Industry Committee on Oct. 27th, 2022

[Pascal St-Jean]

If I gave you numbers, they would be created, although I just came back from an amazing event, a conference in Calgary, by a great organization called the Canadian Blockchain Consortium. They are the closest thing to our network here in Canada. I would gladly put you in touch with the head of that, Koleya Karringten. She's an amazing ambassador for this space across Canada, and they do this type of analysis and data.

I would say that it's in the billions of dollars right now. Just the presence that I'm aware of and just looking at our market capital and at other companies in different spaces, it's already in the billions and in the hundreds of thousands of jobs, if not more.

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

You did mention that you think Canada is a leader or could be a leader. What makes Canada a leader? Why do you see that we have the most potential?

[Pascal St-Jean]

Look, there are a lot of different areas, and again, it depends on the province. We see a lot of mining in Quebec, and in Alberta there is innovation on the utilization of energy for better productivity, energy that would have been wasted. We are seen as a leader from that perspective.

I don't want to tout our name, but my friend here did say that we were the first in Canada to launch an ETF. That was us. We took on the challenge with the regulators and were able to launch the first fully regulated spot Bitcoin and Ethereum ETF products globally. Still to this day, we're one of the only ones who do it. Others use futures or others don't use proper underlying.

Canada's regulators were very favourable to trying to explore what this could be. It seemed that all of a sudden it stalled because there was uncertainty. We're seeing a lot of poaching in the regulatory space. We're seeing a lot of uncertainties in terms of what's next. I feel like there's this kind of lull, this stall, which is allowing other countries to catch up, but I'm glad to hear that we are seeing these types of panels and others to make sure we stay in the lead.

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

Laure, you talked earlier about recommendations for a governance structure. Can you expand on the governance structure you'd like to see?

[Laure Fouin]

To make it clear, I was talking about the different governance structures that a blockchain itself may have. It may be entirely decentralized or it may be centralized.

I think that if and when you're looking at either regulating or doing anything about a certain blockchain, you need to look at what type it is. Is it entirely decentralized or is it centralized? When it is, it's in clear ledger, so if a bank decides to keep a ledger on a blockchain to issue bonds, it's in clear ledger, and that's all there is. If it's entirely decentralized, and you have, for example, the necessity of 51% of the network to vote on any block for it to be invalidated, that's a completely different governance structure.

I wouldn't advise the government to direct any type of governance structure, of course, because blockchain by definition can have either of these, but be mindful of the structure that a blockchain is following before thinking about regulating it or anything like that.

If I may, I will take this opportunity to mention the central bank digital currency that we are seeing as a pilot in certain countries, such as Australia. That is a blockchain that would be established by the Bank of Canada to issue Canadian dollars on the blockchain. There you will have to think about the governance structure that you do want on that blockchain.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Mr. St-Jean, I would like to ask you two questions.

Not long ago, we did a study on quantum computing, and a follow-up will be done soon.

Please excuse my ignorance, but I would like to know if there is a connection between blockchain and anything to do with the energy needed to run potential quantum computers. We know that they consume a lot of energy, both in Quebec, where it is in the form of electricity, and elsewhere in the world.

You said that, thanks to blockchain technology, a company you knew well had managed to save hundreds of millions of dollars in the oil and gas sector. I don't know how it managed to save that much money, but come on!

Could there be a link between the computing speed of quantum computers and blockchain technology?

[Pascal St-Jean]

That's an excellent question.

I'd be happy to send you a report on how the costs associated with hydrocarbons were calculated.

People often think solely in the present and forget Moore's Law, which still applies today. The efficiency of computers and energy use will continue to improve, and we can see that already.

Quantum computing will definitely benefit blockchain technology and improve efficiency. People say quantum computing will destroy security, but algorithms are already available that can protect against that in the blockchain field and in all industries. If quantum computing could hack blockchains, we'd have more problems because the data of the banks and all other industries would be affected.

In short, quantum computing is the next generation in the efficient use of computer energy and processing speed. It will have a positive impact on blockchains. Consequently, there's definitely a connection between the two.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

So they don't compete with each other.

[Pascal St-Jean]

No, not at all.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

They're ultimately more complementary. You compared blockchains to decentralized general ledgers in accounting. Quantum computing, on the other hand, isn't a database.

[Pascal St-Jean]

No.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

We agree that they're two distinct and complementary technologies.

[Pascal St-Jean]

Absolutely.

[Bernard Généreux, Conservative, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

We know that Canada is quite advanced and evolved in this sector. A lot of research and development are currently being conducted in this field.

Do you think it's important that we also invest in knowledge associated with blockchains in Canada?

