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Blockchain: Leading movers and key developments (Part two)


Usman: Perhaps we can start off with a little
bit of background. Manie, Ian, about a year ago I’m sure many
of the people in this room had not heard of an initial coin offering. Had not heard of cryptocurrency exchange. Had not heard of crypto investment fund. But now we have Paris Hilton marketing these
products. We have Floyd Mayweather, the boxer, marketing
these products. We have just an astronomical amount of funding
going into this area. Maybe you can give us a sense of background. What’s going on this space and why has there
been this flurry of activity, particularly in the last year, and perhaps even within
the past six months? Ian: I’m going to let Manie speak because
I’ve already spoken a lot. Manie: I think that the main drive is, of
course, there’s money in all of this and people have used traditional methods and I know we,
in terms with all the hands going up, there’s a lot of traditional bankers, and I think
some regulators present here as well, all the hoops you have to go through to register,
to set up a fund, to be a security, to be compliant in turn, so forth, have created
lots of obstacles in a number of places in the world. So, money like we heard about Bitcoin earlier
on, finds a way, trust me, to try and do things differently. I’ve just come from the Crowd Invest Summit
in LA and I’m speaking at the World Funding Summit in two weeks’ time back in LA again. I have Brock Pierce on one of the panels that
I’ve set up. He started the first Fund Blockchain capital. Invested in 38 initiatives in this space and
he gave figures of approaching $3 billion. Now, 12 months ago the number was zero. It was raised through ICO’s and ITO’s and
TG’s, whatever it’s called today, and the projection is between 20 and 30 billion by
next year. So, when I read about a bubble in the press,
this ain’t the bubble yet. It’s just starting. The interest and the appetite for money to
become more liquid, we heard that term earlier on, for capital that has been invested in
gold and silver and mining operations. I have some clients who want to turn mining
operations into ICO’s. It’s possible, trust me, it can be done. It’s spurring a whole new way of looking at
money. Of managing money. Of creating liquidity, which of course is
confusing the hell out of more traditional folks with traditional approaches and mechanisms
of managing and regulating and licencing the management of money. I think the challenge has just started and
I always like to say Canada is the centre of the universe because from here you can
go anywhere in the world. Our challenge is if our young startups and
entrepreneurs don’t get satisfaction here they simply go elsewhere. So, we’re going to talk about that later on. But the game is on. Big institutional investors are stepping into
this game and I’ll quickly give you an example. I have a client down in California. One of seven states that treat Bitcoin as
a commodity. Together there are over 70 IRA’s in the United
States. Sitting on over a trillion dollars. They want to put $200 million into Bitcoin
and they’ve asked me to set up a fund. Just to give you an idea of how fast and how
quickly, in a regulated environment, because remember like a precious metal a Bitcoin is
treated in seven states in the United States as a commodity, so the regulations are already
in place. The whole way they manage custodian accounts. The whole way your Bitcoin is stored on a
hard wallet, similar to vaulting gold and silver, they got it and they’re good to go. And there’s already seven funds up and running
with 70 more wanting to get involved. There’s money coming into this space. There’s highly liquid, doesn’t care about
risk money, $200 billion worth sitting in cryptocurrencies looking for a place to go. Again, how we manage this and yes, the Paris
Hilton’s and the Mayweather’s of the world have become poster childs, if you wish, or
cheerleaders for a whole new way of raising capital and investing it. What happens with it is another matter. I’ll quickly chuck in a prediction here then
I’ll stop speaking. But I think 90% of all startups, as we all
know has been in the startup space, will fail. And I predict the same will happen with ICO’s
as well. They simply won’t take off or they’ll disappear. So, yes, be careful. I’ve seen some insanely great ideas on the
Blockchain and the cryptocurrencies I’ve also seen insanely stupid ideas. Things are actually out there having raised
hundreds of millions of dollars and I don’t know what they’re going to do with the money. They literally themselves don’t know what
to do with the money. They call me. It’s a bit of crazy wild west space but the
game is on. Usman: Ian. Ian: Well, I like that the game is on notion. I would agree. I think what we’re seeing is, we’ve seen the
first wave. I think that stat I heard was $2 billion raised
up to the end of October. So, $3 billion doesn’t surprise me and, frankly,
the numbers don’t surprise me and I don’t disagree with you on the fact that this is
risk capital and it’s the next generation of wherever this capital is getting invested. I think though that we’ve seen over the last
few months is the first material reaction from regulatory authorities, both in Canada
and elsewhere, with respect to ICO’s and I think we’ve had a chance to digest some of
that. The previous panel talked about lack of regulatory
clarity being a material issue. I think that’s true. Because there’s such enthusiasm, because so
many opportunities here, I think people are just trying to address it and they’re finding
