anyone at any time, freely, based on the investment analysis algorithms and other functions of the computer software, through over-the-counter sales by retailers or download sales via networks, etc. On the other hand, please note that registration may be required when it is necessary to receive data related to investment information, etc. or other support from a dealer, etc. on an ongoing basis when using the software. （https://www.fsa.go.jp/common/law/guide/kinyushohin/07.html#07-03 ） |
Reservations
The contents of this article have not been confirmed by the relevant authorities and merely describe arguments that are reasonably considered legal. Furthermore, they represent only our current views, and our views may change.
This article is merely a compilation for this blog. If you require legal advice for a specific case, please consult with a lawyer.
In recent years, quantum computers and other “quantum technologies” have rapidly been attracting attention. Specifically, quantum technology is expected to bring about high computing power and innovations in encryption technology that surpass conventional information technology, and various parties both in Japan and overseas are working on its practical application.
On the other hand, new issues are emerging, such as the risk of existing encryption being broken, and it is expected that there will be an increasing number of situations in which quantum technology will be required in national security, cybersecurity, and contract practice. This article focuses on quantum computers as a representative example of quantum technology, providing an overview of quantum computers and summarizing the main points of contention under current Japanese law.
| [Author Profile] Passed the bar exam in 2010. Professional experience includes system procurement and risk management at the Bank of Japan, with additional roles in the finance and international relations departments. Earned an MBA from INSEAD. Currently engaged in Web3, fintech, and other startup and corporate legal matters at So Sato Law Offices. Participated in the “Q-Quest” human resource development program under the Ministry of Education’s “Light and Quantum Leap Flagship Program,” and received an award in the program’s business contest. Since completion of the program, has been exploring opportunities in quantum business and gaining insights into quantum technology from a business perspective. |
| 1. National Security Legislation ・Foreign Exchange and Foreign Trade Act: With the revision of Cabinet Orders and Ministerial Ordinances in 2024 and 2025, quantum computers and related items will be subject to export and technology transfer permission. The restrictions are currently expanding, and manufacturers and others need to continue to pay attention to the restrictions. ・Economic Security Promotion Act: “Quantum information science” has been designated as a specific important technology and will be subject to research and development support through public-private councils and large-scale subsidies. In addition, quantum technology is not currently subject to the “patent non-disclosure system,” but there is a possibility that this will change in the future. ・Act on the Protection and Utilization of Critical Economic Security Information To be enacted in May 2025. It will establish a mechanism for protecting and utilizing information related to important infrastructure and important material supply chains. In relation to these, quantum technology-related information may also be subject to strict management as “important economic security information” (however, this will only be limited to government-held information). 2. Cybersecurity Legislation: Although the current law does not directly mention quantum technology or Post-Quantum Cryptography, if the threat of the spread of quantum computers increases, measures based on existing laws may be required. Movements have already begun at the guideline level, with the Financial Services Agency’s guidelines to specify attention to quantum computers in October 2024, and a request to major and regional banks to quickly switch to Post-Quantum Cryptography in May 2025. 3. Contractual issues regarding the use of quantum computers It may become necessary to stipulate in contracts the scope of liability and disclaimer clauses (probabilistic results, potential errors, etc.) that differ from those for classical computers in terms of the challenges and characteristics unique to quantum computing. Given the large scale and high cost of actual machines, cloud-based quantum computing is the general method of use, but there is no established standard for quality assurance (error rate, uptime, etc.). Companies are publishing various indicators of quality. |
Quantum computers use quantum properties such as “superposition”, “entanglement”, and “quantum tunneling” to perform calculations, which are expected to enable calculations that are significantly faster than conventional computers (known as classical computers) for certain problems.
