Industry Committee on Dec. 8th, 2022

[The Chair, Liberal, Joël Lightbound]

I call this meeting to order.

Welcome everyone. Welcome to meeting No. 50 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.

I want to thank all the numerous witnesses who are joining us today. Thanks for taking the time on this Thursday evening for discussions with us.

With us today we have Brad Mills, as an individual.

From Dapper Labs, we have Alison Kutler.

From the digital governance institute, we have Charlaine Bouchard, Guillaume Déziel and Jean-François Gauthier.

From Hut 8 Mining Corporation, we have Jaime Leverton.

From the Information and Communications Technology Council, we have Namir Anami.

From Futurity Partners, we have Tanya Woods with us in person in Ottawa.

From Mastercard, we have Jesse McWaters.

Thank you all for joining us. It is much appreciated.

Given that we have many witnesses and a lot of questions, we'll start without further ado with Mr. Mills for five minutes.

[Brad Mills, As an Individual]

Thank you, Mr. Chair and members of the committee, for inviting me to speak here.

My name is Brad Mills and I’m one of the founding members of the Bitcoin Coalition of Canada, which is an upstart multipartisan group working to educate policy-makers, journalists and everyday Canadians about the importance of Bitcoin. I am also an active angel investor and adviser in 28 Bitcoin start-ups, some of which are based here in Canada. These companies are working to help balance the scales of socio-economic justice for billions of people around the world who have been excluded from the traditional financial system. The Bitcoin companies I work with are positively impacting the environment, local economies and grid infrastructure.

My activities are primarily around financial literacy and financial inclusion for underbanked people living below the poverty line in countries across Africa and Latin America, but also for the millions of underbanked Canadians. Combatting poverty through Bitcoin education is personal to me. I grew up in an economic depression in Cape Breton Island, Nova Scotia, during the 1990s, when we had one of the highest unemployment rates in Canada.

My parents divorced when I was young, and when we were not on EI or welfare, we were living paycheque to paycheque. I lived in 19 different homes growing up, including government housing, and I know all too well the stress of having an empty bank account and seeing an overdraft charge put you into the negative.

I’ll never forget what it felt like when my dad lost our home to the bank as the interest rates rose. I was part of the underserved and underbanked in Canada.

That said, I was lucky enough to be born in a country like Canada with a social safety net. My quality of life wasn’t that bad. Money was just a thing we didn’t have.

I escaped poverty through entrepreneurship. I bootstrapped a social gaming company that grew to a million players in 2009. For the first time in my life I had some extra money in the bank. I still lacked financial literacy, and it was during the global financial crisis, when most investments seemed unsafe, so I started learning about investing and the history of money.

I began buying gold because of its store of value properties. Soon after, I discovered Bitcoin. I understood that it was a decentralized digital gold, with no centralized issuer or company behind it and with an absolute limited supply, because only 21 million coins will ever exist.

I started saving in Bitcoin for the same reasons I bought gold, but I learned soon after that Bitcoin was much more than that.

Bitcoin is a once-in-a-species invention. It is the first time we’ve been able to create digital scarcity. Bitcoin is a fair and equitable base layer of money. It’s open-source and auditable by anyone who wants to run the software. It doesn’t matter if you’re a kid in Nigeria, a fisherman in Cape Breton or a billionaire from New York—everyone is on the same footing on the Bitcoin network.

Most Bitcoiners describe Bitcoin as a savings technology. It makes saving and transferring money available and accessible to anyone, anywhere.

Eleven years after I first discovered Bitcoin, it’s good to see that Canadians are among the fastest to adopt it. The Bank of Canada recently released a report that found that 13% of Canadians owned Bitcoin in 2021. It’s worth noting that more Canadian women own Bitcoin today than Canadian men did in 2017.