ways to address it. The areas that we’re seeing where regulatory
authorities are looking at now are obviously ICO’s, as being whether they constitute securities
or not, whether the capital raising activities that they’ve undertaken, or have been done
in accordance with applicable securities from a registration standpoint, and we’re seeing
some attempts at regulatory arbitrage between different jurisdictions. But, frankly, more and more jurisdictions
are sort of speaking up and saying, “Wait a second here.” New Zealand yesterday, I think, came out and
said “We think it’s a security.” So, in most cases, that’s not surprising. It’s sort of consistent with a lot of other
major jurisdictions. I think what we are doing is we’re digesting
those initial reactions from regulatory authorities and we’re helping companies address that and
adjust their expectations and adjust their play ends to still take advantage of this
great opportunity, but in a manner that doesn’t offend the regulatory authority, regulations
that are in place today. Now I think the other side of the coin, and
I don’t want to get ahead of ourselves in questions, is how do you influence the regulatory
authorities and governments to adjust the mechanisms that are in place to take advantage
of these innovations in a manner that is not going to put people at risk. Usman: Did you want to say something else? Manie: There’s a bit of a story … that I
want to pull here. Too many ICO’s approached me and I literally,
I’m one of those also get 10 calls a day, say, “But we have great advisors on our team
and yes, we’re going to figure out how this token is going to get done.” And I ask them, “Have you spoken to a lawyer?” And they say “No.” Now that’s already a sign that these guys
are just winging it. They just want get out there and catch this
wave. You need to get your lawyers involved. Lawyers talk to regulators. Lawyers don’t set people up for failure. They set them up for success. It’s a great time to be a lawyer in this space
by the way. Usman: We really pay him to say that by the
way. Manie: Because the next challenge is going
to be, and thanks to Gowling we hosted the MME Thomas Linder in Vancouver two weeks ago–
fullull house. These are the guys that actually helped Ethereal
set up in Zurich in Switzerland, which is now called Crypto Valley. He started illustrating the way the thinking
is already at with this whole token thing. I have two very important points to make on
this. We need to be very, very careful when we start
treating token generated events as a security. You just heard me say earlier on 90% of these
things are going to fail. If you start declaring things securities and
they fail it’s going to be a mess. So you must be careful to certainly label
every token, whatever it is, as a security. So we need to be careful there because the
next wave of token generating events is not going to be the infrastructure, as you heard
on the previous panel. Blockchain platforms and Bitcoin and so forth,
it’s going to apps. The apps as we call it. Distributed, or decentralized, applications
like wallets and so forth. That’s the big wave that’s coming. 90% of those tokens are not securities at
all. So, we also need to educate ourselves and
get into the game from a regulatory perspective, from a legal perspective, but also the people
who put their business models together. We need to become clear about the language. What this token’s going to do and what are
we going to do other people’s money that are obviously prepared to go and risk putting
it into your venture. There’s a whole state of play, and I think
these will be many events that if you’re going to engage in this game, that you’re going
to need obtain, and not just do … please, … it can get scary. Lot of spam. A lot of misinformation. You need to just become informed and I think
events like this is obviously going to help the process. Usman: Okay. Let’s do perhaps the deeper dive into initial
coin offerings. Manie, somebody wants to do one of these ICO’s,
ITO’s, token sales, token generating events, whatever you want to call them, what is your
role in that process and what are some factors that you ask those parties to consider? Manie: Well, again, we look at the role models
and I’ll keep mentioning Switzerland because I think they are ahead of the game. They have a more liberal environment than
we do, but having said that, there’s no reason why we can’t do a lot of what they’re doing. They have a very stable financial system with
good regulations and a way to do remedy if things go wrong. I then think Canada should be afraid to experiment
a little bit as well. In fact that’s the words used by some of our
Ministers of Finance. We’re organizing a webinar as the Blockchain
Association of Canada with all of the Minsters of Canada, finance and their representatives,
by the end of this month to talk about Blockchain. To talk about token generating events. To talk about how we can keep pushing innovation
and investment into this space going forward so we don’t lose the next Ethereum’s to Switzerland. But also grow the skills, talent pool and,
again, the regulatory know how and go to, to support these ventures. In terms of where we’re going to go with ICO’s,
again a statistic, the World Funding Summit people did a research. They had just won regulators of ICO’s. Has got 600 ICO’s on their books. In the pipeline, 150 already processed. I’m tracking 20 more regulators of ICO’s in
production around the world. If you just think about that and the scale
of this thing, one can start thinking and to what degree can Canada capture that market. Not push away that market but capture it in