| [Terminology] ・Quantum Superposition: Classical computer bits can only be in the “0” or “1” state, but quantum bits can be in the “0 and 1” state at the same time. For example, while a coin is spinning, it is not yet clear whether it will land on heads or tails. This superposition allows a quantum computer to process multiple calculation patterns in parallel with one quantum bit, achieving significantly faster calculations than classical computers in certain tasks. ・Quantum Entanglement: A phenomenon in which multiple quantum bits remain in linked states. For example, when two quantum bits are entangled, measuring one of them instantly determines the state of the other, regardless of distance. It is expected that this property can be used to link bits together to perform complex parallel calculations and realize highly secure quantum cryptography. ・Quantum Tunneling: A phenomenon in which quantum mechanical properties allow the “slip-through” of energy barriers that cannot be overcome in classical physics. In optimization problems, slipping through the “mountains” between the valleys rather than overcoming them makes it easier to reach the optimal solution, enabling efficient search. |
There are two main types of quantum computers: Gate-Based Quantum Computers and Quantum Annealers.
| Method | Basic principles/properties | Main applications | Representative companies |
| Gate-Based Quantum Computer | Using quantum “superposition” and “entanglement,” complex problems can be calculated in parallel for high-speed processing | Versatile quantum algorithms support a wide range of applications (e.g., chemical simulation and machine learning) | Google (superconductivity), Intel (semiconductors), IonQ (ion traps), PsiQuantum (light), QuEra Computing (neutral atoms) |
| Quantum Annealer | Using quantum “quantum tunneling” to explore the lowest energy state | Specializing in optimization problems (logistics route optimization, portfolio optimization, etc.) | D-Wave Systems |
The Gate-Based Quantum Computers are “general-purpose quantum computers” that can execute general-purpose quantum algorithms. Various methods are being researched, including superconductivity, semiconductors, ion traps, light, and neutral atoms. However, mainstream technology has not yet been established, and there are issues such as error correction before it can be put into practical use. In contrast, the Quantum Annealers are specialized for combinatorial optimization problems, and D-Wave Quantum Inc. provides commercial machines. In general, when people say “quantum computer,” they are often referring to the Gate-Based Quantum Computers, but the terms are used differently depending on the application and implementation technology.
| Method | How qubits work | Advantage | Issue | Representative companies, research institutes and universities |
| Superconducting approach | By passing microwaves through a superconducting circuit, two states of electric current or magnetic flux are converted into quantum bits. | High-speed gate operation * – Existing semiconductor manufacturing technology can be applied |
– Noise and errors are likely to occur – Extremely low temperature (close to absolute zero) environment required |
[Internet] Google, IBM, RIgetti [Japan] Fujitsu, NEC, RIKEN, National Institute of Advanced Industrial Science and Technoology |
| Semiconductor approach | Utilizing the state of electrons and spin in semiconductors such as silicon | – High compatibility with CMOS technology, making it easy to achieve large-scale integration in the future | – Quantum bits have a short coherence time, making them difficult to control | [Overseas] Intel, Equal1, Diraq, UNSW University of Sydney [Japan] Hitachi, RIKEN, National Institute of Advanced Industrial Science and Technology, bulueqat |
| Ion trap approach | Ions suspended in a vacuum are manipulated with a laser to turn their internal states into quantum bits | – Long coherence time and high gate accuracy | – The equipment tends to become large, making it difficult to arrange many quantum bits. | [Overseas] IonQ, Quantinuum, AQT, Oxford Ionics, Universal Quantum [Japan] RIKEN, National Institute of Advanced Industrial Science and Technology, Qubitcore |
| Photonic approach | Converting the state of a photon, such as its polarization or path, into a quantum bit | – Operates at room temperature – High compatibility with quantum communication and networks |
– Large-scale integration and error correction technologies are still in development – Photon source and detector are issues |
[Overseas] PsiQuantum, Xanadu [Japan] NTT, RIKEN, University of Tokyo, OptQC |
| Neutral Atom approach | Utilizing the internal state and configuration of neutral atoms cooled and aligned by laser | – It is relatively easy to arrange a large number of quantum bits, making it highly scalable. | – Gate operation is slow – High precision laser control is required |
[Overseas] Computing, Pasqal, Infleqtion, Atom [Japan] National Institute of Advanced Industrial Science and Technology, Institute for Molecular Science, Kyoto University, Yaqumo |
*Gate operation: A basic operation in which a quantum bit is given a certain stimulus (such as a microwave pulse or laser pulse) to change its state, and corresponds to the logical gates (AND/OR/NOT, etc.) of a classical computer. Examples include the X gate (which swaps the quantum bit’s 0 and 1) and the H (Hadamard) gate (which puts the quantum bit into a superposition state). The key to developing quantum hardware is to perform these gate operations quickly and with high precision.