This is where it’s also important to recognize the difference between Bitcoin and everything else going on in the crypto space. As someone who worked on the financial committee of a large crypto fund, I have a unique perspective on stablecoins, DeFi and the broader crypto space. As an analyst doing due diligence on hundreds of blockchain projects in Web3, DeFi and NFTs, I had a front-row seat to the making of the bubble.

Unlike Bitcoin, these things are mostly just unregistered securities, often unethically launched and fraudulently pumped on unregulated crypto exchanges, leaving retail buyers holding the bag when the bubble collapses. These tokens typically have no real product-market fit, and barely anyone uses them outside of the speculators.

Last year, I started sounding the alarm, warning about the coming collapse of platforms like Celsius, Terra Luna and the UST stablecoin, as well as the FTX exchange, at least six to 12 months before they blew up. I’m proud to have directly helped save people from losing tens of millions of dollars in these Web3 crypto and DeFi schemes that exploded.

Millions of Canadians have exposure to Bitcoin. It should not be a partisan issue. This is why I’m very heartened to see members of Parliament coming together from both sides of the aisle to have these elevated conversations about cryptocurrency, blockchain technology, CBDCs and stablecoins.

I can help provide a rational framework for thinking about how Bitcoin should be treated differently from crypto and how we should embrace Bitcoin to increase the financial literacy of Canadians and promote financial inclusion through Bitcoin education.

Thank you once again for having me. I look forward to answering any questions.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Mills.

We'll now move to Alison Kutler.

[Alison Kutler, Head of Government Affairs, Dapper Labs]

Thank you, Mr. Chair and members of the committee.

My name is Alison Kutler. I am head of government affairs at Dapper Labs. I'm pleased to join you today on behalf of our company, and want to open with our eagerness to work alongside government as a trusted resource while you explore a regulatory path forward for our vast and diverse industry.

By way of introduction, Dapper Labs is an exciting Canadian success story headquartered in Vancouver. We are the creator of the NFT and continue to be a world leader.

When we talk about NFTs, many people think of a picture of a funny ape that someone purchased with a Bitcoin, but our industry is very diverse. There are many different kinds of NFTs. Some enable access to communities, events or games. Some provide royalties or other rewards. They validate credentials or asset ownership, and are simply appreciated as art collectibles or mementoes.

NFTs possess three distinct characteristics that distinguish them from cryptocurrencies and other fungible tokens on the blockchain. NFTs are unique in nature, non-interchangeable and non-divisible. At Dapper we make digital collectible NFTs—you can think of them as digital trading cards—which also facilitate highly interactive experiences and are revolutionizing fandom. Our digital collectibles provide real utility. They strengthen relationships between fans and their favourite players and teams and entertainers, providing new creative channels for brand expression, engaged and exciting communities, and opportunities for consumers to be rewarded for their fandom, online and off-line.

As policy-makers around the world consider the role of NFTs in society, Dapper Labs serves as a great example of how digital collectibles can be a source of innovation that helps make blockchain technology accessible to everyone. In 2020 we launched NBA Top Shot, taking digital collectible NFTs mainstream and becoming the first blockchain product to surpass a million community members. We have developed the world's leading blockchain studio and continue to build consumer-facing experiences that allow people to interact with Web3 technology in a way that is easily accessible, secure, transparent and fun.

As the pioneers here, we also recognize and embrace the responsibility to set the bar high with best practices for how this new industry can promote innovation while ensuring that consumers are protected. We have instituted a comprehensive set of industry best practices, including a “know your customer” protocol, enhanced due diligence, sanctions screening and a transaction monitoring program. We also fully disclose the terms of each individual digital collectible NFT product prior to a purchase, so that consumers understand what they own.

All of Dapper Labs' digital collectible NFTs are built on the Flow blockchain, which is environmentally sustainable. Minting an NFT on Flow uses less energy than a Google search or an Instagram post.

