Industry Committee on Nov. 24th, 2022

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

I had a follow-up question, but I don't know if it applies, given what you just said.

You talked about your work in the aerospace industry. We know that this industry accounts for 3.5% of greenhouse gases in the world. To what extent are you working to reduce emissions in the aerospace industry?

[Koleya Karringten]

When it comes directly to heating up an aircraft, yes.

Currently, anything above the 49th parallel gets quite cold, and it's very expensive and requires a fair bit of jet fuel as well as diesel fuel to heat an aircraft. The number one reason for heating is to make sure the water lines don't freeze and the pipes don't burst. The secondary consideration, which is also very important, is passenger comfort and safety.

Aircraft are almost as efficient as they can currently get, outside of moving over to electric, but in terms of heating up aircraft, we do dramatically reduce their emissions.

[The Chair, Liberal, Joël Lightbound]

Thank you, Mr. Trudel.

Go ahead, Mr. Cannings.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

Thank you. This is all very interesting. I'm new on this committee, so I haven't heard the previous testimony. Blockchain, for an old guy like me, is all brand new.

I'm going to start with Mr. Mandic.

You talked about using blockchain to deal with natural resources tracking and provenance. At home in British Columbia, I pay extra to Fortis, my energy provider, to get renewable natural gas. I just have to assume that Fortis has enough of that natural gas.

Can you explain how blockchain could be, should be or is being used in that space to reassure me that I'm getting what I'm paying extra for?

[Patrick Mandic]

What we're doing with blockchain and blockchain-related technologies is to create a single sort of truth. As I mentioned at the beginning, each organization currently has its own balance of what it sold and what it bought, but each one is keeping that information in a completely separate system.

If you really want to know if someone is tricking the system, you have to go back one by one and make sure everyone is telling you the truth. If you have a single source of truth, then you automatically are going to know if the balances don't add up. If you're selling more renewable energy than has been produced, this is going to show.

We were working a couple years ago with a Chilean electricity regulator to solve exactly that problem, of their having more RECs than the actual renewable energy that was created.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

Related to that, and to expand on what you just said, I was at the G20 meeting in Argentina in 2018, when they discussed the future of energy and how we can move to a clean energy future. Up on the screen, one of the positive things they were looking at just said “blockchain”. They didn't discuss it much.

If companies are producing clean energy—say, clean electricity through hydro versus coal—is this the kind of thing customers, governments and industry can somehow track, in order to make sure they're getting...? I'm still kind of mystified as to how this—

[Patrick Mandic]

Absolutely. There are many layers when it comes to a solution for that. It's not just blockchain. You'll also add the verifiable credentials I mentioned before, but...essentially, yes. You're solving that problem, because you're essentially keeping an accounting record of what has been produced and consumed.

In the steel industry, for example, the concept is that you're creating a passport for a product. For everything that happens to that product across the value chain, you get a stamp. That stamp could be, “this product had a transformation” or, “this product incurred so much CO2 along the journey”. At the end of the journey, you add all the CO2 stamps and have the actual CO2 emissions per product.

That is different from what we're measuring right now, which is per industrial facility. As a consumer, it doesn't tell me anything. I want to know that what I'm consuming.... What's the impact of that product for my business?

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

I'll turn to Ms. Karringten, continuing with the energy theme.

You mentioned some of the concerns many people have about blockchain technology, and certainly about Bitcoin—pardon me if I confuse some of these things. One is the amount of energy consumption. We know that cryptocurrency mining uses as much energy as a mid-sized country, whether it's Argentina, Finland or Greece. I've heard various examples. It's my understanding that because of the way cryptocurrency is produced, the amount of energy tends to increase...by law, almost.

I have cryptocurrency mining operations in my riding, because we have cheap electricity there. It's hydro, but it's electricity. We are facing a future when we will need to have two or three times as much electricity available in British Columbia or Canada than we do now. I'm wondering how we can square that circle with a burgeoning blockchain or cryptocurrency industry.

[Koleya Karringten]

There is energy consumption required for Bitcoin mining. The importance of it is that Bitcoin is considered by many, in our group and others, as a form of sound money. It's considered potentially the soundest money the world has ever seen. Utilizing the energy to produce Bitcoin.... The blockchain there can also be used for multiple other uses, not just for mining cryptocurrency. People can also timestamp, confirm and validate transactions that are happening on chain.