a way that’s all compliant and we don’t create more risk inside the system. The other note around advisors, the Mayweather’s
and the Hilton’s of the world, is the role of an advisor on any of these ICO’s has changed. It’s not just being a poster child, or cheerleader,
for somebody’s event. My background is legal and I used to be corporate
secretary on many publicly listed companies from here to India to South Africa and elsewhere
and the role increasingly of an advisor is to really become a custodian for what are
usually youngsters, with respect to trying stuff. Using other people’s money. One is there and involved and responsible,
partially, for getting it done right. For making it compliant. For making sure that what was the original
vision doesn’t end up spent on a yacht in the Caribbean, which does happen. Trust me. Sorry, a hand up. Audience: Out of the hundreds of ICO’s that
you’ve seen, how many of those are currencies and how many of those are tokenized representational
assets? Manie: I think the more mature ICO’s are really
digging into the whole, what we call a utility or an app, token. Ethereum’s was what we would call a platform
or a protocol token. Which probably would have, if we did it in
Canada, would have been deemed a security. The challenge was do we stay here or go to
Switzerland where they said, “Let’s give this a go.” That has to play out from the protocol, or
an infrastructure token thing, which puts you in the security camp, and the new token’s
that’s coming which is, really, it’s like if you have an Airmiles, for instance, is
a good example. Your Airmiles is partially a reward. Partially a loyalty scheme. Partially returning you as a customer type
of token that’s in play. That’s a completely different animal and we’re
going to see a raft of those coming. From financial institutions. From retail sector. Alibaba is a leading example in this space. I’m consulting to a competitor to Alibaba
in China as we speak. I’m off to Shanghai next week. Who want to enter the North American market
and tokenize their offering for wealth management millennials, to give you an example. That token I would not deem a security. We’re going to test it with a regulator and
obviously work through good legal advisors. That’s the new play. 90% of the future token issues, I believe,
will fall in there. Audience: Thank you. Usman: So, Ian, why don’t you talk a little
bit about the role of counsel on these initial coin offerings. What of lawyers, including Gowling’s, been
doing in terms of an ICO when we’re approached? Ian: So, I think I mentioned before that we
saw the first wave of ICO’s, and I think Manie’s right, at least anecdotally, a lot stuff didn’t
happen with a lot of legal advice in it. If you look at white papers of some of the
early ICO’s, I’m sure they’re technically adept, but from the standpoint of somebody
who reviews offering memorandum and other securities related documents, risk factors
and other sort of considerations we would expect to see in those kinds of documents
are completely absent. As far as the role of the lawyer involved
in getting an ICO completed, I think there’s a few things that happen. The first one is really, the gating item is,
is it a security or not. At least in Canada we’ve got some guidance
from the CSA around that and the distinction between whether it’s a utility token, and
potentially not a security, or whether it falls into the camp of a security. The CSA’s come forward and said that we think
most of these are securities. But again we’ve got to remember that this
stuff is evolving very quickly and Manie makes a good point about the nature of things that
are happening. So, that’s certainly one of the first things
that we get involved in and we dive deep on this. The notion of what is a security and what
is not a security has been discussed in court decisions over generations. Some of the case law we’ve had to pull out
is rather old, and as a sort of legal historian, it’s interesting to go through that kind of
stuff and then apply it in present tense. That’s sort of step one. If it is a security then we have to deal with
the circumstances that arise. So if you want to do it, a token generating
event or an ICO, and you’re pretty confident it’s going to be a security then you’ve got
to think about in the context of what exemptions are available under applicable securities
laws to issue those securities to the people that are acquiring them, and what protections
do you need to put in place, and what compliance requirements do you need to establish and
address some of the points that Manie had said. From our perspective that’s the process to
get to that stage. Where you get into where it’s not clear cut,
or your business model is not accommodated by current regulation, then we’re into potentially
looking at engaging with at the OSC level, the launch pad, which has been established
as sort of a sandbox, or test place, for adjusting these kinds of opportunities and people sort
of complain about the fact that they don’t move fast enough. There is eagerness to make sure that Canada
plays a role in this space so I think they’ve actually been, as regulators go, they’ve been
quite responsive. We encourage people to reach out to the launch
pad, or go with them into launch pad, or engage with the other securities regulatory authorities
across Canada. We’ve had some success with that. Usman mentioned some examples up front. The AMF released some decisions in regards
to, and so did the OSC actually, with regards to impact and we’ve seen recent decisions
with regards to the OSC in respect of token funder, which is yesterday started it’s ICO,
I think, as of November 1. We’ll see if these are successful, and I think