It's important to remember that Web3 is complex. It can't be regulated through a one-size-fits-all approach or simply by copying existing financial services laws. We would like to ensure that NFT creators, big and small, can continue to innovate and develop ways for society to benefit from this exciting new technology. This is not to say that NFTs should not be regulated, just that they shouldn't be governed by what would be overly burdensome rules taken from other sectors. Rather, we would welcome a regulatory regime that will recognize the unique characteristics of NFTs and how they are used in the digital economy.

First and foremost, we need to establish clear definitions on what an NFT is and directions for how NFT service providers should be treated. We think seriously about fraud protection and implementing AML rules and KYC protocols that are proportionate to the risk. We also believe in standards for intellectual property protection and, in partnership with provincial regulators and agencies, enhanced consumer protection standards.

Most importantly, we support an open and engaged dialogue between industry and government. We hope Dapper Labs can be an example for Canadian policy-makers of the type of innovation that should be encouraged to make blockchain technology accessible to more communities, while doing so safely and responsibly.

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

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Madam Kutler.

We'll move now to the digital governance institute.

We have Madame Bouchard or Monsieur Gauthier.

[Prof. Charlaine Bouchard, Research Chair in Smart Contracts and Blockchain, Université Laval]

Hello.

Mr. Gauthier will actually be the one giving the presentation.

[Jean-François Gauthier, Chief Executive Officer, Digital Governance Institute]

Thank you very much, Mr. Chair.

I am very pleased to be here with you. My name is Jean‑François Gauthier and I am the chief executive officer at the Digital Governance Institute, a non-profit organization that was founded almost 10 years ago. Our mission is to develop and implement open governance and collaborative management solutions in institutions and organizations for the common good.

Our passionate team wants to democratize the principles of collaborative management by using digital technology and the strength of collective intelligence as unifying tools. Our value proposition, as a non-profit organization, is to act to accelerate organizations' digital shift by establishing open and collaborative governance to support their growth.

I would like to introduce you to the people who are here with me today. First, there is Charlaine Bouchard, research chair in smart contracts and blockchain at Université Laval. She will be able to answer your questions later, or so I hope. Also here with me today is Guillaume Déziel, an administrator at the institute and, more importantly, a very committed entrepreneur in the area of culture and blockchains. He has a particular interest in their potential for recognition of rights holders.

In November 2019, the institute took the initiative to write a white paper on distributed ledgers and blockchains. The work was carried out by a steering committee made up of academics, entrepreneurs, lawyers and public administrators. The preparation of this white paper was made possible by the financial contributions of the chief scientist of Quebec, Hydro-Québec, the Quebec Department of the Economy, Innovation and Energy, the Quebec Department of Finance, Finance Montréal and the Hub Saguenay—Lac‑Saint‑Jean, and I thank them for that.

The two leading contributors to our white paper, Ms. Bouchard and Mr. Déziel, are experts who can talk to you about concrete applications of blockchains. I am proud to say that our efforts to produce this white paper were not in vain. An indirect benefit of our efforts was the creation of the first research chair on smart contracts in Quebec, at Université Laval. Another worthwhile benefit is the innovative projects on which Mr. Déziel is working, funded by the Canada Council for the Arts.

As I mentioned, the institute firmly believes in collective intelligence and empowering citizens. For us, distributed ledgers are a historic opportunity to give back to citizens the ability to manage their digital identity themselves.

In closing, I would like to quote a passage from the preamble of our white paper. It reads, and I quote:

Throughout history, humans have stored information in protected places. Obviously, the form of these places has changed, but whether we are talking about a guarded building or a massive, ultra-secure server, the approach has remained the same. These are basically variations on the theme of a safe. Blockchains...have turned an old practice on its head. At a time when data theft is a new scourge around the world, when the arrival of 5G connectivity is exponentially increasing the data in circulation and when the AI revolution is under way, distributed ledger technology seems to be essential. It is becoming a new symbol of this digital age, which is making data a resource and the security of personal information a condition of success.... This is a highly strategic issue. Quebec is currently a leader in AI research. This promising opportunity is based on expertise in the related field of big data.... By also developing its expertise on distributed ledger technology, including blockchains, Quebec will bring together the three pillars of the digital age and strengthen its position as a technological hub.