[The Chair, Liberal, Joël Lightbound]

A brief answer, please.

[Pascal St-Jean]

Yes.

[The Chair, Liberal, Joël Lightbound]

That was predictable.

Thank you, Mr. Généreux and Mr. St-Jean.

Mr. Gaheer, you have five minutes.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

Thank you, Chair.

Thank you to the witnesses for making time for the committee.

My questions are generally open to all the witnesses.

Are there risks of harm associated with blockchain technology? Proponents obviously make big claims regarding security and privacy, but we know that blockchains are only as secure as their weakest link. For example, if someone wanted to access data shared within an exclusive blockchain, they need access to only one node. That means that the threat to the entire blockchain is the weakest link.

Does anyone want to comment on that?

[Justyna Osowska]

What the government really needs to look into is also APIs. It's the technology between the blockchain and how it interacts with the real world.

You have to look at whether the data that's put on the blockchain can be encrypted. The blockchain could just store a transaction and the hash. You could actually have security if you hash both sides. For example, you can take a piece of data, hash it, throw it onto blockchain and have the other hash on the other side, so you need two sides of it to unencrypt the information.

You can actually store any kind of data on the blockchain. That's where I think the government really needs to do research. How can we look at the layer that's between the blockchain and the real world? It's like two systems. It's like a highway., and you have different cars running on the highway. They're going to be running at different speeds, and I think that industries have to collaborate.

As we were mentioning previously, financial instruments can't be invested in if there's no financial regulation. How do the regulators look at the blockchain? How can they make it secure for themselves? There's this middle layer that could be explored.

[Pascal St-Jean]

All data on nodes are encrypted. We don't have access to raw data.

I participate in multiple blockchains through mining and through node creation. I do not have visibility into the data. I have visibility into the transactions, but not the data stored in those transactions. Those are encrypted with SHA-256, which is the strongest encryption right now.

The statement, if you want it to be clear, is that just because you have access to the nodes does not mean you have access to the raw data.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

Okay. Thank you.

The other problem that blockchain technology presents is a sluggish transaction speed. Because of the decentralized nature of the blockchain, each transaction has to be verified by the node before it's accepted by the block. It's hard to scale and it's a little bit sluggish.

Do you have any comments on that?

[Justyna Osowska]

Another thing to add to this is that there are different kinds of blockchains. There are proof of work, proof of stake, proof of history and other types. Proof of work is the oldest. It's the slowest and it's the most energy-inefficient. Proof of stake is quick and energy-efficient. Proof of history is even faster; it's like having an atomic clock on the blockchain.

Visa does 65,000 transactions per second; blockchain does 65,000 transactions per second.

[Pascal St-Jean]

I'll just to add to that by going back to what I've said earlier. I will hammer these three points over and over again. Blockchain is the database. The network is decentralized, but not all networks need to be. Cryptocurrency is the asset to help fuel or power the decentralized part of the network.

You can have a blockchain database that is not decentralized and is extremely efficient and fast because it doesn't have to validate, cross-validate and collaborate with all the other decentralized servers.

Decentralization is the network architecture and blockchain is the database, and then the cryptocurrency is the asset on that. As my colleague here was mentioning, there are multiple new technological efficiencies that are demonstrating the ability to create a decentralized network while increasing speed.

Like anything else, technology evolves. If we look back 10 years at autonomous vehicles and AI, etc., we can't say that blockchain is slow and it stays slow forever. Humans and technology evolve.

[Iqwinder Gaheer, Liberal, Mississauga—Malton, ON]

That's great. Thank you.

I think that plays into my third question very well.

Blockchain technology consumes more energy than any centralized system would because of the redundancy and because of the other points I've brought up. What are your thoughts on the energy consumption?

[Justyna Osowska]

It relates to what I mentioned previously, which is the type of blockchain you're using. As a proof-of-work blockchain, Bitcoin uses the same amount of energy as Switzerland. If you're using a proof-of-stake blockchain, you are not using that level of energy. If you're using a proof-of-history blockchain, you are not using that level. Not all blockchains are created equal. It depends on the working mechanism behind the blockchain and how you're proving the transactions are true.

In proof-of-stake blockchains, you have to bond the money in order for you to be a validator. I can send more information to the committee after regarding this, but essentially that means they have different security issues. There are different ways they can be attacked.

For proof of work, you would have to buy half the miners to take over the network. Proof of stake is different; you would have to own over half the value of the currency to control the network.

Both disincentivize cheating. Both work, but the energy efficiency behind them is different. Proof of stake and proof of history consume...I don't know what the statistics are compared to the banking sector, but it's not what it was 10 years ago, as my colleague mentioned. The technology has advanced.