Industry Committee on Nov. 24th, 2022

[The Chair, Liberal, Joël Lightbound]

Good afternoon, everyone. I call this meeting to order.

Welcome to meeting number 46 of the House of Commons Standing Committee on Industry and Technology.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Monday, September 26, 2022, the committee is meeting to study the current state of blockchain technology in Canada.

Today's meeting is taking place in a hybrid format, pursuant to the House Order of Thursday, June 23, 2022.

This afternoon, we have the pleasure of having with us, both virtually and in person, the following witnesses.

From Beatdapp Software, Inc., we have Pouria Assadipour, chief technology officer, Andrew Batey, co-chief executive officer, and Morgan Hayduk, also co-chief executive officer.

From the Canadian Blockchain Consortium, we have Koleya Karringten, executive director.

From Mavennet Systems Inc., we have Patrick Mandic—correct me if I mispronounce your name; that goes for all witnesses—chief executive officer. Thanks for being here with us in Ottawa.

From the National Digital Asset Exchange Inc., we have Tanim Rasul, chief operating officer.

Finally, from Shakepay Inc., we have Jean Amiouny, co-founder and CEO.

Thank you to everyone for being here.

We have a lot of witnesses, so we're going to get right to it with the representatives from Beatdapp Software Inc. You have five minutes.

[Morgan Hayduk, Co-Chief Executive Officer, Beatdapp Software Inc.]

Thank you.

I want to start by saying a sincere thank you to Ben Lobb and the industry committee for having us today. Thank you to the members of the committee for the work they do and for taking up this important topic. It's a privilege to address the group and share a bit about our company, Beatdapp, and the technology we've developed.

My name is Morgan Hayduk, and I’m one of the co-founders and co-CEOs of Beatdapp. We're a venture-backed, technology-driven auditing and fraud detection company that does some interesting work with blockchain tech. I’m joined today by its two co-founders, Andrew Batey and Pouria Assadipour. We directly employ a team of about 20 of the most talented data scientists, product managers, UI and UX designers and engineers we’ve ever had the privilege of working with, right here in Canada. We’ve also had the tremendous support of prominent VCs and angel investors here in Canada.

I want to quickly acknowledge, at the start, another partner of ours: the team at Fasken and Will Shaw, who are leading their start-up practice. It's a compliance-intensive space, and Will and our team keep us on track, protected in our IP, and compliant. There are some great minds in Canada advising start-ups, and we're thankful for that.

It's not lost on us that it's been an interesting couple of weeks in this space. However, as you’ll hear in our remarks today, we operate in a part of the industry that's largely insulated from the tectonic shifts befalling part of the financial sector. I hope we can tell you a slightly different story about blockchain, perhaps, than one you’ve previously heard or may have read in tech press.

At Beatdapp, blockchain is an enabling technology and a core part of our stack, for a few functional reasons. However, we will also call attention today to what we don’t use blockchain for, because, to my mind, there is an emerging class of companies enabled by this technology that are probably not the first that come to mind when you think of businesses in this space. We are among a growing class of companies that leverage blockchain technology for non-financial or non-speculative reasons. We are part of a cohort of businesses that don’t have tokens or a Web3 community associated with the business. That said, as part of the ecosystem of Canadian companies creating blockchain IP, we have a vested interest in the regulatory landscape shaped by the members of this committee and the government.

We started Beatdapp in 2018 to transform a fairly niche but important business: auditing the usage of streamed media, starting with music. My co-founder Andrew and I both have experience in music and technology, but neither of us is a professional accountant. The genesis story is one of being told about a problem by someone experiencing it first-hand, then having either the audacity or the naïveté to try to solve it ourselves.

The problem we set out to solve is this: When music is streamed on any one of the now hundreds of streaming services around the world, the rights holders—think music labels and independent artists—are paid a pro rata share of the subscription and advertising revenue for the period in which those streams occurred. In an industry that generated $25.9 billion in streaming revenue last year, if records are off by basis or whole percentage points, mistakes may be worth tens and hundreds of millions of dollars in aggregate.