My colleagues will be pleased to answer your questions on the concrete applications they are working on right now.

Thank you.

[The Chair, Liberal, Joël Lightbound]

Mr. Gauthier, Ms. Bouchard and Mr. Déziel, we thank you for being with us this evening.

I will now give the floor to Jaime Leverton of Hut 8 Mining Corporation.

[Jaime Leverton, Chief Executive Officer, Hut 8 Mining Corporation]

Thank you, Chair and members of the industry committee, for having me here today.

My name is Jaime Leverton, and I am the CEO of Hut 8.

As we begin, I would like to acknowledge, on behalf of Hut 8, that our corporate office is located on the unceded territories of the Anishinabe, Wendat, Haudenosaunee, Mississaugas, and the Mississaugas of the Credit First Nation. This land, as well as other territories across Turtle Island that Hut 8 operates in, continue to be home to diverse indigenous peoples who we recognize as contemporary stewards of the land and vital contributors to our society.

Hut 8 is one of North America's largest innovation-focused digital asset mining pioneers and high-performance computing infrastructure providers. It is the only dual-listed digital asset miner with 100% Canadian operations. We have the highest unencumbered self-mined inventory of Bitcoin of any digital asset miner or publicly traded company globally. We are also the first Canadian digital asset mining company to list on the Nasdaq.

Hut 8 was named after the building at Bletchley Park in the United Kingdom, where Alan Turing created the Bombe, a machine that could quickly crack the Enigma code and intercept enemy communications during World War II. Turing's world-changing work in Hut 8 saved countless lives and transformed cryptography as we know it. His advances in code breaking laid the foundation for blockchain technology as it stands today.

I'd like to start by emphasizing the strength of talent we have in this innovative industry, based right here in Canada. Hut 8 is a Canadian success story. We're proud of our roots. Each member of our executive team comes to Hut 8 from other established industries. In fact, our seasoned executive, 40% of whom are female, have a collective century of experience leading businesses in other established Canadian industries.

Hut 8 is the exemplification of the innovation economy. As seasoned leaders we're applying our knowledge and expertise to help drive the growth of Bitcoin adoption and blockchain in Canada and around the globe. We are very much in the nascent stage of understanding the potential of blockchain adoption and the positive effects it promises to have on Canada's economic sectors. However, with a laser focus on regulating, with the end goal of driving innovation, the Canadian government has a generational opportunity to take a leadership role in driving both Canadian and global adoption of blockchain technology. These hearings are a great first step toward achieving that unique position.

We are proud to be taking part in your study and believe that collaborating with industry to achieve our mutual goals is very encouraging. In addition to abundant talent, Canada also has abundant natural resources to support Bitcoin mining, which in turn stabilizes the blockchain. Many miners in Canada harness the country's hydro and nuclear energy sources to power their operations. On our end we use Canada's natural cooling system, our cold winters, to minimize heat and mine much more efficiently than many of our global peers. It's not well understood that Bitcoin mining can also help stabilize energy grids, which is something other large, industrial-scale workloads simply cannot do.

At our Medicine Hat facility, for example, we work with the city to manage energy consumption in real time. If the city needs us to power down to meet residential and industrial demand because of a storm or peak usage, we can do so in less than two minutes, and power back up just as fast, ensuring the most efficient and consistent use of the available energy. We are also proud to be one of the largest taxpayers in the city of Medicine Hat.

While innovation can go a long way to improving environmental goals, so too can bold corporate leadership. Hut 8 is committed to achieving carbon neutrality by the end of 2025. We're proud of this ambitious target that is a shared priority with our government.