Right now, 86% of Bitcoin is, I think, used on renewables. A lot of it uses hydroelectric—energy that wouldn't otherwise currently be used.

Bitcoin can be used to support load balancing. In Texas right now, they've grown a multi-billion dollar industry by allowing more miners to have access to the grid. These miners also participate in what is called “demand response”. Miners are willing cut off and reduce the amount of profit they make in order to be able to support the grid system. Miners also do innovative things whereby they'll bring in infrastructure. They'll build infrastructure and bring high-speed Internet into rural communities. They'll bring in jobs by also building out their mining facility plants.

They way we describe Bitcoin mining to governments is that it's kind of supporting building the infrastructure for the Internet. A lot of data centres utilize similar functions as you would use for Bitcoin mining. It is considered that the metaverse will be a multi-trillion dollar industry by 2030, and a lot of companies are looking to be able to utilize more electricity or want to have more electric vehicles coming out, so we're going to have to start developing out the infrastructure for that energy grid. Bitcoin mining will help not just by bringing in the infrastructure, but by bringing in the high-speed Internet. It will help to train the different jobs. It will help support the oil and gas industry by utilizing their hydrocarbons and building out more generators.

The heat that's given off by Bitcoin mining can also be used to support greenhouses. The waste heat from that can support being able to grow produce.

There are a lot of valuable uses for Bitcoin mining.

[The Chair, Liberal, Joël Lightbound]

Thank you very much.

We will now turn to Mr. Perkins for six minutes.

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

Thank you, Mr. Chair, and thank you, witnesses.

My first question is for Ms. Karringten. It won't be about your day job, which is very impressive and important, but more about your volunteer work.

I agree with my friend and colleague, Mr. Fillmore, that Enron was one of the largest failures in the world of the traditional public exchange system and the auditing system. It was a fraud of a publicly traded company, not only in our stock exchanges, but also in the exchanges of energy contracts in California, which created artificial and unnecessary blackouts.

We've have homegrown examples of that too, which were obviously traded on the Toronto Stock Exchange. The most famous is probably Bre-X.

Investors, obviously, have to do some homework, but there is always room, unfortunately, for fraud to happen, even in things that are traditionally regulated.

Yesterday we had a vote in the House of Commons on a private member's bill to try to get some coordination between OSFI, the Bank of Canada and the provincial regulators in looking at creating a framework for moving forward with the industry on improving regulation in Canada. Unfortunately, the government voted against it.

A committee study of that here would have been very important. We don't get a chance to do that here, so I'll ask you about it.

What would that coordination do to help? You mentioned four areas where we need better regulation. Do we need better coordination between the federal and the provincial governments on this?

[Koleya Karringten]

Absolutely. We definitely need better coordination. It would have been highly valuable to many members of our organization and to the industry as a whole for a bill like that to have passed to enable us to start having that dialogue. Luckily, that dialogue is currently happening with regulators and industry. We would like to have government engage on that. Canada has an opportunity to be a leader in this space, not just on the financial services side but, as our other party members who were speaking here today said, in the enterprise-level blockchain space.

The value of having the government collaborate with this industry specifically would be to help engage with regulators and industry to develop frameworks that are going to not just protect consumers but allow for products to get tested on the market in a safe way, to allow for this industry and the innovation within this industry to expand exponentially.

This is a multi-trillion dollar industry. We would like to see more of these companies be able to export the valuable technology that they are building to other countries in the world. We would like Canada to be seen as a leader. We would like Canada to announce globally that we should be a hub for this technology and for our virtual asset service providers.

We just had our very first one, Coinsquare, be able to be the first IIROC-regulated or approved company in Canada. That was substantial. From the time of Quadriga to now, our regulators have made amazing advancement and strides, but regulation is not moving at the pace of innovation, and the innovation in this space is moving at an exponential rate.

We want to have government view this as a non-partisan industry, as a way we can bring our Liberal, NDP and Conservative governments together to see that this industry creates jobs. We pay our taxes. We want to support the digital innovation of this country. We have a lot of value to bring. We have trillions of dollars' worth of investment that we can bring into this country if our government shows support for this industry.