With digital distribution, we’re now talking about trillions of individual events annually, across hundreds of services, with thousands of rights holders each having an audit right over that service for their catalogue. While audits have always been conducted on the basis of trusting but verifying reporting, the challenge with auditing in the new streaming economy is scale.

We learned that whenever audits are conducted, discrepancies are always found, many for benign reasons. Scripts break, data normalization processes occur, or servers don’t sync with accounting. However, as we dug more deeply into this problem, we understood that the biggest single driver of discrepancies is actually manipulation of the services themselves, which calls into question what is and is not “reportable usage”. We think it’s safe to say that about 10% of all streams are originated by bots and human click farms seeking to steal royalties or change the perception of the success of an artist. This is a huge discrepancy, and one we’re confronting head on.

How does blockchain, as an enabling technology, help solve these problems? When we started Beatdapp in 2018, we spent 18 months quietly developing the underlying algorithms and our proprietary blockchain. Our goal was to develop audit technology that allowed the licensor and licensee to sign off on every individual transaction in near real time. The first thing we knew was that blockchain was going to play a functional role in building trust among partners, but that our software was not a payments layer. It’s a reporting tool, so there is no Beatdapp coin, and we don’t offer financial utility.

We then had to decide whether we should build a public or private blockchain. At the time, private blockchains were still considered marginal innovations, with most investors and early adopters directing their enthusiasm towards public ledgers. Because a primary driver of our business case, though, is transactional throughput, we decided it was better served by a private, permissioned chain, with only known validators or participants. Our chain transaction speed is now north of 10 million transactions per second.

Finally, as we developed our core technology here in Canada, we also filed a suite of patents around the underlying innovations. To date, we have 11 patents issued, nine more pending and expected to be issued in the next four to eight weeks, and 10 filed and awaiting adjudication. It's remarkable for a company of our size to have one of the most robust IP portfolios in the blockchain space. Our patents cover not only the auditing of streamed music but also streamed video games, film and television works. We have yet to scratch the surface of the potential for this IP to transform accounting practices across these other sectors. As a company, we're in the early innings of what is a long game.

The opportunity to appear before you today is one we sincerely appreciate, and we look forward to answering your questions about our business. We'd be happy to meet with you and answer additional questions, or host you in our Canadian office to see the team in action. As you help Canadian entrepreneurs and talent grow this industry, create new jobs and locally develop IP that has global reach, we hope to be part of the ongoing conversations and act as a trusted partner to government.

Thank you for your questions. We look forward to them.

[The Chair, Liberal, Joël Lightbound]

Thank you very much.

We'll now move to Koleya Karringten from the Canadian Blockchain Consortium.

[Koleya Karringten, Executive Director, Canadian Blockchain Consortium]

Honourable members, thank you for having me here today. My name is Koleya Karringten and I am the executive director of the Canadian Blockchain Consortium.

The consortium is now the largest and most active industry association in Canada, representing over 70 corporate members that span from coast to coast. Our members include some of the largest crypto-asset businesses in the world and Canada's biggest and longest-running financial institutions, as well as many innovative start-ups and scale-up companies.

I want to share with you three real-world examples of how blockchain can improve the lives of everyday Canadians.

First is financial inclusion—

[The Chair, Liberal, Joël Lightbound]

I'm sorry to interrupt, Madam Karringten. Is it possible to lift your microphone a bit?

Thank you.

[Koleya Karringten]

I'm sorry. I apologize.

First would be financial inclusion. There are close to eight million Canadians whom the banking industry considers to be non-prime, meaning they cannot access credit via the larger institutions. Our members provide ways for the unbanked to save, access credit, and also send their money via remittances cheaply, securely and quickly. This is an excellent opportunity to export Canadian technology to the billions of underbanked across the world.