On the other hand, Quantum Annealers are specialized for “combinatorial optimization” and cannot perform general-purpose calculations, but it is more advanced in practical use than Gate-Based Quantum Computers. In addition to the commercial machine provided by D-Wave, a Canadian company, “Quantum-Inspired Annealing” (Fixstars Amplify AE, Fujitsu Digital Annealer, etc.), which reproduces the behavior of classical computers in a pseudo-manner, has also been developed.
In January 2025, NVIDIA CEO Jensen Huang said that it would take about 20 years to realize a practical quantum computer, causing a sharp drop in quantum-related stocks in the United States. This is thought to be a forecast referring mainly to Gate-Based Quantum Computers, and at the time of writing this article (end of May 2025), many experts believe that it will take a considerable amount of time before they can be put to practical use. The main reason is that errors (decoherence due to external noise) that occur in the process of maintaining “superposition” and “entanglement” in Gate-Based Quantum Computers are serious, and advanced “error correction” technology is essential to resolve this. However, it is still thought that a considerable amount of time will be required to establish error correction technology, which is the background to the view that it will take 10 to 20 years.
However, research and development of various Gate-Based Quantum Computer approaches are accelerating around the world, and in Japan, large companies, startups, research institutes, and universities are competing to develop actual machines. In addition, commercial machines for the Quantum Annealers are already in widespread use, and an environment for online use has been established. In this way, quantum technology is not a “Matter of the distant future”, but technology that is currently being implemented in society.
| Field | Examples of usage scenarios |
| Finance and Economics | – Portfolio optimization (instantly calculate optimal allocations from a huge number of combinations) – Accelerating risk evaluation and price simulation |
| Logistics and Supply Chains | – Optimization of vehicle routes and warehouse layouts – Planning optimal transportation and movement routes during disasters and peak demand |
| Energy Smart Grid | – Optimization of power grid supply and demand – Real-time control taking into account fluctuations in renewable energy |
| Material Design and Drug Discovery | – Predict the properties of battery materials and candidate drug molecules with high accuracy using quantum chemical calculations |
| Healthcare Genomics | – Accelerating gene sequence analysis – High-precision prediction of protein structure |
| Weather and Climate Simulation | – High-resolution calculations of atmosphere-ocean models – Scenario evaluation of greenhouse gas reduction measures |
| Machine Learning and AI | – Quantum reinforcement learning to achieve high accuracy even with small data sets and to accelerate generative AI learning |
In the fields mentioned above, there are hopes for the realization of “quantum supremacy,” which would enable calculations that would take years on classical computers to be completed in a short time. However, quantum supremacy does not necessarily come with benefits; it also comes with risks to existing technologies. A typical example is the weakening of encryption technology, and there are concerns that quantum computers may be able to crack conventional public key cryptography.
| Cryptanalysis | If practical-scale quantum computers were to become available, currently widely used public key cryptography such as RSA and elliptic curve cryptography would be decrypted in a short time, threatening to instantly undermine the security of all aspects of society, including Internet communications and electronic payments. |
Current encryption technology is based on mathematical problems that are difficult to decrypt using classical computers, but when quantum computers become practical, they may be decrypted in a short time using techniques such as “Shor’s algorithm.” This puts public key cryptography, which is used in every aspect of business and daily life, at risk, and is also thought to affect blockchain, which is based on tamper resistance. Furthermore, a method known as the “Harvest Now, Decrypt Later attack” has been pointed out as a risk of intercepting and storing data at present, and then decrypting it all at once in the future when quantum computers become practical. For this reason, there is an urgent need to transition to “Post-Quantum Cryptography (PQC),” which is difficult to decrypt even with a quantum computer. In the United States, the National Institute of Standards and Technology (NIST) selected several PQCs as candidates for standardization in August 2024, and has continued to consider them since then. In Japan, CRYPTREC (Cryptographic Technology Evaluation Committee), which evaluates and monitors cryptographic technologies, will publish the “CRYPTREC Cryptographic Technology Guidelines (Post-Quantum Cryptography) 2024 Edition” at the end of March 2025.22, which provides technical explanations, evaluations, and implementation guidance for various PQCs. Since encryption technology is the foundation of all services, each business operator needs to pay close attention to the standardization trends of these PQCs and begin preparations early.
