Industry Committee on Oct. 27th, 2022

[Viviane LaPointe, Liberal, Sudbury, ON]

Thank you.

Mr. St-Jean, in your opening comments you talked about how there are global investors who are waiting and very interested in investing in blockchain technology in Canada, but they're waiting for greater clarity. Can you expand on that?

[Pascal St-Jean]

Yes. We're seeing, basically, clarity in terms of regulation. We're seeing that in the U.S. and in other areas as well. Right now, if you look at the number of venture capital dollars.... Usually when you want to see the next emerging trend, you look at venture capital dollars.

For me, in my background of engineering, I've skilled multiple businesses over the past 20 years in disruptive innovation, starting with the web in the late nineties and then moving forward to open-source technology in the mid-2000s. I'm seeing the same playbook here over again.

If we look at the numbers of dollars that went into blockchain technology and crypto, we see the most ever. I think it was $60 billion just last year, in one fiscal year. Most of those dollars are happening in jurisdictions that basically are allowing things to be a little loose, whether it's the islands or other areas like that. Basically, they actually do want to bring capital into areas that have more stable governments, that have more clarity, like a G7 country like Canada.

Right now we're not seeing anyone looking to take the lead from a G7 country. Canada does have the lead, in my opinion. It's starting to maybe slow down, so in my opinion they are waiting for that to be able to invest not only in new businesses but also in the underlying assets and in the talent locally.

I have lots of examples coming back from Calgary from the blockchain summit. There were lots of foreign investors starting to explore how to invest in mining in Canada, how to invest in equity in companies that are developing blockchain technology, and how to invest in the underlying asset that we can provide access to.

[The Chair, Liberal, Joël Lightbound]

You have two minutes, more or less.

[Viviane LaPointe, Liberal, Sudbury, ON]

What is the role of government, then, when it comes to blockchain technology? If it is regulation, what kind of regulation would enable the growth of the blockchain technology?

[Pascal St-Jean]

We could debate this. I will separate the words. Blockchain technology is the ledger technology. I don't think that needs to be regulated at all; it's just another form of database. Like I was telling you with the examples of using it for supply chain management or for anything like that, it's just another form of database, and we don't need to regulate databases. That's been already done for years.

Where we do need regulation is when that applies to, for example, securities, finance, and things of that nature, where we are entering areas where we do want consumer protection to make sure that we do bring.... If it's tokenization of assets, it should be regulated to make sure that there is actually an underlying asset. If we were to tokenize real estate, it should be regulated to make sure that the real estate is real, that the companies are not taking advantage of end users, that those are fully tradable. Things of that nature, I think, unlock again.... We talked about inclusion and diversity earlier. There is no greater inclusion than to enable every citizen, no matter where they come from, no matter how much money they have, to participate in asset ownership. That to me is the clarity that brings a flood of capital and actually empowers Canadian citizens.

Regulation is needed on the financial side, but in my opinion blockchain technology as a database does not require regulation.

[The Chair, Liberal, Joël Lightbound]

Thank you very much.

We'll now turn to Monsieur Lemire for six minutes.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Thank you, Mr. Chair.

I also thank you for your leadership on this issue.

Mr. St-Jean, blockchain is a technology with many applications. Other than cryptocurrency, which sector is using blockchain technology more, and which sectors are not?

Next, what barriers are preventing new sectors from using blockchain?

[Pascal St-Jean]

I really believe that this is the first technology in history that not only creates a new industry, but also influences and expands existing industries. I gave the example of Neoflow, which works on the oil and gas supply chain side.

We also talked about stablecoin. Stablecorp, a company we know well, has made an initial use of it for cross-border payments, and they want to find several hundred use cases.

As an entrepreneur, I know several entrepreneurs in my area. When we do business with other companies elsewhere in the world, the issue of payments is extremely difficult. I'm thinking of electronic funds transfers, for example. You'd think it would be easy these days with the digital currency of banks, but it's still extremely complicated. Transfers take a long time and are very expensive, which slows down international business.

So it's a very simple use case, and you can find it in any industry, whether it's mining or real estate. There's always a use case for growth. By the way, I want to make it clear that blockchain technology — I'm not talking about cryptocurrency — does not cause the kind of disruption that makes anything disappear. Rather, it increases the efficiency of any industry in which it is used, whether in terms of access to information or diversification of information, for example. Not all use cases are obvious yet, but we are seeing more and more.