Second would be pharmaceutical provenance. It's estimated that four billion incorrectly labelled or fake drugs are administered each year, putting Canadian lives at risk because they are receiving wrong medication or improper doses due to lack of provenance with overseas manufacturers. By utilizing an immutable blockchain, pharmacies can verify the authenticity of the pharmaceuticals they administer and even get real-time alerts directly from manufacturers for when medications expire or become available. Given the recent children's ibuprofen shortage, as a single mother this could have a direct impact on my life personally.

Third would be food security. By allowing for public transparent records in the agriculture industry, we can have the entire value chain of livestock or produce on a tamper-proof blockchain. This improves the provenance of the livestock and produce going to market. This can cut food recall times down from days to seconds and improve supply chain efficiency. You can quickly verify what product was contaminated and where it was delivered, and quickly remove the items from stores, saving companies millions in food recalls and improving Canadian food security.

In order to realize the potential more broadly, our members believe we must collaborate with regulators and government to address key issues that virtual asset service providers, or VASPs, and blockchain technology companies have.

I would like to highlight four pressing issues around this.

First is fair and transparent regulation of crypto-assets. Canada needs to clearly delineate which digital assets qualify as securities, derivatives, commodities, data and currencies. We believe that the development of a digital asset taxonomy is critical to providing much-needed clarity for platforms and investors to determine which legislation applies. Despite this, many of our members are already collaborating with regulators to better define consumer protection standards, similar to that of current financial risk frameworks.

Second is improvement for combatting financial crime and terrorist financing. Many of our members regularly collaborate with law enforcement to identify and respond to criminal activity. Some of our members have helped to train law enforcement with respect to blockchain forensics tools, and I'm proud to say that a unit in Calgary is quickly becoming a global leader because of our members. While all VASPs are now required to be registered with FINTRAC and comply with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, which also covers virtual currencies, such rules are not yet harmonized across jurisdictions. This presents a challenge to VASPs that have a Canadian and international presence. We encourage the government to work with other countries to harmonize these regulations.

Third is investor protection against fraud and illegal securities. Many of our members regularly collaborate with law enforcement and Canadian securities regulators to identify fraud and provide better risk disclosures to users. Given the pace at which the technology evolves and that bad actors exploit it, admittedly there is more to do. We believe we should improve our consumer disclosures, both for VASPs and in traditional finance, so that they are easier to understand and Canadians can make informed decisions, instead of critical disclosures being buried in terms and conditions.

Fourth is strong standards for cybersecurity, crypto-custody, insurance and proof of solvency. Crypto-asset exchanges and custodians with poor storage policies are a major vector for cyber-attacks, misappropriation of funds, theft or fraud. This was very apparent with the recent FTX bankruptcy filing. Standardizing requirements and enabling adequate insurance coverage for cybersecurity and crypto-asset custody would be beneficial. Many exchanges are exploring a proof of reserves attestation model, such as Binance, which leverages cryptographic proofs and on-chain verification.

Finally is a word about the crypto-mining industry.

Many people criticize Bitcoin for having such a large energy footprint. However, because Bitcoin mining can happen anywhere, miners will find the lowest-cost power possible. A large portion of mining is currently run on hydro power that would otherwise go unused. Bitcoin mining also supports the development of new renewable energy projects, as miners can act as a buyer of last resort on variable power production like wind and solar. Because mining equipment can be shut off quickly without damage, Bitcoin mining operations can also sell their power back to the grid at peak times, making the grid more flexible and robust.

Thank you, Mr. Chair, for the opportunity to speak today. I look forward to your questions.

[The Chair, Liberal, Joël Lightbound]

Thank you very much.

We'll now turn to Mavennet Systems and Mr. Mandic.

[Patrick Mandic, Chief Executive Officer, Mavennet Systems Inc.]

Thank you, Mr. Chair.

I'm the CEO of Mavennet Systems Inc. We're a company that develops digital products in different industries—media, financial services—and also in the supply chain. I know some or most witnesses in previous sessions have talked about the applications of blockchain to financial services.