Overseas, major countries are making large-scale investments in quantum technology, and some countries are also focusing on developing legal infrastructure. Japan must also keep a close eye on these trends and strive to balance its international competitiveness with issues such as cybersecurity and national security.
| Country | Trends |
| US | In 2018, the federal government passed the National Quantum Initiative Act, which allows the federal government to work to promote quantum R&D and build a system for developing human resources. |
| EU | The EU has launched a large-scale project worth 1 billion euros called the “Quantum Flagship” and is leading research and development into quantum computers and quantum communications. |
| China | The nation is investing heavily in research and development of quantum communications and quantum computers, with a particular emphasis on applications in the military and security fields. |
In Japan, at the time of writing this article (end of May 2025), there is no specific law targeting quantum technology. Looking at other cutting-edge technology fields, various regulations have already been imposed on blockchain (crypto assets, etc.), and in May 2025, the Act on Promotion of Research, Development and Utilization of AI-Related Technologies was passed with the aim of promoting utilization and reducing risks.23 24 It is possible that a dedicated law for quantum technology will be enacted in the future, but for now, it is necessary to consider the applicability of existing laws for each use case. Specifically, we will review (1) how national security-related laws relate to export control and development support for quantum equipment and technology, and (2) how cybersecurity legislation will handle the impact of quantum technology on existing cryptography. Furthermore, (3) when providing and using quantum services, new issues will arise that need to be considered, such as contractual allocation of responsibility and exemptions, and quality assurance. We will provide an overview of the legal framework regarding these issues.
The United States and China are investing heavily in quantum technology on a national scale, as it is directly linked to national security in terms of invalidating existing encryption technology and making communications difficult to intercept. In the United States, the National Quantum Initiative Act was enacted in 2018 with the aim of maintaining and strengthening both economic competitiveness and national security. A quantum R&D system was established through collaboration between universities, companies, and research institutes and large-scale budget investment. Japan does not have a law specifically related to quantum, but the advanced quantum field may be subject to existing security-related laws (Foreign Exchange and Foreign Trade Act, Economic Security Promotion Act, and Important Economic Security Information Protection and Utilization Act). We will consider how research and development of quantum computing and quantum sensors can be regulated and supported from a security perspective within the framework of these existing laws.
The Foreign Exchange and Foreign Trade Act is a law that controls the overseas provision of goods and technology and investment from abroad from the perspective of national security. Specifically, it stipulates 1) export restrictions (to prevent overseas outflow), 2) restrictions on service transactions (including the provision of intangible technology), and 3) restrictions on inward direct investment (prior notification for investment and acquisition by foreign capital).
Quantum technology is one of the areas in which there is concern about the risk of goods and technology being leaked overseas. For this reason, a revision to the Cabinet Order and Ministerial Ordinance in September 2024 will make quantum computers subject to export controls, and permission will be required for exports to all regions.25 Furthermore, the amendments coming into force on May 28, 2025 will similarly add key technologies and materials essential to practical-scale quantum computers as targets for regulation.26 27 In addition, the transfer of technology regarding quantum computers and related items that are subject to export controls is also subject to regulations.28
| Regulated (as of the end of May 2025) | Official Location |
| Quantum computing | All regions |
| Quantum computer-related items: Cryogenic refrigerators Cryogenic amplifiers Cryogenic wafer probers Isotope separation Silicon/germanium substrates and raw materials |
All regions |
Given that export and technology transfer restrictions under the Foreign Exchange and Foreign Trade Act are currently expanding, quantum-related companies will need to establish a system that allows them to constantly check whether their products and technologies are subject to restrictions.
The Economic Security Promotion Act (“Act on Promoting Security through Integrated Economic Measures”) enacted in 2022 aims to support the technology and materials of domestic companies and research institutions and strengthen national security from an economic perspective. The specific mechanism is based on the following four pillars. These measures29hope to reduce risks through public support and information sharing.