that we’re going to test the waters, but that’s the process that we place in the ICO’s and,
obviously more traditional role of documenting these types of transactions, as well and supporting
the investors and the companies and the entrepreneurs. Usman: Ian, if I could just stay on you for
a second. So, we’ve seen a lot of parties come to us
where mind and management is based here in Ontario, or some other Canadian jurisdiction,
and they say, “I’d like to base my operation or my ICO raised from some foreign jurisdiction
like Switzerland, or Singapore, or Isle of Man, or Gibraltar, where have you.” Are there potential securities laws issues
with that? Ian: Yeah. I think people have to remember that the way
to enter into securities laws, and generally speaking Canadian securities laws, are defined. I don’t want to get to into the weeds on securities
law, but a trade is defined broadly to include acts in furtherance of a trade. There’ve been circumstances in the past where
the securities regulatory authorities have gone after organizations who have placed securities
overseas but they’ve flowed back into Canada relatively quickly. People need to, if they want to play the regulatory
arbitrage game and set up a facility in one of the jurisdictions that Usman has said,
but still maintain their operations here and there’s some concerns, and the securities
flow back or whatever circumstance arises, the OSC has said that they will not turn a
blind eye on those things. People need to keep that in mind. In my view it’s not a silver bullet just to
say, “We’re going to set up in Gibraltar or we’re going to set up in Barbados.” It’s not that simple. Usman: Yeah. It’s not only the OSC that has said that but
also other Canadian jurisdictions that have told us that as well. So, let’s stay on the issue of jurisdiction. Manie, you’ve travelled to many jurisdictions. You mentioned Switzerland where the MME folks
are based. That you’ve been to Germany. You’ve been to many other countries. A lot of parties talk to you about the question
of jurisdiction and where they should base their capital markets activities so, what
are your thoughts on that? What are some trending topics there? Manie: Well, for those who are considering
an ICO here let me quickly run through all the jurisdictions that stepped up into this
game. Isle of Man, Lichtenstein, Luxembourg, Switzerland,
the UK, London partially, the Cayman Islands, Bermuda, Bahamas, Barbados, Malta, Gibraltar,
Singapore, people are leaving Hong Kong for Singapore because of the Chinese atrocities,
they’re going to stop the banning of ICO’s. You’re going to have to become licenced so
that announcement is coming which will restart the process there. And then we have our hubs and I think your
typical Fintech hubs are going to step into this space as well. Having said that, what people need to consider
who are busy, either have been involved in, or planning an ICO, there’s nothing sinister
if people don’t do it in Canada. The main reason why people actually go to
these other jurisdictions is for tax reasons. If you’ve raised a hundred million and you
immediately have to pay 24 or 40% tax in the United States or Canada, that’s a bit of a,
I don’t know, when you haven’t even spent the money yet. That’s a consideration for a startup or an
entrepreneur. Also in the Switzerland if you’re coins become
tradable, which will become an issue for ICO’s as well, it attracts GST. I think the thing that gets the OSC and other,
SCC and others backs up, is similar to a Bitcoin. People call their tokens initial coin offerings. The moment you create a coin and it becomes
tradable and it gains in value and it’s on exchange, of course a security minded regulator’s
going to look at this. I think people must also stop using that formula. That puts the initial formula. If your just an Airmile, or token, or a reward,
or a loyalty program, why the heck do you need to put it on an exchange? I think as people double dipping in the ICO
space, quite frankly, they raise money, now they want to make more money. To do what with? As a business person, as a company secretary,
I would query that. I think there needs to be some majority and
I think the regulator and legal counsel is forcing people to really think more carefully
about their approach, about the jurisdiction. Plus, a lot of Canadians, because of my Chairmanship
role of Blockchain Association said, “If I go to Cayman Islands, am I okay?” I said, “Listen, are you still a Canadian?” “Yes.” “You’re going to be paying tax back at home. Don’t forget that.” It’s not like you’re off the hook. It’s not a free range chicken situation. Things do come home. So, where you declare, how you declare it,
how you set up your business, do you use a foundation, which you’ve probably all heard
about Tezos. People I know, dispute between the founders
and the people that manage the foundation in Switzerland, is coming back to bite them
because there’s a disagreement about how the money gets spent. Again, it has regulatory and legal implications. So think this process through. Use your legal counsel properly. It’s not just about raising capital. It’s about managing other people’s money. Usman: Did you want to add anything to that,
Ian? Ian: I think that’s a really good point. I think that people shouldn’t get too caught
up in the very early stages of just getting the capital. You have to think about the governance of
it over time. One of the criticisms I think that apply to
ICO’s, as compared to capital raising in corporations or limited partnerships or other vehicles
people are more familiar with, is there’s a governance component to them that’s available