It's really on the cryptocurrency side that the government can play a big role in determining how blockchain technology can be used, especially for peer-to-peer lending, shared ownership, and access to the underlying technologies, such as Ethereum, Bitcoin, etc. This allows citizens to invest in the foundations of the technology, which was not possible before.

So there are two elements: first, there are the use cases to drive industry growth; second, there is access to investment in this new blockchain and cryptocurrency industry.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

There is indeed some loss of confidence in the cryptocurrency, which saw a collapse last May and June.

Do you believe that the instability of cryptocurrency is a phenomenon that applies only to it, or can it manifest itself in other uses, for example, in health care, in commerce, in logistics and perhaps even in governments?

Could these dangers even affect data protection?

[Pascal St-Jean]

Can you clarify your question? You talked about instability, and then you asked if there could be effects on health care.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

It was two questions in one, but...

[Pascal St-Jean]

All right. I'll start with the first one.

On the subject of instability, the best example I can give is Shopify, which is down 80%. There's real estate as well. Today, interest rates are high. This obviously has an effect on all investments. I started my first business 22 years ago. If there had been a way at that time to see the value of my business every second, I would have found it very unstable, because I would have seen the number of clients change constantly. If I gain one customer, then another two days later, and then lose one after that, that means I'm seeing the value of my business increase by 100%, then decrease by 50% per day.

What happens, when you use blockchain technology or cryptocurrency exchange, is that you see the fluctuation, in real time, of something that has just been created. Previously, when a company went public, it had already been doing business for 5 or 10 years. So when Shopify or even Microsoft went public, obviously you didn't see any instability, even if there were positive or negative fluctuations of 50% or 60%. In the case of cryptocurrencies, their value is displayed from the moment they are created, so it's normal that there is instability.

As for the dangers related to other use cases, as I was telling you, in terms of blockchains or databases — I'm thinking of Neoflow and even health care, for example — a cryptocurrency doesn't necessarily have to be associated with it. So blockchains are extremely secure. It's probably the most secure database in the world. You only have to look at the Bitcoin network, which has a global value of trillions of dollars. If the blockchain could be hacked, you can imagine that this would have happened already. So it's the most secure database in the world, similar to a decentralized accounting ledger.

So, in terms of using blockchain technology in cases where there is no cryptocurrency, in my opinion, no regulation is needed. Moreover, it is one of the most secure technologies at the moment.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Is there a danger that blockchains will also be used by organized crime, for example?

[Pascal St-Jean]

On this subject, I could send the committee an extremely interesting report.

In that report, the FBI said that if it had been able to create a way to track down criminals, it would have used cryptocurrency. Indeed, it's ideal, because you can see every possible transaction.

The risks are not necessarily related to blockchains, but rather to third-party applications. For example, we can talk about an application or exchange that is not regulated and does not use the same technology as blockchains.

I can have cryptocurrency, but, since it's not secure, I can definitely get hacked. That's where the danger comes from, not the blockchain.

As my colleague mentioned, security and public education become extremely important. The reason we are here is to make it safe and simple. Every time there has been a theft or a hack, the FBI or the investigators have recovered the funds. It's impossible to get the money out anonymously. So it's extremely inefficient for criminals.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. St-Jean and Mr. Lemire.

Mr. Masse, you have the floor for six minutes.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair, and thank you for suggesting the study.

I'm going to follow up and invite anybody to chime in.

We've done some work on fraud prevention. I'm wondering what work needs to be done there. The last part was a good segue. I'd like to hear more about what types of industries might be more prone to fraud or illicit activity versus that of proper investment.

How can we improve those elements, and do we also need to seek some international agreements?

That's what I'm thinking about for the future.

[Matthew Burgoyne]

That's a great question.

It varies, but I'd say that roughly once every two weeks I get a call from a Canadian who has been the victim of fraud. They've discovered that they've been defrauded. They're desperate to get their funds back, and there's little I can do, because it's too late. The crypto has been transferred to someone out of the country, and nobody knows where. In limited cases, law enforcement is successful in retrieving the funds and bringing them back to the victim, but that doesn't happen in the majority of cases.