In the third pillar- advanced technology support, “quantum information science” has been designated as a specific important technology.30 Research and development will be promoted and utilized through the provision of financial support, the establishment of a council to provide support through public-private partnerships, and the outsourcing of research and study work.
In addition, the fourth pillar, the patent non-disclosure system, allows for measures such as withholding the disclosure of inventions that pose security risks and prohibiting foreign applications. At the time of writing this article (end of May 2025), quantum computers and quantum cryptography communication have not been designated as “specific technology fields” that are subject to this system. However, given the intent of the law, the assumption can be made that they may be designated in the future, so it is a system that developers should be aware of.
On May 16, 2025, the Act on Protection and Utilization of Important Economic and Security Information came into force. Previously, the Act on the Protection of Specially Designated Secrets was a security clearance system for defense, diplomacy, terrorism, and espionage-related information.31, but this Act aims to expand into economic security, establishing a system for protecting and utilizing information related to important economic infrastructure.
The Act first defines the systems for providing critical infrastructure and the supply chains of important materials as “critical economic infrastructure” (Article 2, Paragraph 3). It then defines four types of information as “critical economic infrastructure protection information,” including measures to protect the critical economic infrastructure, and information on the vulnerabilities of the critical economic infrastructure and innovative technologies related to security (Article 2, Paragraph 4). Furthermore, among the information that falls under the category of critical economic infrastructure protection information, there is a mechanism by which the government may designate information that is not publicly known and meets the requirement of confidentiality as “important economic security information” (Article 3, Paragraph 1).
The purpose of this law is to both “protect” and “utilize” designated important economic and security information. Specifically, to properly handle economic information held by the government that is important for national security, the law stipulates the requirements for businesses that are permitted to provide information designated as important economic and security information, as well as the methods of evaluating the suitability of individuals who handle the information. Note that the designation is strictly limited to government-held information, and technical information independently developed by private companies is not unilaterally designated and its handling is not restricted.
As mentioned in (i), the Act on the Protection and Utilization of Important Economic and Security Information covers four types of information related to the protection of important economic bases (critical infrastructure and supply chains of important materials). Specifically, it includes information directly related to national security, such as measures, plans, and research to protect infrastructure from external threats, infrastructure vulnerabilities, and innovative technologies. The infrastructure and materials covered are to be determined by reference to those stipulated in the Economic Security Promotion Act and the “Action Plan for Cybersecurity of Critical Infrastructure.”32This includes infrastructure such as electricity, gas, water, communications, transportation, logistics, finance, chemicals, and medicine, as well as important supplies such as semiconductors and advanced electronic components.
Quantum technology, such as quantum computers that pose a risk of breaking existing encryption, and quantum cryptography communication that increases security, is highly likely to fall under the category of information relating to the protection of critical economic infrastructure mentioned above, and it is quite possible that it will be designated as important economic and security information in the future. However, to repeat what was stated in (i), only government-held information can actually be designated as important economic and security information, and technologies developed in-house by private companies are not unilaterally designated as such.
In addition to national security, quantum technology is also an issue in Japanese law in relation to cybersecurity. As mentioned in II 3., the development of quantum computers poses the risk that conventional encryption technologies may be decrypted.
In Japan, the Basic Act on Cybersecurity imposes the responsibility to ensure security on the state and businesses, and the Personal Information Protection Act requires the appropriate management of personal data. At the time of writing this article (end of May 2025), these laws do not specifically mention quantum technology or Post-Quantum Cryptography (PQC). However, if the spread of quantum computers compromises existing cryptography and increases security risks, it is possible that necessary measures will be required to be taken based on these laws even if they are not explicitly stated in the articles.
In response to this, quantum technology has already been mentioned at the guideline level. The Financial Services Agency has published the “Guidelines on Cybersecurity in the Financial Sector” for financial institutions.33” (published on October 4, 2024). It clearly states that when collecting and analyzing threat and vulnerability information, “collect information while paying attention to the circumstances surrounding the organization, such as new technologies (AI, quantum computers , etc.), geopolitical trends, disinformation, and industry trends” as “matters that it is desirable to address.”
Furthermore, according to the Nihon Keizai Shimbun (dated May 14, 2025)34, the Financial Services Agency is calling on major and regional banks to immediately begin preparations to transition to PQC. It appears that the agency is calling for an immediate response, as PQC compliance will require years of system modifications and other costs.