Today I'd like to talk about the applications of blockchain specifically to energy and resources. As we all know, this is a critical industry for Canada.

For about three years now, we've been working together in the oil and gas industry with the U.S. Department of Homeland Security and about 10 to 12 different organizations in the industry from Canada and the U.S. to support a customs clearance between the U.S. and Canada that would make it frictionless to help both the industry and the government. I can get into details through the questions later on.

When it comes to the steel industry, we just finished a pilot together with the Canadian government, ArcelorMittal Dofasco and Tenaris for the traceability of steel, meaning the proof of origin and proof of environmental footprint.

What is the problem with industries that rely on the supply chain today? The big problem is that we're still largely paper-based. Even though organizations here in Canada and abroad have spent millions of dollars digitalizing their companies, the moment I'm exchanging information with the next organization down the supply chain, I send an email or I send a PDF—or if I'm lucky I'm going to send an Excel file—so all that digitalization simply goes out of the window.

The reason is that we're trading products that live in a supply chain that spans different organizational boundaries. Essentially, we don't have a standard way today for these organizations to speak the same digital language with each other. That's why we revert to the minimum common denominator, which is paper or near-paper formats like PDFs or emails.

What can we do about it, and how can blockchain help in this situation? In 2015 a group called IIW, the Internet Identity Workshop, started looking at how to use blockchain for the purposes of identity. They planted the seed for what is now a W3C standard called verifiable credentials and decentralized IDs, which essentially allow us to create cryptographically verifiable assertions about individuals, organizations and products. An assertion can be, for example, in my ID, what my age is. In this case, it would be an assertion by the government that issued that document. This is applied today for products in the supply chain in a way that I'm able to have real-time information about specific products that go through a supply chain, in a way that this information is interoperable, and that's the key word: “interoperability”. That's interoperability between organizations, interoperability between technology providers and interoperability between data standards used at each of these separate organizations.

This is essentially a basis that can allow us to create what is called Industry 4.0. You might have heard about this work. Essentially, it allow us to create supply chains that can adapt to supply chain shocks in real time. It means the ability to automate contract settlement and payments, the ability to enable automatic trade finance, the ability to identify the origin of products in their composition, being able to prove the environmental footprint of a product to enable buyers' conscious decisions on what products they're buying.

This is where I think Canada can really benefit by having an ability to differentiate greener gas, or steel of Canadian origin that has incurred a smaller footprint in the environment when it comes to CO2, and we're not alone on this path. There are many organizations and governments that are using the same types of technologies today.

We have the EBSI, the European Blockchain Services Infrastructure by the EU, which essentially has created a single sort of truth for transactions for public services across the member countries, also based on verifiable credentials.

Also in Europe, the European Commission is building the digital product passport, initially for batteries, to support the circular economy. It is also looking to expand this to textiles and other products. China is building its own blockchain for the traceability of steel, though we don't know a lot about what it's actually building.

We also have, as I mentioned, the U.S. CBP and the Department of Homeland Security. They are using verifiable credentials for traceability of steel, agriculture, e-commerce and oil and gas, which is our part of the job, as part of their 21st-century framework transformation. It's the biggest transformation in customs since 1993.

Also, USCIS and TSA are looking at verifiable credentials specifically now for people's identities, passports, driver's licences and so on.

Our economy has a bigger component of energy and resources and is strategically positioned to benefit from these technologies. Will we lead the charge and work with our allies to support standardization and the adoption of these technologies in government and industry, or will we take a back seat and wait for others to impose these technologies on us when no other option remains?

Thank you.

[The Chair, Liberal, Joël Lightbound]

Thank you very much.

We'll move now to Mr. Rasul from the National Digital Asset Exchange.

[Tanim Rasul, Chief Operating Officer, National Digital Asset Exchange Inc.]

Hello, everyone. My name is Tanim Rasul. I'm the chief operating officer and a member of the founding team at NDAX. I want to thank the committee for inviting me to speak today, and I commend everyone for taking the time to learn about this fast-growing and innovative industry.

