TORONTO – A report from Canada’s Senate says Ottawa should use a “light touch” when considering any regulation of Bitcoin and other digital currencies in order to avoid stifling the growth of these new technologies.
The report, the culmination of more than a year of research by the Standing Senate Committee on Banking, Trade and Commerce, recommends that the federal government employ “almost a hands-off approach” when it comes to virtual currencies, monitoring the situation as it evolves and only introducing regulations as necessary.
The Bitcoin Alliance of Canada says it welcomes the report’s findings and is urging the government, as well as the private sector, to consider them.
Bitcoin is a digital currency that is exchanged through peer-to-peer computer networks and is not issued or controlled by a central bank or any other authority.
Virtual currencies like Bitcoin employ blockchain technology – computer code that makes up the currency’s underlying architecture.
The Senate report says blockchain technology has many promising applications, and recommends that the federal government consider using it to enhance the protection of private information.
“Our committee was told that by cutting out third parties, blockchain technology can give consumers and governments a more effective level of online security,” Sen. Irving Gerstein said during a news conference Friday.
Blockchain technology could be used to securely and permanently register marriages, births, real estate deals and a “myriad” of other transactions, Gerstein added.
Digital currency can also benefit people in the developing world by providing them with access to financial services, thus improving their quality of life, he added.
“However, there are two sides to every coin even a Bitcoin,” said Gerstein. “The power offered by blockchain technology for people to protect their identity has a flipside.”
In particular, the committee report noted risks that the technology could be used to launder money or finance terrorist activities.
“The consequence of this risk of criminality means a certain amount of regulation is needed,” Gerstein said, noting that Bitcoin exchanges the “on and off ramps” where customers convert state-issued currency into digital currency should be regulated as money services businesses.
“However, balance is something almost all witnesses stressed, and the committee is of like mind,” said Gerstein.
“We recognize that these new technologies may have other innovative and, as of yet, unimagined applications, and we are at a delicate stage in their development. Accordingly, the committee has concluded that the best strategy dealing with digital currencies is to tread carefully when contemplating regulations so as not to stifle innovation.”
Kyle Kemper, executive director of the Bitcoin Alliance of Canada, said despite the lack of explicit legislation requiring them to do so, most Bitcoin exchanges already adhere to the rules governing money services businesses.
“You have to be proactive in the absence of any clear guidelines,” Kemper said.
“The Bitcoin exchanges have been treating Bitcoin like a foreign currency. The major ones are registered with FINTRAC (Financial Transactions and Reports Analysis Centre of Canada). They take compliance and money laundering incredibly seriously, because at the end of the day, they want to be showing that Bitcoin and digital currencies are safe.”
During its research, the committee interviewed 55 witnesses and went on a fact-finding trip to New York City. Among its conclusions is a recommendation that more research be conducted on the regulatory environment for digital currencies in the next three years.