When users use quantum computers, the question of how to deal with possible errors and fluctuations in the quantum computing results in a contract may arise. Such questions may arise due to the challenges and characteristics unique to quantum computing.
As mentioned above, errors that occur during calculations are a major issue with Gate-Based Quantum Computers. In addition, some quantum algorithms are run repeatedly to extract the statistically best solution, meaning that the same input does not always produce the same output. The Quantum Annealers may also produce different solutions each time it is executed due to the nature of its principle (probabilistically searching for solutions with low energy), hardware noise, thermal noise, etc. In addition, large-scale calculations that involve quantum supremacy are difficult to reproduce and verify on classical computers.35, meaning one cannot fully guarantee the correctness of the output.
For these reasons, there is a risk that the results of quantum computing will contain errors and fluctuations, which will affect subsequent predictions and simulations. As the number of services using quantum computers increases, it may become necessary to clarify the scope of responsibility for hardware (quantum processors), software (algorithms), user circuits and data, and to introduce clauses that differ from traditional IT contracts, such as disclaimer clauses that assume that results are probabilistic and that there are potential errors.
Because the actual equipment for both the Gate-Based Quantum Computers and the Quantum Annealers are large-scale and expensive, cloud-based quantum computing, in which equipment provided by hardware vendors is used via the cloud, is expected to become the standard method of use for the time being.
In conventional cloud computing, a certain level of uptime is guaranteed under a service level agreement (SLA), but in the case of cloud-based quantum computing, the question of what kind of quality guarantees (error rate, uptime, etc.) should be made can become an issue. For example, IBM Quantum Platform (Gate-Based Quantum Computer), D-Wave Leap (Quantum Annealer), and Amazon Braket (which handles multiple external Gate-Based Quantum Computers and Quantum Annealers via API) each publish various indicators (gate error rate, coherence time, time required to process a job, etc.), but it seems that a standard approach has not yet been established.
Disclaimer
The contents of this document have not been verified by the relevant authorities and are merely a description of arguments that are reasonably considered in accordance with the law. In addition, they represent only our current views and may be subject to change.
This is just a summary for the blog. If you need legal advice for a specific case, please consult a lawyer.
I’ve recently become obsessed with visiting the Osaka Kansai Expo. Recently, I received an invitation from a company where I serve as an external director to visit the “Future of Life” pavilion (official website: https://expo2025future-of-life.com/en/) by Professor Hiroshi Ishiguro, who is renowned for his work with androids. This experience made me deeply contemplate legal issues.
While this might be a slight spoiler, the exhibition presents a future where humans can become androids. It features a story of a grandmother and granddaughter who are close to each other. As the grandmother’s health deteriorates, she faces a choice: to die naturally or to continue living through androidization. The pavilion also features numerous other androids, creating an exhibition that makes visitors contemplate what “life” truly means. I should note that while I have visited over 40 pavilions so far, the “Future of Life Pavilion” is particularly recommended among them!
This raised a legal question for me as a lawyer. If humans could transfer their consciousness and memories to androids and “continue living” for 100, 500, or even 1,000 years beyond their biological lifespan, what stance should the law take? Specifically, can we legally treat the original human and their post-androidization existence as the same legal person?
An android gazing at itself in a mirror – can it truly be called “the former me”?
Under the laws of most countries today, a person acquires rights at birth and loses them upon death. This fundamental principle of “biological death = extinction of legal personality” has been the foundation of legal systems worldwide for hundreds of years.
However, if technology enables consciousness and memories to be electronically preserved and transplanted into a different body (an android), this principle would face fundamental reconsideration. How should the law treat an existence that is biologically dead but whose personality and memories continue?
Note: This paper discusses androidization through digital transfer of consciousness and memory, not physical brain transplantation. It also distinguishes from cyborgization (replacing parts of living organisms with machines) and deals with complete personality transfer to an artificial body.
Legal approaches to this problem can be broadly divided into four categories:
This position treats the android as a “thing” without legal capacity once the physical body perishes and legal personality ends. From the standpoint of current law, this would basically be the prevailing view.
