Industry Committee on Feb. 1st, 2023

[Daniel Brock]

We have created dozens and dozens—hundreds—of jobs across the country.

[Sheldon Bennett]

Perhaps I can add to Mr. Morphy's comments.

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

Yes, please.

[Sheldon Bennett]

My name is Sheldon Bennett. I am the CEO of DMG. I've been in the blockchain space for a very long time, going back to 2013 and 2014.

To answer your question, in terms of jobs, the number in our industry is in the thousands. You have to realize that there are other large public companies like Bitfarms. Also, HIVE and Hut 8 are both very large public companies. I'm a smaller public company in British Columbia. I employ only about 30 people; however, I've spent over $60 million in infrastructure with local contractors and electricians.

I see the ability to grow. There's an amazing amount of demand for crypto mining in Canada due to the favourable legislation, as people understand it. Obviously, as part of the consortium together here, we have an issue with some of the federal legislation. However, barring that, if capital were freely available and sites and power were available, we could continue to work with energy providers and grow more, hire more and invest more in Canada.

There's been a dynamic shift of hash rate out of Europe and Asia and into North America, into the U.S. and Canada. That's continuing to happen because of the rule of law, because of infrastructure and because of a well-educated workforce—all things that Canada has and all things that our companies are trying to take advantage of. At the same time, there are costs, and it is very important to be competitive. We compete with the U.S., our closest neighbour, which is very competitive. The only things that stop us are understanding the market dynamics of the rules we have to follow and having access to capital.

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

I'll ask an inverse question: What will it cost us if we don't get the regulations right for blockchain?

[Sheldon Bennett]

I'll let others answer that.

If we don't get it right, business and shareholders will require CEOs like me, Geoff and others to re-evaluate whether or not Canada is a place where we should be doing business. As Canadians, we never want to do that, but if we can't make a business viable in Canada, we would have to continue to try to grow it in a different jurisdiction. Obviously none of us want that.

I have built hundreds of megawatts of crypto mining with participation by many utilities in many communities to do this. I know there's negative publicity around it, but there's also positive publicity. Most of that negative publicity is around U.S. operations, not Canadian operations. The media pick up on a lot of things that are happening with our neighbours. It's not particularly happening in Canada.

What's at risk, just to answer your question, is that we would have to make choices with respect to capital expenditure and the future of our companies operating in Canada.

[The Chair, Liberal, Joël Lightbound]

Mr. Williams, that's about all the time you had.

I know Mr. Oliver and Madame Mainville had their hands up. If, going forward, another MP wishes to give them the opportunity to answer, they have manifested an interest.

Mr. Dong, you have six minutes. The floor is yours.

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

I completely agree with the chair. I would like to give the first couple minutes to witnesses who raised their hand to comment on the last question.

[Stephen Oliver]

Thank you. Perhaps I could just jump in.

I know data has been hard to come by, but we do have a certain amount of data on the jobs front for at least one of the subsectors. Some recent data from FINTRAC does show the number of domestic and foreign money services business, or MSBs, that deal in virtual currency. The statistics reflect that the number of registered businesses tripled between 2020 and 2022. The number of employees at these businesses increased from just over 100 in 2020 to just under 13,000 by 2022.

As I say, that's just one segment of the industry. I just wanted to contribute those stats so you could see that the trajectory for growth is significant.

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

Okay.

I'll go to Ms. Mainville.

[Dina Mainville]

Thank you, Mr. Dong, for giving me the opportunity to answer this questions.

I think the answers that were provided were excellent, but I also want to encourage the committee to start thinking about the new era of the Internet as being able to unlock value that we are not currently seeing.

If 92% of the Canadian population has access to a cellphone and is online, we're going to have infrastructure in place that allows them to monetize their data. Theoretically you might posit that every single person in Canada who has access to a cellphone or the Internet will be able to see some kind of value generation through this technology. You should probably start thinking about that as maybe not jobs in the traditional sense but rather value creation in this new economy.