As you've heard over the past few meetings, blockchain has a wide range of potential applications that can change how we do things across many industries. Advancements in blockchain technology will happen with or without Canada. While we were disappointed in the defeat of Bill C-249, I'd like to thank the committee for conducting this study and taking recommendations for how to best regulate the space with the goal of growing the sector while protecting consumers.

We hope the future of digital asset regulation in the country works within our current financial system to improve financial inclusion. We're all working with regulatory bodies and authorities, but as a country we need a concrete framework to protect consumers, attract investment, innovate and grow the economy.

Bitcoin and the blockchain represent a new level of both the Internet and the global financial system, one that empowers individual freedom that traditional banking services cannot provide. Like in any industry, bad actors exist, and fraud cases like we are currently seeing with FTX emphasize the need for co-operation between government and business. We've heard a lot about risk and consumer protection in this study. I think it's important to note that while digital assets like Bitcoin have lost significant value in the past nine months, this is not entirely abnormal. Many securities fluctuate in the same way, yet we don't use that rationale to stifle venture capital investments.

The UN has estimated that up to 5% of global GDP, equivalent to $4 trillion U.S., is used for money laundering and illicit activity, which is 400 times more than the criminal activity across all cryptocurrencies.

At Hut 8, we understand very well the cyclical nature of Bitcoin, which is why we have an investment strategy to hold our digital assets. Our business is a long-term play operating on the belief that digital assets like Bitcoin and technologies like blockchain have tremendous growth potential and applicability as the innovation economy takes shape.

Simply put, with the right regulation and a laser focus on driving innovation, Bitcoin and blockchain technology stand to benefit most major industries around the globe. Digital assets should be regulated and treated as personal property. By focusing on the end user, we are able to ensure that we keep the rights and needs of Canadians in mind, which is crucial.

We look forward to submitting our recommendations to this committee on what a future regulatory framework might look like.

Thank you. I look forward to your questions.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Madam Leverton.

We'll now turn to Namir Anani from the Information and Communications Technology Council.

[Namir Anani, President and Chief Executive Officer, Information and Communications Technology Council]

Good afternoon.

Thank you for the introduction.

I want to begin by thanking you for this opportunity to address the House of Commons Standing Committee on Industry and Technology as part of its study on blockchains.

My name is Namir Anani. I am the president and CEO of the Information and Communications Technology Council, the ICTC. As a neutral centre of expertise with over 100 employees across Canada and a mandate of advancing Canada’s digital advantage in a global context, the ICTC strives to provide forward-looking research, evidence-based policy advice and innovative capacity-building solutions to assist Canadians and policy-makers, as well as businesses, leverage the full potential of the digital opportunities in today's and tomorrow’s economy.

For a bit of background, my presentation today briefly expands on the merits of blockchain technology, its derived markets and its potential to heighten Canada’s economy and job market while unleashing new economic activities as part of the evolving Web3 and the Internet of value.

For a bit of context, it is fair to say that the construct of the global economy is based on a set of contracts, transactions and records to govern our economic, legal and political systems. They protect assets, establish and verify identities and document sequences of events. They also govern interactions among nations, businesses, communities and individuals.

Blockchain has in recent years emerged as the foundational technology offering solutions to improve business value chains, enhance efficiencies and enable a system of trust based on consensus, while unlocking at the same time further economic activities without the need for a trusted third party intermediary.

Applications of this technology, as you may have heard so far, have enabled solutions in trade and supply chain management, financial services, health care, manufacturing, identity management, smart cities, art and media, property and title transfers and many others.

The ecosystem of blockchain now extends to smart contracts, digital assets, tokens, NFTs, DeFi, stablecoins and cryptocurrencies, much of which will be discussed today.

Here are some relevant facts on the Canadian economy and globally as it pertains to blockchain and Web3.

In 2020, building on the ICTC's earlier survey of Canada’s blockchain ecosystem, the ICTC published a report entitled “Chain Reaction: Investment in Canada’s Blockchain Ecosystem”. The report highlighted the growth potential of blockchain technology and outlined critical factors for the Canadian economy.

