Industry Committee on Dec. 8th, 2022

[The Chair, Liberal, Joël Lightbound]

Thank you.

Mr. Lemire, you have six minutes.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

I will try to take five and a half minutes since the witnesses are from Quebec and the Digital Governance Institute.

I thank them for being here today.

Mr. Gauthier, I commend you for your generous contribution and your leadership in encouraging Quebec businesses to digitize. We would like to have more time to consider your document in its entirety. Would you be willing to submit the white paper you talked about as brief to the committee?

[Jean-François Gauthier]

I don't see a problem with that. I would, of course, be pleased to do so.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Thank you.

Ms. Bouchard, your background is very impressive, and Quebec is grateful to be able to count on your know-how. You are a pioneer and a researcher who has explained to us how notaries use blockchains in their practice in the form of smart contracts.

Can you tell us about your application? I think that it could revolutionize the way other professions, such as chartered accounting and engineering, do business.

[Prof. Charlaine Bouchard]

Thank you for your comments, Mr. Lemire.

Blockchain technology is a data certification and integrity technology. Over time, as blockchain technology emerged, we saw that there was confusion between the notary, a public officer, and the notary public. Quebec notaries are not the first in the civil law tradition. In fact, French and Italian notaries are similar. We developed a whole smart contract mechanism, among other things.

We know that blockchain technology has three main advantages. The first is the automation of transactions. The second is the certification of data, which in my opinion is the ideal technology for registries containing sensitive information. The third is the possibility of dematerializing shares into tokens to do business on a global scale.

We are therefore in the process of prototyping and implementing a notary blockchain, which will be done in three phases. One of the phases will involve automating notarial contracts. Because of the COVID‑19 crisis, notaries are now notarizing digitally and that will continue. We are integrating smart contracts, which will help save a lot of time. Obviously, this is all being done for the benefit of Quebeckers. In another phase, notaries will use certain types of tokens to dematerialize property, shares and intellectual property rights.

Basically, that is what we have planned for the coming months.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

According to a university article, blockchain technology can address increasingly complex supply chain management challenges for some products, but it also presents issues. For example, since each node in a blockchain registry is potentially located in a different part of the world, it could be hard to decide what laws apply and what courts have jurisdiction to address potential supply chain management issues.

I am thinking here of the smart ports project. According to the logistics of transport, documents must be submitted for every load and every customs obligation. What measures could be taken to manage this potential problem? Is the blockchain technology currently being used in managing some supply chains sufficient? If so, how are problems managed?

[Prof. Charlaine Bouchard]

I can provide the first part of the answer.

There are advantages to blockchain technology, mainly for data integrity, as I mentioned earlier. In terms of supply chains, this technology will also protect data and streamline processes, in addition to decreasing resource waste and abuses. However, it will not fix all the problems.

We of course have to make the distinction between public blockchains and private blockchains. In the case of a private blockchain, the problem would be different from what we see with a public blockchain.

In the example you gave, where it would be a public blockchain, you identified an important element. There are potential problems. That is a case where action would be needed to protect our data and ensure it was not sent across the Atlantic or around the world. That’s an important element.

In the example you gave, there are tremendous advantages to using this technology, but you would need a framework. The technology cannot be deployed without regulation. That’s an example of a limit.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Thank you.

M. Déziel, there is a lot of information on your website about the place of technology in free and open digital media in preserving and promoting Quebec cultural content. Your proposal for a digital cultural strategy hints at solutions for recognizing the true value of our authors’ and creators’ work.

Could you explain the role of blockchains in this context?

[Guillaume Déziel]

Thank you for your question.

The importation of the digital lock model is the first application we saw to protect how cultural content is consumed. With this kind of model, specific permission from a particular blockchain is required to execute, run or read a file or content. It’s one of the options.

However, anything called shared and nano‑management of revenues—I think Ms. Woods spoke about it at the beginning of the meeting—would seem to be much more obvious and useful.

In the cultural industry, there is a huge number of revenue sources that pay less and less. Managing all of this is an enormous task, and it can sometimes cost more to manage the revenue than its actual value. I hope I’m being clear. In such cases, it is so appealing to have the equivalent of an Excel spreadsheet that would receive revenues on one side and automatically distribute them to the people who should be receiving them on the other, without human intervention, seamlessly, transparently and in perpetuity, that it is probably what we will see happen in the future. It’s just a question of time.

There is also the issue of the user's experience. It’s probably the only area that is slowing down the adoption of blockchain technology at the moment, as it means users are responsible for the keys to their own safes. This is noteworthy. I think it’s a question of time until all users are better able to manage that. As the representative for Mastercard said earlier, huge investments are needed in security platforms that will manage other people's keys, if necessary. It’s clear that people will really need to be educated, which will, generally speaking, lead us to adopt these technologies more quickly.

[Sébastien Lemire, Bloc, Abitibi—Témiscamingue, QC]

Thank you very much.

[The Chair, Liberal, Joël Lightbound]

Thank you.

I will now give the floor to Brian Masse for six minutes.

[Brian Masse, NDP, Windsor West, ON]

Thank you, Mr. Chair, and thank you to the witnesses for their testimony.

I'll turn this over to Madame Bouchard to start, and then to anybody else who wants to talk about this, because you brought up about the not-for-profit as well.

I'm concerned about fraud and how we move forward on a solid policy and also deal with the fraud that is part of every industry. There have been lots of significant problems, and public confidence has been shaken, I think, most recently.

How do we deal with that? How do we build a path forward to get over that and to build confidence and accountability?

[Prof. Charlaine Bouchard]

That's a big question.

