How Blockchain is Impacting Canadian Fintech Markets

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NCFA post | Grace Carter | May 4, 2018

Blockchain is an exciting and emerging technology that has the potential to change the business world, and the lives of many people. This technology serves as a digital ledger where data, such as financial transactions can be securely recorded, immutable and digitally transferred to anywhere around the globe without a traditional intermediary. By its nature, blockchain technology leverages peer to peer networks and resource nodes and has garnished interest from start-up innovators to multi-national banks to governments who see potential use cases across virtually all industry sectors ranging from finance to blockchain for social enterprise and good.  The most well-known use of blockchain technology is bitcoin, a digital currency not connected to any government or bank. Blockchain is best known for eliminating the middleman in online financial transactions, but there are many other possible uses for it, such as electronic voting technology, and keeping people’s data away from third-party information harvesters.

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Blockchain has become very interesting to the Canadian federal government, which is attempting to make the technology part of its goal of increasing innovation in the Canadian economy. Canada, specifically Toronto, has emerged as a leading center of blockchain development. Jeremy Clark, a blockchain expert from Concordia University, believes the technology can expand in his country if regulations are relaxed. He believes Canada can become an international leader in blockchain under the right conditions.

Blockchain’s fortunes in Canada will largely be determined by how regulations emerge for initial coin offerings (ICOs), as a means to help early stage ventures raise crowd capital to launch a start-up or project (ICOs are similar to shares a person buys in a company, the main difference being that they can also be used to purchase goods and services) and regulatory requirements for how cryptocurrency exchanges will be overseen as well as how digital currencies/commodities will be treated as a means to generate and store wealth. Investors are hoping that over-regulation doesn’t strangle Canada’s fervently growing blockchain industry, as was the case in China, which temporarily banned ICOs in the second half of 2017 although some of the Canadian banks such as TD Canada have already implemented decisions to restrict consumers from paying for cryptocurrency with their credit cards.

Blockchain poses a conundrum to regulatory bodies such as the Canadian Securities Administrators (CSA). The CSA has announced that ICOs may begin to face regulations, as if they were securities. Fintech companies have protested that coins purchased through ICOs are not shares in a company, but are also used for purchases. Because of the confusion and uncertainty surrounding ICOs, offering companies often decide to not allow citizens of certain countries to participate.

“A example is the Canadian based company Kik, which did not allow Canadians to purchase ICOs during their campaign in 2017. For the industry to grow, such confusion needs to be clarified by regulation by bodies, such as the Financial Transactions and Reports Analysis Centre of Canada (FinTrac), to ensure users are trading fairly and following proper protocol,” says Heather Janson, fintech writer. Kik is just one of the companies funding projects through ICOs, also known as crowdsales, enabled by the peer to peer networks facilitated by blockchain technology.

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The hope is that regulators can find a happy-medium between fostering innovation and avoiding unpredictable consequences from new business technologies, such as ICOs. The arrival and disruptive nature of blockchain is throwing fresh scrutiny on Canadian fintech companies and how they operate. Regulators are seeking to protect consumers from shady business practices and also to protect companies by providing them with clear rules and regulations. Perhaps most importantly, regulatory bodies are concerned about the effects of blockchain on the financial system itself.

In February 2017 the CSA began its Regulatory Sandbox Initiative (RSI). Sandbox policies allow approved innovative companies to do business with people and test out their business models while being exempt from securities laws and regulations. The RSI should allow Canadian authorities to get a better idea of how blockchain startups are affecting the market. The initiative will also give regulatory bodies a chance to evaluate the sector so they may update their securities regulatory framework for fintech companies. There seems to be a general consensus from those in the Canadian blockchain world that clear regulatory guidance is its best chance at survival and growth.

We’ve seen how insufficient regulation can stymie an industry like blockchain, but the other fear is over regulation. Over regulating could strangle an industry in its infancy by driving companies to places like Singapore, which is known for more supportive regulations of innovation finance models. It would be an absolute tragedy for an industry valued at over $500 billion to be lost to Canada because of poor government policy.

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Blockchain, and particularly cryptocurrency, has been taking the financial world by storm recently. Canada has found itself in an ideal position to benefit from this new technology by creating a new sector of innovation. There are a lot of hopes resting on the successful regulatory navigation by the Canadian government and its regulatory bodies. Blockchain technology is here to stay; the only question is, will it set up shop in Canada or leave for better opportunities elsewhere?

Grace Carter is guest writer at NCFA and a business coach at BoomEssays and UKWritings writing services. She helps people improve public speaking and create eye catching presentations. Also, Grace is content proofreader at Essayroo writing service.

 


The National Crowdfunding & Fintech Association of Canada (NCFA Canada) is a cross-Canada non-profit actively engaged with both social and investment crowdfunding, alternative finance, fintech, P2P, ICO, and online investing stakeholders across the country. NCFA Canada provides education, research, industry stewardship, and networking opportunities to over 1600+ members and works closely with industry, government, academia, community and eco-system partners and affiliates to create a strong and vibrant crowdfunding and fintech industry in Canada.  For more information, please visit:  www.ncfacanada.org

 

 

 

 

 

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