As Canadian regulators take the first tentative steps towards creating new rules to govern cryptocurrency exchanges, industry watchers are hoping the change will lead to the eventual widespread adoption of blockchain technology.
Blockchain is the technology that underpins decentralized cryptocurrencies, such as Bitcoin. Blockchain is a type of distributed digital ledger on a peer-to-peer network, in which records are confirmed and encrypted, meaning they can’t be tampered with. Advocates of the technology say it makes transactions safer and more secure than current methods.
In mid-March, the Canadian Securities Administrators, the umbrella group for securities regulators in Canada, and the Investment Industry Regulatory Organization of Canada (IIROC), which regulates investment advisors, proposed new rules to govern cryptocurrency exchanges and prevent users from being victims of fraud. The consultation paper is available for comment until May 15, 2019.
“The emergence of digital and crypto assets continues to be a growing area of interest for regulators, investors and marketplaces — and, together, securities regulators are taking steps to deepen our understanding of this area,” said Andrew J. Kriegler, President and CEO, IIROC. “We must adapt to innovation, and provide clarity to the market about how regulatory requirements might best be tailored and applied to these unique business models, while maintaining investor protection.”
“One of the reasons for that is that regulations have not caught up to the blockchain evolution,” he said in an interview. “I think for blockchain to become more mainstream, it’s going to require a lot more regulatory adoption from the financial regulators in different countries.”
However, there are questions around cryptocurrency exchanges and whether securities regulators are the right entity to create new rules. That’s because in certain circles, digital currencies such as Bitcoin are considered commodities, not securities.
“While some level of regulation, not necessarily by securities regulators, is likely appropriate, the cost, time and other practical difficulties of complying with many of the regulatory requirements contemplated by the paper would effectively shut out many innovative cryptoasset trading platforms from the Canadian market,” Evan Thomas, a lawyer at Osler, Hoskin & Harcourt LLP who specializes in blockchain technology, told the Globe & Mail.
Still, Attanasio believes there’s a strong argument to be made for using blockchain, most notably in the financial and legal sectors, including banking and insurance. “Storing digital assets and transacting around the world in terms of wire transfers can be done very quickly [and] arguably more securely using distributed ledgers, and much more cost effectively than traditional methods. In the legal world, executing contracts on a blockchain could be much more secure (and efficient) than traditional routes and removes any risk of tampering or manipulation.”
In the end, the market will decide whether blockchain and digital currencies will play an important role in trading and foreign exchange. But it seems increasingly clear that this technology represents a logical step in the advancement of our ever-changing digital world.