There are two things to consider in connection with fraud. First of all, there is the technology itself. Blockchain technology is one of the safest and efficient on the market because of its characteristics. The other witnesses before me have spoke about concepts like cryptography, data integrity, transparency and traceability. Those are the key features of blockchain. To give you an example, Bitcoin has never been counterfeited since its first appearance in 2008.

Unfortunately, in most instances, it's the use of the technology by individuals that will lead to fraud. That means that it's both extremely difficult and very easy to answer your question. The use of the technology by individuals has to be within a framework. My colleague mentioned earlier that it was important to invest in platforms. I agree with him, but the platforms also require a structure, because some people, some human beings, can hide behind them.

Blockchain technology eliminates some of the intermediaries, but also introduces new ones. Like any technology, blockchain is used in a world in which some individuals will misuse them, And that, unfortunately for the fierce advocates who have developed these technologies, will require protection for consumers.

In short, the strengths of the technology's characteristics need to be distinguished from its use by people who use it incorrectly and commit fraud. These people have to be dealt with.

Thank you.

[Brian Masse, NDP, Windsor West, ON]

Thank you.

I see that I have three others, and I probably have about three minutes left.

I can start with Mr. Mills and go across the board. If you can take a minute...I would like to hear from everybody on this. It's an issue I have a lot of interest in.

Please begin, Mr. Mills.

If everybody could take one minute, Mr. Chair, that should hopefully get all of the testimony in.

[Brad Mills]

Thanks.

Mr. Chair, one of the important things we should be looking at to make Canada safer from fraud in crypto markets.... I'm going to take a progressive, open view here. Let's say that not everything that's happening in blockchain tokens and digital assets or whatever is fraudulent, pump and dumps, and stuff like that. I'm not saying that right now.

I'm saying, let's say there are some digital commodities. Maybe it's not just Bitcoin. Maybe there are other things, as well, that meet the guidelines that would make it safe for people to want to invest long term or save in Bitcoin. Personally, I think it's just Bitcoin.

One thing for sure is that we do not have friendly banking regulations for Bitcoin companies. I think we need to improve on that, especially working with companies that are creating this SPDI framework in Wyoming to be able to allow companies like Shakepay, which has a million Canadian customers who have Bitcoin, to have a bank charter.

Canadians would be able to put their Bitcoin in Bitcoin banks, rather than resorting to going off and speculating at these companies that are not even holding Bitcoin; they are just pretending to sell you Bitcoin overseas.

[Brian Masse, NDP, Windsor West, ON]

Thank you.

Please, go ahead, Mr. Déziel.

[Guillaume Déziel]

I would answer that question by reiterating the importance of taking action to regulate the technology so that people know what they mustn't do, and in particular, to establish institutions to regulate those who take initiatives and seize opportunities in this field.

For example, one of the reasons why I was willing to visit a cryptocurrency exchange platform was that it had a registration number from the Financial Transactions and Reports Analysis Centre of Canada. It's reassuring for consumers to see that these platforms are regulated. That doesn't mean that they won't still be able to play games with money, given that human behaviour is not infallible. Our authorities, institutions and governments nevertheless need to establish systems to approve startup companies, perhaps even by encouraging the various financial market authorities to create sandboxes, and ensure that these businesses are properly guided and structured from the outset. That would be very reassuring to citizens.

[Brian Masse, NDP, Windsor West, ON]

Thank you.

Mr. McWaters.

[Jesse McWaters]

Thank you.

As Madame Bouchard said, crypto has seen the appearance of new intermediaries. I think two are particularly important for achieving trust in the ecosystem. Those are exchanges, or virtual asset service providers, and stablecoin issuers.

In the case of exchanges, it's particularly important to ensure that appropriate supervisory regimes exist around the segregation of customer assets. One reason the failure of FTX was so challenging was the commingling of FTX assets and customer assets in inappropriate ways.

With respect to stablecoin issuers, it's critical that the stabilization mechanism underlying that stablecoin be effectively monitored to ensure that the stablecoin is appropriately collateralized, either by being wholly collateralized by bank deposits in the case of an e-money type of stablecoin, or by being issued by a bank institution in the case of a tokenized, deposit-style stablecoin.

Thank you.

[The Chair, Liberal, Joël Lightbound]

Thank you very much.

We'll now turn to Mr. Williams for five minutes.

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

Thank you, Mr. Chair.

Through you, I've been very consistent when I ask panellists questions.

I'm trying to get a scope of anyone who has any hard data on the size, worth and number of jobs that blockchain is worth to Canada right now. Do any witnesses have that data?

[Namir Anani]

Maybe I can add a little.

The study we did back in 2020 indicated that there were approximately 16,000 in the workforce in Canada. With the CAGR at the time.... In fact, even in 2017 we estimated that it was growing by 33% year over year.

We definitely need a more in-depth analysis of this market. As I highlighted earlier in my briefing, the market's growing quite considerably across the globe, with many countries taking a first-move advantage in that space.

There's potential for us to not only develop the talent, but to lose that talent to south of the border, to many other countries in Europe and potentially to Asia.

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

Thank you. I'm sorry for interrupting you, but I have only so much time.

Does anyone else have anything else to add? If not, the witnesses can also submit data.

[Guillaume Déziel]

I'd like to point out that requests have been made for objective data on this area. The problem in our industry is that analyses are qualitative, not quantitative. For example, I can tell you with certainty that all Bitcoin miners have left Quebec since the introduction of a moratorium and a number of deterrent pricing measures.

As an entrepreneur, I can assure you that I have trouble finding developers of Solidity code on Ethereum, because they are leaving to work for other companies outside Canada. There are fewer and fewer of them. They either go to Toronto, or get out of Canada. It's therefore difficult to find accurate data. On the other hand, I would encourage you to include an institution that could measure this type of effect in the regulations.

Thank you.

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

Thank you so much.

Ms. Woods, what are the potential uses of blockchain by government?