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

Thank you very much for that answer.

Mr. Rasul and perhaps Mr. Amiouny, could you answer a second question in short order?

I think both of you mentioned that you keep 100% of the client money segregated. You don't borrow, and you don't invest. You don't do anything with it. We heard testimony earlier this week that the current Canadian regulations or OSC regulations require only 80% to be held. Obviously you think there's a much higher threshold required for that in order to protect investors.

Mr. Rasul, then Mr. Amiouny, could you comment on that?

[Tanim Rasul]

Yes, I think the 80% you were speaking of was the other Canadian CTP speaking about the amount of crypto they have to off-load to qualified custodians. Right now, legislation in Canada requires Canadian CTPs to off-load a high percentage of their assets to custodians. Unfortunately, the only really qualified custodians are in the United States, which adds a bit of counterparty risk. We've seen everything that's happened in the past few years.

What we want to do is ensure that the custody of Canadians' assets stays here in Canada. At the same time, even though you're keeping it with a qualified custodian, you're still keeping 100% of customer assets safe and segregated away from your own assets, so they cannot be commingled. On a daily basis, you must do segregation reports and ensure that your assets are separate, both in fiat and in crypto for your customers, as well as operate on a full-reserve basis, unlike banks, which operate on a fractional reserve basis.

[Jean Amiouny]

As Mr. Rasul said, the 80% refers to the amount of cryptocurrency that's held in cold storage. Cold storage is where the private keys allow for the distribution of the Bitcoin. Cold storage means those keys are stored off-line. It's a more secure way of storing Bitcoin.

I'll echo what Mr. Rasul has said as well, that in Canada the security regulators require holding on a 1:1 full reserve basis, which means that for every dollar that's held at Shakepay, one dollar is held in a Canadian financial institution. Every Bitcoin that's held is also held 1:1 in our custodian.

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

I have a short question on the supply chain. I was fascinated by the supply chain issues. I worked 20 years in retail. The supply chain is everything in retail. I'm assuming there is a huge number, Mr. Mandic, of applications in various retail environments to make that quicker and more efficient: tracking, product knowledge, safety, all of that beyond the ones you mentioned.

[Patrick Mandic]

Absolutely. The space is very broad. Now the challenge—and this is where the government should step in—at the end of the day, is network effects. The first telephone.... If you have only one telephone, it has no value. Two telephones have more value, and then it increases exponentially, right? It's all about adoption, and that's why we're betting on open standards.

The important thing is not the applications we at Mavennet are seeing. It's the applications we're not seeing. When the Internet was created, no one was thinking about Google Maps. They were thinking about websites, right? This is the same thing. If we have this framework, this foundation, that's when things happen. However, it needs to be open. It needs to be interoperable, and there needs to be, at least, a leader.

The Internet was created thanks to DARPA. It inspired this adoption. It got the Internet to critical mass. That's why we're not operating Internets. That's why we have the Internet.

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

Even Bill Gates said we'd only need 256 KB.

[The Chair, Liberal, Joël Lightbound]

Thank you very much.

I'll now give the floor to Mr. Dong for five minutes.

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

Thank you very much, Mr. Chair, and thanks to all the witnesses. I've met with some of the witnesses previously, and I had very interesting discussions.

Before I start, I just want to share with you, Mr. Chair, that once in a while I will go and sit down with my accountant to assess the very limited amount of money I have in my RRSPs, and he will ask me to choose my level of tolerance when it comes to risk: low, medium or high.

I just want to do a quick survey of all the witnesses today. How would you categorize cryptocurrency in the current...? I'm all for better regulation to make sure that consumer protection is there, but how would you categorize, in terms of risk, cryptocurrency today: low, medium or high?

I'll start with Jean.

[Jean Amiouny]

Mr. Chair, there are a lot of different cryptocurrencies out there, and I think each of them has—

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

It's like how I'd say stocks, for me, are high risk and, maybe, bonds are low. In that sense, how would you characterize—

[Jean Amiouny]

That's correct. It's to further say that within stocks, some companies are, let's say, a bit riskier than others.

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

Okay. Let's make it easier for you. Take away Bitcoin. Now we have the rest, how would you categorize them?

[Jean Amiouny]

Everything but Bitcoin I would put as high.