Industry Committee on Nov. 21st, 2022

[Han Dong, Liberal, Don Valley North, ON]

Thank you very much, Chair.

First, I think it was Brian who mentioned that right now there are 3.7 million Canadians holding crypto assets.

Is that right? Okay.

[Brian Mosoff]

It was Mr. Thomas, but yes.

[Han Dong, Liberal, Don Valley North, ON]

Oh, I'm sorry.

Of the 3.7 million Canadians, how many would you say are holding the asset as an investment and not as a tool to actually use for trading in blockchain technology?

[Evan Thomas]

I do not have the numbers committed to memory, but I do recall that there is some information on that topic in the Ontario Securities Commission study that I referenced and undertook to provide to the committee. I'd also note that the Bank of Canada has done some studies in this area about not only who is holding bitcoin, but also the purposes for which they are holding it. I would also be pleased to provide a copy of that study by the Bank of Canada to the committee.

[Han Dong, Liberal, Don Valley North, ON]

Thank you. That's great.

I have to confess that to this point, in my head or in my observations, if you will, there have been a lot of contradicting elements to it. There is a lot of uncertainty with this technology. We heard honourable members talk about how people in some countries don't even have bank accounts, so they might benefit from this technology going forward. In my head I'm thinking you need Internet; you need some sort of digital platform to run these blockchains and some basic understanding so you will have the confidence and the trust in this system compared to in the traditional tool for trading, which is cash or foreign currency.

There are a lot of contradicting parts to what we are talking about today. What I'm very concerned about is what you said about tokenizing U.S. dollars. I say “U.S. dollars” because that is the currency of trade. The U.S. Federal Reserve has had enormous power in the last decades in terms of who gets to move what around the world. Decentralizing is going to stand up to that structure, for good or for bad. I don't know if Canada is going to benefit, because we're so close to the U.S. that our economies are tied.

I just want to collect your thoughts on this.

First, would this present opportunities for Canada, a medium-power country, to be part of that conversation in the next frontier of determining the currency or the tool used in trade? Ultimately, that kind of sets the allocation of resources on the planet.

Do you not think large countries like China or the United States will come up with their own public fund-backed currency to own this piece of the market share to continue dominating in the decision of who gets what around the world?

I want to get your thoughts on this.

[Brian Mosoff]

This is a question that I'm extremely passionate about, and I think about it a fair bit. I believe 100% that there is an opportunity here to lean into this world.

The way that I think about this is this. Let's say that 98% of transactions that take place in Canada are denominated in Canadian dollars and 2% are in a foreign currency and they tap when they go to pay.

The question that I ask a number of people is this: In 10 or 15 years, as the next cohort becomes more comfortable holding their assets in a digital wallet, which could just be Canadian dollars on an iPhone or a smart watch—this is not a smart watch, but pretend it is—and that group of people 10 years from now grows up understanding NFTs or an in-game asset like a sword in a highly popular game, and those marketplaces become more connected and more fluid and have higher velocity and lower friction, will they still be paying 98% of their transactions and denominating their net worth, given the way they think about their life, in Canadian dollars?

If you think that the number potentially is lower, that it's 90% or 85%, what we're really talking about is Canadians over time having less and less interest in doing commerce denominated in Canadian dollars.

Therein also lies the opportunity, though, because I believe that the frontier of crypto or digital assets is going to be about who gets to be a dominant player in this new financial system and be part of this big economic activity. Whoever leans in and designs those dollars—

[Han Dong, Liberal, Don Valley North, ON]

I hate to interrupt you, because I know it's a big question that deserves a big answer. Could you write a paragraph? I really want to hear—to see, actually—what you have to say about this.

I want to give some time to my colleague, MP Erskine-Smith, on this issue.

I do want to make one comment. In the beginning, the money wasn't there. It was created so that there's trust embedded in this tool, so that people can trade. Are we going around the circle?

I expect an answer in your paragraph. Thanks.

[The Chair, Liberal, Joël Lightbound]

Go ahead, Mr. Erskine-Smith.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

How much time is left?

[The Chair, Liberal, Joël Lightbound]

Actually, Nate, if you don't mind, we're out of time for your round.

Han, it's been five minutes already. I know time flies, but we'll have time to come back to Nate a little later.

[Nathaniel Erskine-Smith, Liberal, Beaches—East York, ON]

Thanks, Chair.

[The Chair, Liberal, Joël Lightbound]

You have the floor, Mr. Trudel.

[Denis Trudel, Bloc, Longueuil—Saint-Hubert, QC]

Thank you, Mr. Chair.

I'm going to go in another direction.

At the moment, we are experiencing a serious labour shortage in various fields. I was speaking to people in construction recently, and was told that they would like to build housing in Canada, but that there is no one to do the building.

The labour shortage is therefore a problem in several industries, and I would imagine that's the case in yours two. Cryptocurrency is booming at the moment. I would imagine that you find people from within the traditional banking industry.

How do you handle these challenges? Where do you go to find people? Are there immigration-related issues? Should specific criteria be adopted for this industry to attract talent from abroad? Would you say that things are going relatively well for the time being and that you find the people you need for the industry to thrive here in Canada?

[Evan Thomas]

If I may, working in this industry, building businesses in this industry, requires employees with a range of expertise to operate crypto trading platforms. For example, we have engineers; we have designers; we have operational professionals; we have anti-money-laundering specialists and other regulatory specialists. We have to bring together all of their various talents in order to offer these services. Yes, it certainly is a challenge.

The other challenge is that blockchain, Web3 and crypto currency are a global market, a global industry. There is intense competition globally for individuals who have the talent and expertise to work in this area. Some of my colleagues have alluded to Canadians who have left Canada to work elsewhere in this industry because it is truly a global industry, and the individuals within it are very mobile and can and will leave.