An overarching theme of this report is that “Canada punches above its weight” in global blockchain innovations and entrepreneurial capacity, with a workforce of around 16,000 professionals—much higher now since the report was done almost three years ago—supported by world-class academic and research institutions. As for examples of Canadian leadership, obviously we've all heard of those, including the intellectual property and genesis of the development of Ethereum.

In terms of the global blockchain technology market, it is forecasted, according to Precedence Research recently, to grow at a rate of 87.1% CAGR—that's combined annual gross rate—from 2022 to 2030 and is expected to surpass $1.59 trillion U.S. by 2030. The token economy market size alone, which is built on blockchain and is part of Web3, is estimated to be around $17 trillion U.S. by 2030, according to recent Boston Consulting Group research.

Also, market forecasts by Cisco estimated that by 2027 as much as 10% of the global GDP could be stored on blockchains. Additionally, a recent LinkedIn report on global blockchain talent insights, with a focus on Web3, highlighted that Canada has one of the highest demands for talent in this space among countries such as Spain, France, Singapore and the U.S.

On the regulatory side, while important strides have been taken by FINTRAC and IIROC to govern crypto transactions, the broader regulatory uncertainty pertaining to the evolution of Web3 in Canada remains a significant barrier that can potentially curtail investment and innovation in this space.

The European Union, as you have heard, so far has recently introduced the MiCA—markets in crypto-assets—regulations, which address crypto-assets that are not currently governed by existing regulations, such as e-money tokens, stablecoins, NFTs, utility tokens or asset-referenced tokens—I call them ARTs. These are all part of Web3.

In summary, the blockchain worldwide market is growing rapidly and is very competitive, with many countries fast-tracking the development of blockchain platforms as well as talent and investment attraction. Topping the list are Estonia, Switzerland, the United Arab Emirates, Sweden, Singapore and the United States, as well as many other countries.

In conclusion, for Canada to be a leader in this environment, an all-encompassing strategy is needed to address the following. First is supporting research in this space, with a focus on commercialization through targeted investments. Second is favouring foreign direct investment attraction that promotes blockchain and Web3 advancement while growing the ecosystem of entrepreneurs and jobs in Canada. Third is carefully establishing a regulatory regime that enables certainty and transparency and supports innovations while sending a signal to global markets that Canada is the prime place for blockchain and Web3 development. Last is preparing Canada's talent for Web3, and tomorrow's Internet of value economy will be critical to maintaining Canada's innovative capacity in this space.

Thank you for the opportunity. I look forward to your questions.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Mr. Anani.

We will now turn to Tanya Woods from Futurity Partners.

[Tanya Woods, Chief Executive Officer, Futurity Partners]

Good afternoon honourable committee members.

Thank you for committing to listen, learn and consider how blockchain and digital asset technology is being used today and can be used in the future to best support Canadians and their capacity to confidently engage in the digital economy.

My name is Tanya Woods. I'm the CEO of Futurity Partners, a strategic advisory firm working globally with future forward public and private organizations innovating with blockchain, AI, quantum and Web3 technologies to achieve positive public impact objectives.

I join you today as a legally trained subject matter expert with nearly 20 years of experience working on decentralized and digital technologies and related global legal and policy issues.

Some of my relevant contributions include writing the first academic paper on smart contracts for music rights for Web3 in 2008 and catalyzing the payout of $50 million in unpaid royalties to Canadian musicians. I've innovated world-leading copyright enforcement provisions targeting bad actors in peer-to-peer ecosystems and participated as a member of Canada’s trade negotiating team, advancing global and digital enforcement agendas.

I founded Canada’s first blockchain and digital asset trade association, the Chamber of Digital Commerce Canada, where we created the first-ever blockchain policy strategy for Canada and designed the first-ever economic study, measuring the economic contributions of the industry.

