Thank you, Mr. Chair. I'm Jeremy Clark. I'm an Assistant Professor at the Concordia Institute for Information Systems Engineering in Montreal, at Concordia University. I received my Ph.D. in 2011 from the University of Waterloo. It was around that time, about eight years ago, that I first became interested in Bitcoin.
Bitcoin is an emerging digital currency that uses cryptography in a novel way to provide a secure cash-like system for creating new money, enabling transactions between participants, and recording transactions in a decentralized way on a ledger that we now call the blockchain.
Given my expertise as an engineer or a technologist, I feel that I can best assist you by providing the technical details of how Bitcoin and blockchain technologies work. I have had many conversations with regulators at FINTRAC, as well as Bank of Canada, the AMF in Quebec, the Department of Finance, CRTC, the RCMP, and others. I could perhaps play a policy expert on TV, but I'll stick to the technology for the purposes of today.
I continue to maintain that successful regulation in these areas requires an accurate understanding of the technology. Cryptocurrencies, including Bitcoin, are decentralized. What does that mean? It means they're operated by a network of computers. Anyone can join or leave at anytime from anywhere in the world with no one company or server in charge. Transactions are deemed valid or invalid through the consensus of this network. For the best cryptocurrencies, transactions clear and settle in the order of seconds and can be conducted 24/7 with e-mail-like efficiency.
I want to emphasize that after the transaction is confirmed by the network, the unit value has actually moved. It's not like a digital authorization and then there's some actual settlement that happens behind the scenes. Once it's confirmed, the unit of value is actually settled and cleared.
If you hold Bitcoin, what does that actually mean? What is a Bitcoin, and where is it? It simply means that there's an entry on Bitcoin's ledger for you, and a balance that can go up or down. It's basically intangible beyond that. One parallel you might think about is cellphone minutes. What's a cellphone minute? Why do you have it? What exactly is it? It's basically just a ledger entry. Cellphone minutes have coincidentally been used as a makeshift currency in countries such as Kenya.
Anonymity is often ascribed to cryptocurrencies, but the level of anonymity varies. For Bitcoin, all transactions are recorded but without real world identities. Other cryptocurrencies might obfuscate identities further and/or hide transactional amounts. In all cases, transactions are Internet packets that originate from a computer and are no different from other forms of online communication that might be of interest to regulators or law enforcement. Cryptocurrencies have been suggested as being perfect for various financial crimes, such as tax evasion, terrorist financing, and currency smuggling. Governments have primarily looked at the on ramps and off ramps between cryptocurrencies and, say, the Canadian dollar. This is sensible in the short run.
There is also concern about the use of cryptocurrencies on online markets for illicit goods. Law enforcement has a very good track record of shutting these markets down, essentially by framing the issue as tracing Internet packets rather than focusing on the currency that is being used.
If we can zoom out for a second, we can take one of two postures in dealing with illicit cryptocurrency activity. We could try to take a stance of prevention, or one of detection. I think prevention will fail. Cryptocurrencies are open. It's an Internet-driven technology, and Bitcoin is just the first attempt at strong confidentiality and anonymity. It would honestly be technically easier and perhaps more productive to ban paper money than Bitcoin. Instead, we should focus on detection of criminal activities.
Finally, inside of Bitcoin, underlying it, is a novel technical innovation called the blockchain. We've seen blockchain projects from within the government, for example, from the Bank of Canada and the National Research Council. This technology has the potential to bring changes to accounting practices, transparency to procurement processes, new methods for raising capital within a company, and new ways of organizing financial markets. We're hopeful that blockchain technology generally adds transparency and accountability to the financial system.
I've tried to keep my remarks concise and brief. I once taught an entire course on Bitcoin, so I can literally talk about it for 24 hours. Thank you for your time. I look forward to answering your questions.