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

Since I have you on the screen, I want to ask you, from the consumer protection perspective and given what we've seen with the FTX crash, about some of the ethical and legal implications that could rise from cryptocurrency or, by extension, blockchain technology.

[Dina Mainville]

I think that's another excellent question.

As I mentioned in my opening statement, I think it's imperative for government to work with industry on creating safe measures for businesses to operate in this space. I have actually had the opportunity to speak with many Canadian regulators and regulators globally to understand their sentiment in the aftermath of FTX. They seem to understand that this is not a crypto-specific problem; this is a business governance problem. It's an oversight problem. It's supervisory problem.

I think the ethical and legal considerations that you're referencing are real. I think that the Canadian government should be working with industry to figure out what those are and how to establish the appropriate safeguards for consumers in Canada.

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

Currently, to your knowledge, in Canada or abroad, is there such an oversight body for cryptocurrency from whose experience we might be able to learn?

[Dina Mainville]

Is that question directed to me as well, Mr. Dong?

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

Yes.

[Dina Mainville]

We don't currently have any centralized body that does legal enforcement globally. We do have intergovernmental bodies like the Financial Action Task Force. That body in particular is responsible for setting standards to help combat money laundering globally. Those standards are then interpreted by nation-states and transposed into local law. We can look to bodies like that.

I would also encourage the Canadian government to work with our international partners on creating a harmonized approach to digital asset regulation.

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

Thank you.

The same line of questioning goes to Mr. Oliver. I want to hear what you have to say on this subject.

[Stephen Oliver]

I will say that, in addition to my role at Tetra, I also teach a corporate governance and ethical decision-making course at the University of Calgary. A large part of our learning in that class comes from reviewing the fraudulent corporate governance and broader corporate governance failures of other companies, of which there is no shortage, and they're certainly not unique to cryptocurrency.

That said, it's an understandable question, obviously given the recent happenings in the industry. I think it's worthwhile. There is a level of traceability in blockchain ledgers that is very transparent. There are numerous companies doing great work in identifying the wallets of bad actors. Once these wallets are identified, they can be traced back and lead to law enforcement agencies being able to recover funds and sometimes arrest the culprits.

As the digital asset industry matures, so too do the fraud detection capabilities.

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

First of all, I want to thank Ms. Rozansky and Mr. Brock for coming in person. It is not very pleasant out there. It's cold today.

Ms. Rozansky, I was listening to your earlier remarks about the indirect taxation. Can you expand on that a bit, so that we can all understand what you were talking about?

Are you encouraging the coverage of HST and so on and so forth in the digital or blockchain industry, or are you discouraging it and saying we shouldn't be doing that?

[Tamara Rozansky]

Thank you for the question.

I will say that I'm encouraging legislation on the matter, but just legislation that makes sense with the industry. As it exists today, there are limited amendments to the legislation to treat cryptocurrency. There was a definition for “virtual payment instrument” added to the definition of “financial instrument” that captures some of the cryptocurrency, but not all.

Last February, the Department of Finance released proposals for these additional amendments that I spoke about. What those additional amendments are set to do is restrict people in this mining space from claiming their credits on tax paid. That's a significant difference from the large majority of businesses here in Canada, which, as I mentioned, are eligible to claim their credits because they are in taxable or commercial activity.

I could certainly go on for a while on different ideas.

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

Would you agree that the same challenge was for the entire blockchain industry, or was it just for cryptocurrency?

[Tamara Rozansky]

I would say it's probably most focused on what they're defining as crypto assets in the proposed legislation more broadly than on our typical cryptocurrency. It seems like NFTs, for instance, might be captured under that, but it's definitely more restrictive than blockchain as a whole.

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

Also, it's because it's a financial instrument as well as an investment product.

How would you say the volatility is with cryptocurrency, given its recent history?

[Tamara Rozansky]

I'm sorry. Could you repeat that?