I've designed and built the first decentralized in-kind donation platform that enables in-kind donations to flow easily, quickly and accountably to charities and not-for-profits in real time.

I'm here today to support your work, because Canada's blockchain innovation ecosystem has the capacity to punch well above its weight globally if provided with the right conditions for success. While not a panacea, today we are discussing an incredibly transformative technology vertical that has the power to correct and improve outdated systems and processes, as well as people’s lives.

I would like to share two short use cases that demonstrate the public importance of this technology we are discussing today.

The first use case relates to cybercrime and human exploitation. Today, more than 40 million people are estimated to live in modern slavery, being trafficked and exploited, including here in Canada. Most cross-border trafficking happens using falsified identity documents. Blockchain innovators are working today to advance digital identity technology, so that every person has incorruptible identification credentials. The benefits of digital identity go beyond human exploitation and include enhancements to fight against money laundering, terrorist financing and other areas of organized crime.

In 2019 it was a blockchain cybersecurity start-up that enabled the U.S. department of justice and global law enforcement officials to take down the world’s largest child pornography ring. The ring and its cast of characters was as global and decentralized as the Bitcoin they used to purchase access to clips of child sexual abuse. What foiled the ring was the fact that the Bitcoin transfers were traceable on public Bitcoin blockchain ledgers.

The immutable, verifiable nature of blockchain-based transactions continues to enable law enforcement officials to work together to uncover the dark web and decentralized crime rings that exploit vulnerable people. The jurisdiction of digital assets and custody solutions are key to swift and effective enforcement measures. While incredible progress is being made, a general lack of broad blockchain and digital asset policy consideration, combined with outdated legislation and insufficient funding resources, continues to impede law enforcement’s capacity here in Canada.

My second use case is about climate innovation. Today it remains unclear when a digital asset token would be considered a security or a mere digital token to enable some other form of useful purpose to its owner, like a utility token.

Public companies in Canada and globally have been told they must prepare for mandatory ESG disclosures imminently. One way these companies are taking positive steps on climate change is by purchasing carbon credits. The carbon credit market is complex and challenged by a lack of transparency and traceability, and authenticity issues regarding the credits sold and the projects related to the credits.

One group of Canadians has positioned itself to become the global leading carbon utility token issuer and trading platform, leveraging digital asset technology to represent verified carbon credits, and providing a blockchain accounting ledger to track credit purchase and retirement.

Because Canada has not provided clarity regarding utility tokens, the team has had to establish a company outside of Canada and seek regulatory approval in another jurisdiction to ensure that it can move this much-needed innovation forward in step with public company demand and need.

In a world of greenwashing and ever-urgent climate and social impact priorities, Canada should be an obvious jurisdiction for social and environmental innovation that promotes transparency, accountability and impact, and it is not.

I encourage the government to continue this dialogue and to establish a working group of experts to advise on beneficial public blockchain innovation. A lack of knowledge or familiarity with the subject matter must not be used to justify delaying the adoption of positive public and socially beneficial innovation. This is not a moment to politicize this technology. Now is the time for government to move swiftly and holistically to ensure that blockchain and digital-asset innovation evolves and serves the best interests of all Canadians.

Thank you for your time. I look forward to answering any questions you may have.

[The Chair, Liberal, Joël Lightbound]

Thank you very much.

For our last testimony, we have Jesse McWaters from Mastercard.

The floor is yours.

[Jesse McWaters, Senior Vice President, Global Head of Regulatory Advocacy, Mastercard]

Thank you.

I'm honoured to have the opportunity to represent Mastercard in today’s important discussion on blockchain technology.

Mastercard’s operations today are about much more than just our card network. Our business is focused on enabling trusted digital commerce across multiple payment rails, including cards, real-time payments and now blockchain-based networks.

When we think about blockchain, we consider it within two distinct dimensions: first, as a novel technology with the potential to transform how information is shared and how value gets moved, and second, as the underlying engine for a rapidly growing community of crypto-asset ecosystems.