At the same time, one thing I would note is the opportunities it creates and the skills required are very high-value employment opportunities. To your question, certainly it is a challenge, not just because of the general economic conditions you referred to but also because we are competing with businesses around the world.

[Aidan Hyman]

We can speak directly. We have 120 colleagues in over 32 countries, and absolutely anything that the Government of Canada can do to make it easier for highly skilled workers to come to Canada, be trained in Canada and be able to participate in these incredible organizations that are here in Canada would absolutely be appreciated by Canadian businesses.

First and foremost, I think we need to start at the education level. My cofounders and I come from the blockchain education network, which was a network of university groups that were in maybe 50-plus universities seven years ago. It is really initiatives like that that help foster the kind of great skills that are necessary to participate in these high skill opportunities.

[Adam Garetson]

If I could layer on there quickly, I think the hope from my perspective on the employment side is that regulatory certainty over Canadian-domiciled entities will foster confidence for employees working with companies in our space. You'll know who the regulators are, who the people running the companies are. You'll know that they have to be registered and that they have reporting oversight. The hope throughout and, I think, one of the consistent themes, which I hope is a takeaway from what you're hearing today, is that regulation will drive confidence in a lot of different areas around digital assets and blockchain, including in the employment space.

Thank you.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Trudel.

I will now give the floor to Mr. Perkins for five minutes.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Thank you, Mr. Chair.

I agree with Mr. Vis: This has been a fascinating beginning to the study.

My first question is for Mr. Hyman. I'm going to go on to issues other than fraud, so don't worry, but since every transaction in and out of those funds was recorded and kept in the electronic ledger, the blockchain system in those cases was actually very instrumental in proving that what we had going on here was fraud, was it not?

[Aidan Hyman]

It was absolutely, and what we saw further was that people on Twitter were the ones breaking the news to the world as to how that fraud was taking place.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

Yes, I saw that.

Again, the banks are obviously always worried about being—I don't know if they still call it this—disintermediated, as they used to call it, out of their business. It was a thing in the nineties that mortgage brokers basically made mortgages a commodity and they were looking at other areas in which what they were offering was becoming a commodity, and they were losing their connection with the customer. As they lost this connection with the customer, they lost the opportunity to sell them more products.

I don't know who's most appropriate to answer this. Maybe it's you, Mr. Garetson, since you worked at RBC at one time, but what do you see as the evolution of the use of blockchain? Will it replace the traditional banks, or are they spending as much money as, say, the industry is in trying to figure out how to fit into the future?

[Adam Garetson]

Sure. Thank you for the question.

My own personal view is that for legacy traditional financial institutions, their most likely path of exploration in this space is primarily on the nature of the blockchain technology itself and which legacy systems can be improved based on that.

I would venture that anybody who's currently sitting in a position of market power or dominance would be interested in ensuring that they're not disintermediated completely, but they would be looking to find ways whereby they can retain a sense of their current measure of control.

To answer the question a little bit more directly, I think the answer will be somewhere in the middle. I think right now there is an opportunity for companies like ours and those of the members of this panel to advocate for our positions as leaders in the space at this time. We have this opportunity both domestically and globally.

[Rick Perkins, Conservative, South Shore—St. Margarets, NS]

There was some discussion earlier about bank accounts and the challenges in other countries with respect to bank accounts. We also have those here: If you do not have acceptable government photo ID, you can't get a bank account in Canada. There are low-income areas in this country and high immigrant populations in this country in which they are not yet in a position to do that, so I would imagine that this would eventually be of some assistance in that way as well. Perhaps you could comment on that.

Also, Mr. Thomas, you mentioned insurance. I've never known insurance companies to not be willing to find a way to sell insurance and make some money. Your parent company owns one of the biggest insurance companies in this country, Manulife. Is there any chat within the Power Financial group of Manulife or anyone else looking at ways, or is the cost just too prohibitive at this stage for companies to buy it?

[Evan Thomas]

I can't speak to the internal discussions within Power, but the challenge with insurance, in my perception from being in the market and seeking coverage for our business and from otherwise talking with other players, is that to a certain extent the insurance companies themselves still view it as a new category of risk. It's difficult, then, for them to underwrite the risk in terms of determining what the risks are and what the losses may be.

I think they also have regulatory concerns. They obviously of course are subject to a regulator, and generally any insurance company answers to a regulator, and if they do not feel comfortable entering this new business line because they're unsure of where their regulator stands on it, then they're going to proceed with trepidation if they're going to proceed at all.

However, there is certainly demand for it, not just by platforms from Canada but around the world. As businesses engage in crypto assets, they may require various types of insurance and will be looking for it.

I am aware, as I mentioned, that OSFI is looking at it, and I regard that as a very positive first step towards expanding the insurance marketplace for crypto in Canada. One thing I would highlight is that we must ensure that these officials, who have been looking at these issues and who are working on these issues, have the support and resources to do that, since they're doing very important work in terms of understanding the nature of the industry and the risks it may create so that they can provide advice on how to improve the regulatory framework to create those opportunities.

I would highlight again that there is that opportunity, not just within Canada but globally, because this is a market that remains very underserved at present.

[Aidan Hyman]

I would just add that we do have instances of Canadian companies going to Bermuda for insurance because of the favourable offerings that are there, and absolutely, if Canadian insurance providers would offer these services, Canadian companies and potentially global players would look to Canada as a service provider.

[The Chair, Liberal, Joël Lightbound]

Thank you very much.

Last, we'll now turn to Mr. Erskine-Smith for five minutes.