NDAX is a leading Canadian crypto-asset trading platform that was founded in 2017. Our goal has always been, since day one, to give Canadians safe, simple and secure access to crypto-assets. We service Canadians in all provinces and territories, and to date have done over $9 billion of trade volume. We have over 40 employees across Canada. Our head office is in Calgary, Alberta.

We created NDAX to resolve some of the challenges Canadian investors faced in this space, including how difficult and unsafe it was to purchase crypto-assets in the early days. Platforms like QuadrigaCX lacked regulation and had poor governance and internal controls. This resulted in Canadian users finding it extremely difficult to get their funds off these platforms.

NDAX has always emphasized robust compliance and operational systems. One of our first hires was a chief compliance officer with experience in the IIROC-regulated space, who helped create a set of comprehensive policies and procedures that mirrored those of traditional financial companies. Our first milestone was to obtain registration with FINTRAC as a money service business. This allowed us to be the first Canadian crypto-asset trading platform to obtain a stable operating bank account with a Crown corporation financial institution. In the first month of our operations, we proactively engaged with our principal regulator to ensure their full understanding of our business model and NDAX's offering.

I know this committee in the past days has spoken to other Canadian CTPs, so I will be brief on how our platform operates. Canadian residents can buy, sell, deposit and withdraw several different crypto-assets through our website or our mobile app. We do not offer margin or derivative trading, and we do not allow our clients to deposit funds via credit card.

We built our platform on the core principles of trust and transparency. Rather than have celebrity endorsements or sports arena deals, we felt the best way to build trust with our customers was to complete voluntary third party attestations. We're the only Canadian-based crypto asset trading platform to obtain their SOC 2 type II certification. This is an audit that focuses on and tests an organization's internal control framework. We have successfully completed IFRS financial statement audits by a reputable and recognized Canadian panel auditor, and we continue to do that on an annual basis. We also have an audited form 1 with a Canadian regulator. For the past 12 months we have filed monthly financial reports that include disclosing our risk-adjusted capital. We are obligated to disclose to regulators any early warning sign triggers that happen from our working capital. We must disclose to them within 24 hours of the trigger happening.

With everything that's been happening, I just want to reassure members of this committee that NDAX would never loan out customer assets. We never use customer assets for our own trading. We operate on a full reserve basis. We do not operate, nor are we affiliated with, any sort of proprietary trading.

I want to address FTX, Celsius and Voyager and the things that have happened. Their poor risk management, their internal control failures and their lack of governance have lost billions of dollars' worth of customer assets, including those in Canada who lost assets on FTX. It's important to note that what happened with FTX draws comparisons to QuadrigaCX, a first mover and a popular Canadian CTP that was founded in 2013 and became insolvent in 2019. The results of this insolvency of QuadrigaCX had regulators create a framework that encouraged Canadian CTPs to handle client assets in a more safeguarded manner. This is a clear example of how together we can proactively create frameworks to help Canadian investors and protect them.

A recent report from the OSC found that three of the top four platforms used by Canadians are foreign-based. Foreign-based platforms like FTX were not required to have the same requirements as Canadian-based platforms to safeguard customer assets. We should note that in the United States, FTX created a sub-entity called FTX US. When the parent company, the unregulated parent company of FTX, folded and became insolvent, so did the FTX US sub-entity. This should be an important warning for how Canadian policy-makers treat foreign-based platforms as they enter the Canadian market.

We're at a pivotal moment in the crypto-asset industry. We have a chance right now to create smart policy, protect Canadian investors and encourage innovation for years to come.

Thank you for your time. I'm happy to answer any sorts of questions you may have.

[The Chair, Liberal, Joël Lightbound]

Thank you very much.

We'll move now to Mr. Amiouny from Shakepay.

[Jean Amiouny, Co-founder and Chief Executive Officer, Shakepay Inc.]