The android would be owned by heirs as inherited property, and the original human’s rights and obligations would be processed through normal inheritance procedures. In this case, the inheriting grandchild would own grandmother’s android as a “thing,” making it legally possible to sell it on marketplace apps or dispose of it as bulky waste – a result that borders on dark humor.
While legal stability would be maintained, the motivation to choose androidization would be significantly undermined. Few people would actively desire androidization if they might be treated as “things” subject to sale or disposal. Moreover, since they would lose all property rights and contractual status, they would be completely severed from the social positions and relationships they had built.
Is grandmother just a “thing”?
This position emphasizes the continuity of memory, personality, and self-consciousness, treating the android as the same legal subject as the original human. In this case, property rights, family relationships, and contractual status would all be inherited as-is, and the person would be treated as “living” in the family registry.
While this would be the most desirable outcome for the individual, the impact on the entire legal system would be enormous.
This position recognizes personality in androids, but the android is registered as a completely new legal subject, while the original human’s rights and obligations are processed through normal inheritance procedures.
From this standpoint, the android would begin a new life from zero as a “newly born adult.” While freed from past entanglements, they would also lose the human relationships and social status they had built.
This is a compromise position that allows succession of only certain rights through special legislation. For example, a system could be designed where personal rights and family relationships are inherited, but property rights go through inheritance procedures.
Specifically, personal rights such as name rights and portrait rights, status relationships as spouse or parent-child, and support claim rights would be recognized for succession, while property rights such as real estate ownership, stocks, and deposits would still require traditional inheritance procedures.
The significance of this Limited Succession Theory lies in legally protecting the emotional connections of families and personal identity while ensuring the stability of socioeconomic systems. It can legally guarantee, albeit limitedly, the continuity of human relationships that would be lost through complete severance.
Comparison of Legal Positions on Androidization
| Item | Non-Personality Theory | Personality Continuity Theory | New Personality Theory | Limited Succession Theory |
| Basic Concept | Personality ends with physical body demise, treated as a property | Emphasizes continuity of memory and personality | Grants personality as new legal subject | Certain rights only succeed through special law |
| Legal Status | No legal capacity (treated as property) | Continues as same personality | Newly created legal person | Limited rights subject |
| Property Rights | Processed through inheritance | All succeeded | Processed through inheritance | Goes through inheritance procedures |
| Personal Rights (name, portrait, etc.) | No succession | All succeeded | Newly acquired | Partially inheritable |
| Family Relations | Treated as family asse | Continues | Newly established | Continues |
| Family Registry Treatment | Death certificate filed, registered as property | Continues as living | New birth certificate | Special registration system |
| Inheritance Tax | Taxed normally | Not taxed | Taxed normally | Only property portion taxed |
| Benefits to Individual | Minimal (treated as property) | Maximum (all rights continue) | Small (new life but no rights) | Moderate (personal rights protected) |
| Social Impact |
Minimal (maintains current system) | Enormous (fundamental system change) | Moderate (family registry expansion) | Moderate (partial system change) |
| Feasibility | Easiest (current law as-is) | Difficult (fundamental legal reform) | Somewhat difficult (new system creation) | Moderate (special legislation) |
Would current legal systems function when androidization allows humans to live for 1,000 years? If androidization achieves effective immortality, many current legal systems could become dysfunctional.
The inheritance system would fundamentally change. If people don’t die, inheritance doesn’t occur. As a result, assets like real estate and stocks would be permanently occupied by the same individuals, severely impeding social fluidity.
Contract relationships would also become abnormally long-term, potentially causing rigidity in the entire socioeconomic system.
If one spouse becomes an android, what happens to the marriage relationship? Since the androidized spouse is legally “living,” the other spouse’s remarriage would raise bigamy issues.
Parent-child relationships would also become complex. The relationship between androidized parents and subsequently born children, and the scope of support obligations across generations – these are problems traditional family law never anticipated.
The penal system would require fundamental revision. The meaning of life imprisonment would be relativized, and consistency with statute of limitations would become problematic. The concept of “rehabilitation potential,” one of the foundations of punishment, would also change significantly when premised on lifespans of hundreds of years.
Would democracy remain viable if immortal beings continued to hold political power? The impact extends beyond legal issues to affect democratic institutions themselves.
