Industry Committee on Feb. 1st, 2023

[The Chair, Liberal, Joël Lightbound]

Yes, it is, Mr. Masse, but we'll get back to you. Thank you.

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

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

Thank you, Mr. Chair.

My first question is for Mr. Oliver. I'm following up a bit on Mr. Lemire's questions.

Earlier we heard from a number of the witnesses that there weren't custodial services available in Canada, and that is one of the barriers to the development of the industry, so I'm pleased to learn that you exist.

Are there other custodial trusts developing? Are there Canadian banks interested in looking at getting into the custodial business at all?

[Stephen Oliver]

At the moment, the situation is that you do have custodians that have a primary focus on digital assets but are not regulated, and then you have custodians that are regulated but don't have a primary focus on digital assets. At present, Tetra is only one that meets both criteria.

Yes, the banks are considering entry, but I think that they're definitely skittish to jump in, of course, and then there would be—

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

Mr. Chair, I'd like to report that the sound has been cutting out.

[The Chair, Liberal, Joël Lightbound]

Okay.

Mr. Oliver, I apologize. I think we have too big an issue with the quality of the sound, and the equipment has been tested. Unfortunately, I will have to ask you to send us the answers in writing. It's a problem for the interpreters. I apologize for that. Perhaps someone else from the coalition or any of the other witnesses can answer .

Mr. Perkins, I'll let you continue.

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

Is there anyone else who wants to continue on that same question? If not, I'll move on to the next one.

[Geoffrey Morphy]

I'd like to comment on the Canadian banks.

It has been commented on twice already in this session that the Canadian banks are not supporting this industry. There is a lot of education that is necessary in this industry, everywhere. We spend a considerable amount of our day educating investors and people who are interested in doing business.

The banks—for whatever reason; maybe it's directed by the federal government—don't want to engage in our business. Opening a current account is challenging, yet there is such opportunity for the Canadian banks in foreign exchange, which they're already big in.

The cryptocurrencies are already trusted. We have among the best banking systems in the world. The banks can add depository accounts. They can broaden their business. They can get into additional products, which they already do and have the systems to control very, very well. I think we ought to be encouraging them to take a more proactive stance in terms of education and applying the assets and resources that they have to the sector.

Canada has a huge number of people who are experts in this industry, up and down, in custodial roles, in regulatory areas, in mining, in technology. We need to take advantage of that. The Canadian banks really need to step up here. It's not just the private Canadian banks; it's also EDC and BDC. We've gone to them numerous times, and they just say they can't help us.

It's very frustrating being a Canadian company that is not taking any subsidies whatsoever and is working hard on the global stage to become successful without local help. They give that to every other industry.

It's a frustration point for us. We're hoping that the government could take some leadership in promoting this industry. It's coming, and it's going to get bigger and bigger.

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

I see that there are two other hands up.

Along the same line, maybe I'll throw in a commentary. We have a protected oligopolistic banking system, which has been good and bad for consumers. They are slow and they are protective of their competitive framework.

I'm wondering how much of that is the issue, or is it that they are massive bureaucracies that move slowly? Also, what are your views on the custodial services?

[The Chair, Liberal, Joël Lightbound]

I'm sorry, Mr. Perkins, is there—?

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

There are two witnesses with their hands up. I thought they—

[The Chair, Liberal, Joël Lightbound]

No, you direct it. You're the master of the room.

[Sheldon Bennett]

I'll take a stab at it, if you'd allow me to go first.

On the the banking side, it's been very difficult, as Mr. Morphy said, even for our company. We do nothing illegal. We follow all of the laws. We pay our taxes. We are very transparent. We're a public company. All of our crypto is audited. Everybody can see it on public blockchain. There's nothing nefarious in anything we do.

BDC has told me directly that they have a mandate not to support crypto companies. They can support all sorts of other companies. It makes no sense that we're discriminated against in this manner by BDC.

EDC is another challenge. However, I think their mandate is a little bit different for us. I would love to get EDC's help. One of my board directors in my company sits on governance and compliance on EDC. He definitely understands some of the frustrations that our company has.

If the Canadian government's BDC won't support crypto, it's really hard to get other commercial banks to support crypto—not even support it, but do business with it. It's not even about supporting it and giving it anything special; we just want to be treated like any other business that's legal in Canada.

With regard to companies like Tetra, I sit on the board of a company called Brane Trust. It's also in Alberta. It is not a qualified custodian like Tetra. It's working towards that. It is having a lot of problems doing this. It is difficult to pass all of the thresholds. However, it's encouraging that there are other Canadian entrepreneurs out there who are trying to bring more companies into the custody side of the business for consumers and businesses. Hopefully, there will be more in the future. I think the more there are the better it is for giving the industry choice and helping the industry develop.

I encourage Brane, as a board director and an investor in their company. I hope for their success. I'm sure that Mr. Oliver would say the same. He knows them very well as well.

It's not really about competition as much as choice in developing this industry. If you talk to exchanges, custodies, crypto miners or people who work in compliance in Canada, they're all trying to help this industry grow. It's really difficult with the situations that we're facing right now.

[The Chair, Liberal, Joël Lightbound]

Thank you very much.

I'm sorry, Ms. Mainville, but that's all the time we have.

Ms. Lapointe, you have the floor for five minutes.

[Viviane LaPointe, Liberal, Sudbury, ON]

Thank you, Mr. Chair.

My question is for Mr. Buchman.

