moved that Bill C-249, An Act respecting the encouragement of the growth of the cryptoasset sector, be read the second time and referred to a committee.
Madam Speaker, I rise today to speak to my private member's bill, Bill C-249, the encouraging growth of the cryptoasset sector act. It has been 14 years since work conducted by Stuart Haber, W. Scott Stornetta, and Dave Bayer was used by a person operating under the pseudonym Satoshi Nakamoto to launch a concept called blockchain.
Since the Nakamoto paper was published, the concepts it contained have been operationalized the world over to launch a pantheon of innovative products and practices that are revolutionizing how people interact and transact with each other. Canada’s Parliament has yet to debate the cryptoasset sector. This debate today marks the first time we are doing so.
I am going to break down the public policy challenge before us today in six parts. They are what cryptoassets are, why the sector is important to Canada, why Parliament needs to turn its attention to the sector, why this bill is the best approach for Parliament to take in the matter, problems this approach will prevent, and my desired approach to building consensus for this model.
Let us talk about the first point. What are cryptoassets? Within my bill and within my speech today, I use the term “cryptoasset” and define it as, “digital assets that are secured by means of cryptographic systems, including the blockchain system, that do not rely on a central authority and are based on algorithms agreed to by the majority of users.”
Cryptocurrencies, such as Bitcoin and Ethereum, are one type of cryptoasset. Transactions use blockchain to record transactions and issue new units, as opposed to fiat currencies that have a central issuing or regulating authority. Non-fungible tokens, or NFTs, are another cryptoasset. NFTs are digital assets that represent real-world objects such as art, music, in-game items and videos. They are bought and sold online, frequently with cryptocurrency, and they are generally encoded with the same underlying software as many cryptos.
Rather than spend the limited time I have today breaking down the technical aspects of how cryptoassets operate, I encourage colleagues who are not familiar with the subjects to spend some time watching the multitude of videos, reading the articles and looking at the other educational resources that are now available.
I will highlight, however, that a lack of education on the topic among legislators and public servants is a problem that my bill attempts to resolve. The goal of this would be to have public policy happen in an environment based on knowledge and public consultation, rather than polarized partisan interests.
Why is the sector important to Canada? First, cryptoassets represent an important sector that could help to diversify and grow the Canadian economy. To give colleagues a sense of the size of this industry, one recent report suggests that the global cryptocurrency market reached a value of $1.782 billion U.S. in 2021. Looking forward, the publisher of this report expects the market to reach $32.4 billion U.S. by 2027, exhibiting a compound annual growth rate of 58.4% from 2022-27.
The global market for another type of cryptoasset, non-fungible tokens, is expected to grow from $14 billion in 2021 to $21.3 billion in 2022 at a compound annual growth rate of 52.1%. The market is expected to reach $82 billion in 2026 at a compound annual growth rate of 40.2%. Canada should be a natural home for this type of innovation and investment.
Many view the decentralized nature of cryptoassets as an attractive feature in and of itself. By removing intermediaries from computer networks, distributed ledgers can facilitate new types of economic opportunities that were not possible before. The blockchain technology underlying Bitcoin and other cryptocurrencies has been hailed as a potential game-changer for a large number of industries.
Another common reason for investing in cryptoassets is the desire for a reliable, long-term store of value. This property makes cryptocurrency attractive to people who are worried about things such as bank failures, or so some rationale goes.
This brings us to why Parliament needs to turn its attention to the sector. As with any industry, there are massive potential benefits to Canada, as well as potential pitfalls. The call to us, as legislators, should be to find a path that promotes growth and investment in the sector within Canada, while protecting those working in the space, as well as consumers.
Many innovators and proponents of cryptoassets in Canada are actually calling for the federal government to use its convening power to provide policy clarity to the industry. The current lack of clarity, particularly on safeguards to protect those working in the space, is seen as an impediment to investment. That is to say, who would invest in a sector that is likely to be regulated at any time, but likely by people who know little to nothing about how the industry operates? The same could be said for government investment in the sector.
Further, a significant amount of jurisdiction for policy related to the sector falls to the provinces. A patchwork of rules and regulations is popping up across Canada. Provincial jurisdiction must be respected, but the federal government could have a role to play in convening provinces to establish an opt-in set of harmonized policies that would make it easier for investors to operate and to provide safeguards.
At the same time, given the newness of the sector and its rapid pace of growth and innovation, there are risks. Education to help investors evaluate risk could benefit the sector. Specifically, a broader public understanding of what is real and what is speculative mania, what is protected by government regulation and what is not, how to prevent digital asset theft, and how cryptoasset volatility occurs, could benefit the sector, as could safeguards that are present for other asset classes such as traditional securities to prevent fraud and illegal activities.
High profile instances of alleged fraud, such as the QuadrigaCX scandal, which many Canadians will be learning about via the Netflix film on the topic this week, underscore the need for what we are discussing today. Our Parliament should also be seized with this issue because other jurisdictions are well ahead of us on this matter. If we continue to lag in setting a framework for Canada, this will become an impediment in future negotiations regarding trade and will drive talent and capital away from Canada to other jurisdictions with more robust frameworks.