Thank you, members of the committee, for having me today. It's an honour to be here.

I'm Jean Amiouny and I'm the CEO of Shakepay. I'm an engineer and a graduate of McGill. I've been in the Bitcoin industry for just shy of 10 years, since 2013.

In 2015, I co-founded Shakepay, a Montreal‑based technology company that employs over 100 employees and allows Canadians to buy, earn and interact with bitcoin. We offer a mobile app that makes it easy for Canadians of all ages to buy bitcoin in a matter of minutes. We service over 1 million Canadian customers, and we are exclusive to Canada. The majority of our customers are Canadians between the ages of 25 and 44, and have an average account balance in bitcoin under $900.

Since our inception, we've been strong advocates for building safe, reliable and easy-to-use products that allow Canadians to adopt this new technology with a trusted, locally grown platform.

Shakepay takes a proactive approach to regulation, having secured a licence as a money-service business by FINTRAC and Revenu Québec to operate in all Canadian provinces and territories. We are in the advanced stages of becoming registered with all provincial security regulators as a restricted dealer. Once that designation is obtained, we will be pursuing IIROC membership.

We also invest heavily in building world-class security and finance teams. We take customer protection very seriously at Shakepay. We don't take risks with customer funds. We don't lend out customer funds. We don't do anything with them unless customers instruct us to. All customer funds are held 1:1 in trust with Canadian financial institutions and leading cryptocurrency custodians.

Since this committee is talking about blockchain today, I want to briefly discuss its pros and cons.

The blockchain is a shared database. It's a way to store data. In comparison to most databases, blockchains are slower, more expensive and more complex to use. They are not a panacea, therefore not everything should be built on them.

In what context, then, are blockchains useful?

Most importantly, they are useful as technology that provides a reliable, secure and verifiable way for two parties to transfer money without an intermediary. Blockchain can be thought of as a public good: It's always available, and it's available to everyone. For example, the Bitcoin blockchain has had a 100% operating uptime since 2014 and is available to use by anyone with an Internet connection.

Many blockchain projects are led by individuals or entities that are often venture-backed and profit-driven. In contrast, Bitcoin has no CEO, nor is it run by a company. By design, it has a fixed supply of 21 million coins, and no one can create more of them. That is why Bitcoin is unique.

My father is from Lebanon, a country where the banking system is not nearly as strong as it is here in Canada. If I were to send money to Lebanon through banking rails, it would take days to arrive, and the recipient would only be able to access a fraction of what was sent due to their bank's withdrawal limits. With bitcoin, I can send money directly to them, instantly, and without intermediary fees.

At this very moment, there are new Canadians who rely on Bitcoin to send money back to their families. For them, it's a cheaper and more reliable way to make sure that money lands in the hands that need it most. Once a Bitcoin is received, it can be used to purchase goods or services directly, or it can be exchanged for another currency like the U.S. dollar. This inclusivity and accessibility is what makes Bitcoin so powerful. It's a public good that exists on the Internet and is available for everyone.

At the start, any new technology is never well understood, and it takes time for society to experience its benefits. The Internet in the 1980s was an incredible innovation, but it took time for it to mature and develop into what it is today.

Because industry and government work hand in hand to create a framework to allow the Internet to grow and benefit all Canadians, it has now become a public good that provides a fast, reliable and cheap way to communicate remotely.

Bitcoin can bring about similar benefits. We need to be pro-innovation and encourage smart regulation so that homegrown companies like Shakepay can continue to innovate and educate Canadians on the benefits of adopting bitcoin. We have an exciting opportunity as a country to be a leader in determining how this technology can shape the future.

Thank you for your time today. I look forward to answering your questions.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Amiouny.

We are going to get right to the discussion.

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

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

Thank you very much, Mr. Chair, and thank you to all our witnesses. This is a fascinating subject. I'm happy we're studying this here in committee. We have a lot to get into.