In your opening comments, you talked about how Canada needs a federal blockchain strategy that would provide clarity and establish the right balance between innovation and regulation. What key elements do you think should be considered in order to successfully achieve this balance?

[Ethan Buchman]

Thanks for the question.

One thing being talked about is the ability of companies in this space to get bank accounts. A strong statement from the federal government in support of that would go a long way to giving companies the ability to do business.

There are other complexities. For instance, the tax code makes it difficult for companies in Canada to understand what tax liabilities they're going to face in certain kinds of blockchain transactions, because they don't exactly know how to account for them. These companies want to pay their taxes, but it's very complicated. Certain simplifications or exemptions could go a long way.

There are also a lot of risks that entrepreneurs face because they're not sure what kind of liability they might have for writing open source software that will be used in ways they can't control. Protections and guarantees that it's safe to write and contribute open source code would be extremely helpful. It would help position Canada as a safe haven for developers and highly skilled workers. Some of the top-paid jobs in the country are, obviously, in the tech industry. That could help attract a lot more talent.

Those are a few things we face regularly. I've seen companies shut down, leave or go offshore simply because they can't get clarity. They're tired of spending thousands of dollars on lawyers to try to get answers, and they just can't get them.

[Viviane LaPointe, Liberal, Sudbury, ON]

Your website states:

We are a core developer of the Cosmo Network, where we focus on sovereign, interoperable technologies for more sustainable communities. We believe that system scaling is as much a social problem as it is a technical one, and that fixing the exploitative monetization of the internet may require a renewed understanding of money itself.

Can you expand on the idea of “sustainable communities” and “exploitative monetization”?

[Ethan Buchman]

I would love to. I appreciate your looking at the website and asking the difficult questions.

The way we organize entrepreneurship in Canada, broadly, is around corporations and shareholder value. We encourage, through a variety of means, very rapid growth and an extractive approach to building companies. This has resulted in large amounts of financialization and foreign ownership, and a lot of difficulties for smaller communities and more local capital formation.

At Cosmos, we focus more on co-operative approaches to building companies. Informal Systems is structured as a worker co-operative; it's a one person, one vote system. After you've been an employee for nine months—because nine months is the gestation period of a human being—you get one share in the company. That entitles you to one vote. We believe pushing those kinds of ownership models forward—which are more democratic and equitable in governance—can go a long way to improving the structures of the Internet and the ownership models.

Currently, on all the major social media sites and many other Internet platforms, the business model is purely extractive. The contributors of all the value are the users, who don't get compensated at all, because they have no ownership stake. Unless they buy shares on the public markets, they're not otherwise compensated for the incredible amount of value they contribute. It's all just extracted away from them. We're particularly interested in ownership models and corporate models that restore that kind of value to the stakeholders who actually make the contributions.

[Viviane LaPointe, Liberal, Sudbury, ON]

I know we touched upon actions the government could take around a strategy, but I would be very interested to hear your opinion on this: What do you think the role of government should be when it comes to blockchain technology?

[Ethan Buchman]

I think one of the most important things we can do is continue to investigate it and promote education.

We've seen the Canadian government take an active role in promoting artificial intelligence research. There's a huge community in Canada, and Canada is widely known as a leader in that space and for starting lots of companies.

I used to be in AI when I started my master's, but I got nervous that the corporate and social structures we have in place aren't strong or mature enough to handle what's coming with AI. That's why I pivoted to blockchain. I think we need to upgrade the social fabric and distribute ownership more equitably.

Having the government take a strong, supportive stance for that kind of application with respect to this technology, the distribution of ownership, and education in the power of participating directly in governance.... This is bringing a pro-democracy approach to the structure of not just our governments but also our economies and corporations.

[Viviane LaPointe, Liberal, Sudbury, ON]

You mentioned how we have some people leaving Canada. What are your thoughts around not only attracting but retaining some of that talent here in Canada?

[Ethan Buchman]

Providing regulatory clarity would go a long way towards doing that, as well as simplifications of the tax code. There are a number of countries that make it easier for folks to use cryptocurrencies without having to pay taxes on every payment. Simple things like that could really help to both attract and retain talent here.

[The Chair, Liberal, Joël Lightbound]

Thank you very much, Ms. Lapointe.

Mr. Lemire, it's over to you now for two and a half minutes.

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

I'm going to continue on the issue of where cryptocurrency money ends up. The fact that more money is stored in the United States than in Canada, except for what's stored at Tetra, is seriously problematic, in my view.

My question is for Ms. Mainville, but other witnesses could also answer it.

Are there concerns about the fact that our money is going to the United States?

What reservations do people working in cryptocurrency have about this, or what consequences might they point to?

Or, in the end, is it not really a problem?

[Dina Mainville]

I think it is a serious issue. One of the projects that I made reference to in the opening statement—and I apologize for its being maybe too fast for everyone to hear—was a project that started here in Canada, Ethereum, which has a realized market cap of about $240 billion. That went elsewhere. There's Binance. The CEO of that company grew up in the western part of Canada, went to school in Montreal and did business elsewhere.

I do think that the risk of losing Canadian entrepreneurship to other jurisdictions that maybe afford better clarity or have better incentives for bringing that entrepreneurship elsewhere is a real risk that we need to address as a community here in Canada.

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

So there are barriers and they need to be identified.

What impact does a bankruptcy like the one at FTX in the United States have on the money we send there?

Is that one of the known risks?