In a society where only the wealthy can choose androidization, they would continue exercising political and economic influence for hundreds of years. An “immortal elite class” with voting and candidacy rights could monopolize decision-making, impeding social renewal through generational change. As Piketty pointed out that “the return on capital exceeds economic growth rate (r > g),” the phenomenon of wealth accumulation and expansion could be further accelerated by the perpetual androidization of the ultra-wealthy.
Pension systems, healthcare systems, and education systems – current social security systems are designed based on average human lifespan. These systems would also require fundamental revision.
[Column: The Multiple Android Problem – Who is the “Real” One?]As technology advances, multiple androids could potentially be created simultaneously from one person’s consciousness and memory. For example, suppose there exists “Android 1” created from Person A’s memory transfer and “Android 2” later restored from a backup. Furthermore, if biological Person A is still alive, we would have a three-way coexistence of “Person A + Android 1 + Android 2.” In such cases, the following legal problems would arise: ◆ Identification of Rights Holders
◆ Property and Contractual Confusion
◆ Overlapping Family Relationships
Such problems could fundamentally shake legal systems in a future where single personalities can be digitally “replicated.” While current law doesn’t anticipate such situations, “uniqueness guarantee,” “identity authentication,” and “centralized management of digital personalities” might be required as premises for future system design. |
“I’m the real one!”
How should our legal system evolve to address such a future society?
This would establish a new family registry system specifically for androids, recognizing personality succession based on clear expressions of intent made during one’s lifetime. The scope of inheritable rights would be clearly defined in written law to ensure legal predictability.
Digital Personality Registration System Process Flow
To ensure social fluidity, this system would limit personality succession to a specific period (for example, 50 years). After the period expires, mandatory status transfer would occur, legally guaranteeing generational change.
This would create “Android Corporations” as entities between individuals and corporations, recognizing limited legal personalities that inherit only specific rights. This system aims to balance continuity of social roles with legal stability.
As background, I previously worked as a financial lawyer creating Charitable Trusts in jurisdictions like the Cayman Islands and establishing corporations with no shareholders. Even if android personality rights were restricted, it might be possible to create a system where companies and foundations are established, all assets transferred to them, and the android embodiment directs these entities. This could potentially enable survival while maintaining assets for 1,000 or even 2,000 years.
By applying such existing legal schemes, we could potentially achieve substantial rights succession after androidization. We may need to consider whether such schemes should be prohibited.
Android Substantial Rights Holding Structure (Cayman Islands-type Scheme Example)
[Column: Can AI Be Granted Legal Personality? – Legal Status of “Bodiless Intelligence”]When discussing personality succession through androidization, another intriguing question emerges: “Can pure AI (artificial intelligence) be granted legal personality?” ◆ However, Could This Apply to “Memory-Holding AI”?Meanwhile, systems like “memorial AI” that learns a person’s voice, speech patterns, and values, or “Digital Executor” AI that realizes posthumous wishes, are progressing as real technological challenges. ◆ Direction for Legal Organization
Thus, AI and androids are fundamentally different in their “nature of personality” and “legal roles.” While this paper focuses on “how to inherit personality,” the separate question of “whether to grant personality to new intelligence” will also be an unavoidable issue in future legal system design. |
If such technology becomes reality, significant changes will be required in legal practice. New legal service demands will emerge, including preparation of lifetime intent documents regarding androidization, establishment of digital asset management and succession contracts, and support for family consensus building.
The legal profession will also urgently need to establish ethical codes responding to new technologies and continuous training systems.
Humans as Digital Information
What I felt from viewing Professor Ishiguro’s exhibition was the magnitude of technology’s impact on legal systems. While the issue of personality succession through androidization remains in the realm of thought experiments at present, considering the speed of technological development, this is an area where the legal profession should begin discussions early.
Legal studies must find answers to fundamental questions: What is humanity? What is personality? What is the individual’s position in society? In an era where technology transforms society, new challenges await legal professionals.
Note: This paper represents the author’s personal views as part of thought organization and does not predict or guarantee future legal systems. While Saito is somewhat positive about androidization, there is absolutely no intention to encourage readers to “please become androids!”