For example, the European Union has recently introduced its proposal for a new EU law on cryptoassets under the Markets in Financial Instruments Directive. The European Blockchain Partnership is also planning a pan-European regulatory sandbox in co-operation with the European Commission for data portability, business-to-business data spaces, smart contracts and digital identity. This will cover sectors including health, the environment, mobility, energy and more.
Last month, U.S. President Joe Biden signed an executive order directing his federal government to come up with a cryptocurrency plan. The order will coordinate efforts among financial regulators to better understand the risks and opportunities presented by digital assets, particularly in the areas of consumer protection, national security and illicit finance.
The Biden administration stated that this was in response to the explosive growth in digital assets and a desire to maintain American technological leadership. The results could shape the contours of a rapidly innovating industry, yet Canada has not moved forward in this regard. At the same time, the innovative functions of blockchain technologies and the decentralized essence of how they function should not be hampered by a lack of clarity or knee-jerk reactions from legislators.
Those who believe that cryptoassets are the means to all sorts of evils are missing the point as much as those who might profess that cryptoassets without any attached policy are the magic wand for all our ills. This is exactly what is happening here in Canada. The political debate on cryptoassets is becoming polarized before we even begin to discuss it in this place.
Some in Canada are advocating for policies that would lead to bans of many types of cryptoassets, which would be a colossal blow to a potential enormous economic boon for our country. On the other hand, some are openly advising the public that cryptocurrencies, which are volatile, currently subject to an enormous amount of regulatory uncertainty and untested as an inflationary hedge against periods of sustained high inflation, are good ways to solve Canada’s inflationary problem.
Rather than go down the path of reactionary populism or highly damaging knee-jerk over-regulation, we should choose a better way. That brings me to what my bill would do.
The bill would require the Minister of Finance to develop a national framework for the cryptoasset sector and, in developing the framework, to consult with persons working in the sector who are designated by provinces and territories. It would require the Minister of Finance to formally ensure that cryptoasset experts are leading voices in the policy development process. It would also be open to public submissions.
Given the newness of the sector, the bill would also enshrine consultation of innovators who work in the space, while asking those who traditionally have primary access to the finance minister on such matters, such as lobbyists and public servants, to engage via their traditional access routes so that a fulsome position on what the government should or should not do is developed. It would enshrine provincial jurisdiction by ensuring that any framework would be on an opt-in-only basis for the provinces, and would require the Minister of Finance to ask the provinces for input during the consultation process. This would prevent policy from happening behind closed doors in the federal government without more open consultation.
The bill takes an optimistic view of the sector, rather than pessimistic. That is, it could be an important part of the Canadian economy. Other, more pessimistic views that have been used in other jurisdictions have functionally kneecapped the space to the detriment of those nation’s economies.
The bill would ask the minister to ensure Canada remains an attractive place to attract and retain investment and talent, while protecting those who work with cryptoassets. Most importantly, rather than prescribing any particular policy, the bill would create a mechanism to formally engage the expertise of cryptoasset talent in policy development. It would require the framework to be reviewed by committees of the House and the Senate, and it would require this work to be done within a three-year period.
My rationale for putting this bill forward is to depoliticize what is becoming a polarized discussion of the space and to open the policy process to those innovators who need us to support them but also not set unnecessary roadblocks that would stand in their way. I am hoping that, if this bill passes, innovators, provinces and those interested in cryptoassets will have a clear and productive mechanism to work with the federal government to drive common-sense public policy that will see Canada become a world leader in this space.
Many innovators, cryptoasset practitioners, bankers, lawyers and members of the general public have expressed great excitement about this open and novel approach to setting public policy for the cryptoasset sector. In fact, I have had legislators from other jurisdictions around the world look at this as a novel approach to tone down the rhetoric on the subject and actually do something that resembles work, which could hopefully be duplicated on a larger scale.
One particular example that I would like to highlight, with regard to feedback, is from Morva Rohani, the executive director of the Canadian Web3 Council. She says, “Bill C-249 has launched a long overdue public policy discussion on the benefits of cryptocurrencies in Canada. The Canadian Web3 Council is supportive of the development of a national framework to encourage the growth of the cryptocurrency sector in consultation with the industry.”
I hope that this bill will give an opportunity for colleagues of all political stripes to educate themselves on cryptoassets and to develop their party’s particular policy stances on the challenges and opportunities the sector presents to our country from a place of knowledge and sound judgment, rather than populism or knee-jerk reactions to regulate away anything new.
To that end, I want to state to all members of the House that I am open to amendments to this bill. I tried to present a framework that could be rigorously reviewed by the finance committee members and witnesses, with constructive amendments to be made on the scope or content provided. If a colleague wants the bill to do more, I encourage them to take it to committee and to amend it.
I hope that colleagues will evaluate this bill in the spirit that it is intended to evoke in the House, and that is a supportive, cross-partisan approach to nurturing a nascent and highly important innovative economic opportunity for our country.