I've had probably 30 or 40 calls or more in the last few years from victims, so I see patterns. It's always an investment company. People are being duped by so-called asset managers or investment funds. They've given their cryptocurrency to a fraudulent fund that's going to manage their crypto on their behalf. That's almost always the case.

Greater education was mentioned by one of the other witnesses. There needs to be almost an education program devoted just to cryptocurrency and investment fund fraud. If it's initiated by the federal government, that's great, but there needs to be something that specifically targets cryptocurrency and investment fund fraud, because a lot of people want to get into cryptocurrency. They've heard about it and they want to invest in Bitcoin, but they don't understand the difference between a regulated Canadian exchange—we have great regulated crypto exchanges, including many in Alberta and Ontario—and the fraudulent crypto investment funds.

I think an education campaign would promote awareness across Canada of investing in a fraudulent fund and not letting just anyone manage your cryptocurrency. Education on who the good operators are and the risks would be great, I think.

[Brian Masse, NDP, Windsor West, ON]

I'd like to get a couple more people in on this.

Kevin Cosgrove was one of our witnesses for fraud. He's from my area. He's done a lot of anti-fraud stuff. He actually presented me with a Bitcoin that was made. They were being sold originally because people thought there was a real Bitcoin. He actually bought some online because they shut down the plant in England, but you could collect them. I don't have it in front of me because I'm in Ottawa; I have it in Windsor.

How much more complicated is it to convince people in blockchain technology that fraud is somewhat associated with it or makes it vulnerable, as we've heard? How seriously should this be part of our repertoire of public education to make sure it doesn't get caught in the crossfire of fraud, because fraud is one of those things we're still struggling with?

Does anybody else have any comments on that? I'd love to hear from them.

[Laure Fouin]

If I may, I just wanted to add—

Oh, I'm sorry.

[Pascal St-Jean]

No, go ahead, please.

[Laure Fouin]

I just wanted to add something about what Matthew said.

He mentioned fraudulent players, but because you mentioned the possibility of considering international agreements, I would also like to emphasize the fact that they are mostly foreign players. It's not always a purely fraudulent player, but just a foreign player. He has the funds of a Canadian and then goes bankrupt in the U.S. or something like this. There is no way of getting the funds back, only because it's foreign, so yes, I do believe that there is an opportunity here for international coordination and potential agreements between Canada and other countries in order to make sure that Canadians can retrieve their funds in these circumstances.

[Pascal St-Jean]

I fully agree with all the statements that were made.

I just want to make sure the message is clear that it's not blockchain or cryptocurrencies that are fraudulent but basically sometimes the means of entering into the space, whether it's a bad player and you enable investors to come in and potentially purchase something that's not real, or, to the gentleman's point earlier, someone utilizing the crypto to make a payment into something that is not real.

It's not the crypto or blockchain. I want to be very clear. At the blockchain level is not where the fraud is happening. It's happening because it's an easy means of payment and it's a bearer asset. It's a bit like giving cash. Once you give cash to someone, it's a bearer instrument. If they disappear, you lose that cash, whereas some digital payment systems, through banks and through international parties, sometimes can reverse transactions, although it's very rare. We see fraud in all aspects.

I just want to be very clear that we get the definitions right, because words and definitions matter in how we will regulate things moving forward.

[Brian Masse, NDP, Windsor West, ON]

I do appreciate that.

I know my time is up, but I will say this is why I'm concerned. People are trying to understand what blockchains and all these things are. It's all confusing, and it's bad enough with fraud on our regular payment stuff.

That's why I wanted to highlight those points, because I think you made the point earlier that it wasn't the blockchain itself and the products, but the actors or players in between who are using that. I'm just concerned about the lack of education.

Thank you, Mr. Chair.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Masse.

We'll move to MP Williams for five minutes.

[Ryan Williams, Conservative, Bay of Quinte, ON]

Thank you, Mr. Chair.

I'm going to split my time with my colleague Mr. Généreux.

I'll start with you, Mr. St-Jean. What is blockchain worth in Canada? How many industries and how many jobs do we have at this point? Do you have any idea?