As a technology company, Mastercard invests heavily in blockchain research. We have one of the largest blockchain patent portfolios in the payments industry, and we are exploring a range of applications, many of which are unconnected to existing crypto-asset ecosystems. This includes building new, next-generation digital ID systems, streamlining trade finance and enabling proof of provenance within complex supply chains.

At the same time, Mastercard plays an important role as a payments company. For consumers who choose to interact with crypto-assets, we help them safely bridge the gap between the world of crypto and traditional finance. We do this by establishing secure and compliant on- and off-ramps for funds and by enabling the issuance of cards that let individuals seamlessly fund transactions using value stored in their crypto accounts.

Our due diligence processes have long recognized the risks inherent in novel ecosystems. We apply strict criteria to our partnerships with crypto-asset service providers, requiring compliance with all relevant regulations and a commitment to robust standards of consumer protection. We fundamentally believe that a blockchain-powered future isn’t possible without accountable systems that ensure safety, compliance and good governance.

Recent developments in crypto have underlined the importance of these principles, as well as the detrimental effects of unclear regulation and lax enforcement. In contrast to those who suggest that regulation would stymie the rapid pace of crypto’s innovation, we believe that effective regulation will accelerate the most beneficial kinds of innovation while mitigating many of the evident risks.

As this committee considers the regulatory frameworks required for blockchain-based systems, we humbly present the following three suggestions.

First, the regulation of crypto assets should begin with the goal of being technology neutral. This means establishing frameworks that avoid regulatory arbitrage by establishing a consistent burden of compliance across similar types of regulated assets and activities. An excellent example of this is the Financial Action Task Force, a global anti-money laundering standard setter that has provided clear guidance on how existing financial-crime rules should be applied to firms handling crypto-assets.

Second, where new regulation is required to accommodate the distinct characteristics of a blockchain-based ecosystem—for example, to recognize the unique cybersecurity risks and challenges faced by crypto-asset custodians—those new rules should aim to deliver the same regulatory outcomes as comparable assets and activities for a given level of risk.

Finally, a particular focus should be given to stablecoins. Efforts to bring stablecoins into the regulatory perimeter are under way in many advanced economies, including the European Union, the United States and the United Kingdom. Canada may wish to consider the merits of a comprehensive regulatory regime for stablecoins that imposes robust requirements for liquidity and capital management, as well as standards for redeemability, consumer protection, operational resilience and the resolution of stablecoin arrangements in the event of failure.

In closing, we believe blockchain has the potential to drive significant value across a wide range of use cases, but that any system trusted to move value needs clear rules to manage risk and address unforeseen governance challenges. We are eager to collaborate with this committee and with similar efforts across the country to ensure safety, security and compliance across the financial system.

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

[The Chair, Liberal, Joël Lightbound]

Thank you all for your testimony. It was very interesting.

Without further ado, we will begin the discussion with Ms. Rempel Garner.

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

Thank you, Mr. Chair.

Ms. Woods, is it fair to characterize Web3 technologies as much broader and more far-reaching than just cryptocurrencies?

[Tanya Woods]

Absolutely.

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

Would you characterize jobs that are created by Web3-enabled technologies as digital economy jobs?

[Tanya Woods]

They're absolutely digital economy jobs.

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

Are those the types of jobs that you envision when you hear politicians talk about the transition from a natural resource-based economy to a digital economy?

[Tanya Woods]

Definitely, in part.

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

In the report the Chamber of Digital Commerce issued in 2019, you stated, “Approximately 37 percent of all Canadian blockchain activities take place in Western Canada.”

Is that correct?

[Tanya Woods]

There was and still is a sizable amount of activity in western Canada.

[Michelle Rempel, Conservative, Calgary Nose Hill, AB]

If there isn't an adequate non-balkanized regulatory framework produced by Canada and its various subnational governments, do we risk pushing some of those jobs out of western Canada to other jurisdictions?