I'm going to start with Mr. Mandic. You talked about Canada being a leading nation in blockchain, with enormous future potential. What are other jurisdictions, like the U.S. and the European Union, doing that would allow them to usurp Canada's position as a leader?

[Patrick Mandic]

Blockchain is very wide. We're talking about different applications of blockchain. I believe Canada is a leader in the sense that we started Etheria and we started a lot of applicational blockchain.

However, when it comes to the supply chain, for example, we're laggers. The European Union is ahead of us. The U.S. is also ahead of us. I think they have already taken the lead in that respect.

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

Thank you.

Mr. Hayduk, we talk about the common misconception that blockchains tend to be slow and expensive. I was wondering if you could dispel this misconception and talk about the speeds blockchains are now capable of reaching.

Do these speeds make blockchain viable for financial and transaction applications, for instance?

[Morgan Hayduk]

It's a great question. I want to throw that one to my colleague Pouria, if that's okay. He is the man behind the speed of our blockchain and can speak pretty eloquently to the potential for speed in other applications.

[Pouria Assadipour, Chief Technology Officer, Beatdapp Software Inc.]

Thank you.

There are blockchains now that can do millions of transactions per second, so this could really handle almost any use case you throw at it. There are three main things you need to worry about when you are building or designing a blockchain system. There's speed, there's decentralization and, finally, there is also security.

With something like Bitcoin, you have great security and you have great decentralization, but you have low speed, like 10 transactions per second.

If your use case doesn't really care if decentralization is a huge thing, and if you need only two parties, for example, to look at every single transaction and to validate them, then you could start getting use speeds in the millions or even billions per second.

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

There are a lot of statistics showing how poor the royalties for artists are on streaming platforms, and how artists are denied the royalties they are rightfully owed.

Would the application of blockchain in music streaming help correct those scenarios?

[Morgan Hayduk]

I think there are two parts to that question.

First of all, it's getting the counts right, and that's what we're really focused on. What we have come to uncover over our last few years working in this space is that a large percentage of misallocated royalties come from people intentionally defrauding streaming platforms, no different from the way folks used to defraud products like AdWords or e-commerce sites.

If we can rectify that first problem, which is ensuring that the counts are correct and the royalties are flowing through to the correct, rightful end owners, that will solve a considerable part of the problem in the music space.

The issue, then, is that music copyright is complex. It's a bad analogy, but it's a bit like a bowl of spaghetti. When you look at who needs to be paid for every underlying work—master rights holders, composers, the people who write the songs and the lyrics—there is, I think, a potential use case for blockchain as a payment layer, but I don't think we're there yet in any sort of meaningful way, because ownership is yet to be determined among a lot of the parties in musical works.

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

Is that the term of the ETFs, that kind of movement as well?

[Morgan Hayduk]

I'm not sure what the acronym—

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

I think I'm messing up the acronym. When we have ownership of art and music, it's FRT...no, not FRT. What's the acronym?

It's NFT. Thank you, Mr. Fillmore. There are so many acronyms.

[Morgan Hayduk]

Yes, there are some really interesting companies in this space doing NFTs from musical works. There's a company, not a Canadian company, but a company out of the U.S., Royal Markets Inc., that's doing this.

It's worth looking at just to see how they structured it, but one of the important things is that you have to start almost with a new work, so that you know ownership is correct at the beginning. Then, as you distribute those songs to streaming services and are paid back royalties for having people listen to them, they can be divided up and apportioned correctly among the underlying owners. It's a lot harder to do retroactively, when you think about it. I think the last Beyoncé album had 99 co-writers on it. Trying to make sure everyone's paid correctly for those royalties is really challenging.

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

Mr. Mandic, I'll go back to you.

We have Bill C-27 before Parliament. It's updating Canada's digital privacy protection. The bill is written to update our laws in the technology and business practices of Web2.

Due to this decentralized nature of Web3 in blockchain, will Bill C-27 be adequate to protect Canadians' digital privacy rights as Web3 becomes more mainstream over the coming years?