to investors. It hasn’t been the case with ICO’s. There’s going to be a maturing process around
that. My guess is the ones that are going to be
successful are the ones that have the good business models and have a strong governance
models and have a view as to how the capital can get utilized effectively. Not just in the first sort of couple of quarters
but over the course of time. Manie: I think if you’re an ICO here in North
America, what I’m hearing, the SCC and the OSC are doing, is steering ICO’s towards the
crowd funding model, where you need accredited investors or very solid KYC. I met with an individual who ever gets involved,
in other words to get the risk capital out of the system, which could be tainted anyway. So, my prediction, and has been all along
is that we’ll probably end up in an ICO, similar to crowd funding type environment with those
types of rules and checks and balances and governance, they’re called, be imposed on
the ICO Canada version. My sense. Usman: Yeah. Just staying on the ICO front, and very briefly,
but just to update you on the litigation sides. So, yesterday the SCC issued a warning involving
ICO endorsements by celebrities saying that many of these are potentially illegal. They cited, among other things, the anti-touting
provisions of Federal securities laws and that these individuals could be acting as
unregistered brokers participating in unlawful offering. We saw it just yesterday evening – a criminal
prosecution commenced by the US Attorney in New York against REcoin and others. That follows on an SCC prosecution against
these individuals for making misleading statements and potentially engaging in a fraud involving
an ICO. Among other things they said that they had
raised funds when they hadn’t. They said had professional advisors but they
didn’t. We’ve seen also activity here in Canada on
that front as well. There is a prosecution currently going on
by the AMF, the Autorité des marchés financiers, which is our Quebec securities regulator,
against PlexCoin for making various alleged misleading statements. They moved to have interim cease trade orders
and freeze orders put in place. There’s now just recently been a decision
rendered by the Superior Court in Quebec, of finding those individuals in contempt of
those orders. So there’s a sentencing or a penalty decision
that is going to be made next month. On the Blockchain front we’ve been seeing
a lot of other activity. Particularly from the SCC and the CFTC including
from issuers who are taking in Bitcoin and failing to properly update their public disclosure
noting that the acceptance of Bitcoin, and the fluctuations in that particular currency,
can actually impact the business operations of the issuers as well. So, separate and apart from ICO’s, we at this
firm have been monitoring many other developments in the capital market space, whether its crypto
investment funds or others, but separate and apart from all the capital raising efforts
that are out there, there are many, many other initiatives being pursued by other parties
in the capital market space. Securities trading, we talked about disruption
in different areas. Security trading is an area that is being
directly looked at by exchanges. So, NASDAQ came out a little while ago with
their platform called Link, which recorded the first private securities transaction through
a Blockchain platform. That transaction settled in less than 10 minutes. There was no paperwork involved. An immutable record. The TMX, just a few weeks ago, indicated that
they performed a partnership with the Central Bank and Payments Canada to address the securities
settlement and clearing process. A few months prior to that they actually announced
that they had created a prototype for the natural gas exchange to have that leading
energy exchange put on a Blockchain platform as well. Separate and apart from securities trading
the area of corporate voting is looking to be disrupted as well. So NASDAQ has formed an arrangement with the
government of Estonia, particularly the Tallinn exchange, to allow for corporate voting to
be executed through a Blockchain platform to ensure that shareholder democracy truly
occurs and that votes are being tallied. As opposed to dealing with our somewhat archaic
proxy voting infrastructure system. The same thing is being done by the TMX. They announced in April that they have developed
an electronic shareholder voting system prototype, which is based on a DLT or a distributed ledger
technology platform. So there’s a lot, a lot of developments in
this space, whether its ICO related, whether its investment fund related and other areas. Let’s just take a few questions from the audience
if you don’t mind. So, Don, go ahead. Don: Aren’t you terrified about the possibility
of a kind of recrudescence of shareholder populism that could lead to the same kind
of evils in corporations as we now see with whole countries? Unknown: Too much democracy. Usman: Too much democracy. Manie, is too much democracy a bad thing? Manie: Again, it’s back to governance. We have the same debate in digital identity. Once your personal detail, you can even put
your DNA sequence on the Blockchain. It’s possible. Who holds that information? Who tracks that information? Who, at the end of the day, apart from yourself,
owns and is a custodian of that information? Unknown: Everybody is. Manie: The problem with democracy is the same. If everyone can see everything that everybody
else is doing, to what degree is that a risk as much as a good at the same time. These debates are very alive and well and,
again, where we draw a line or not, is interesting. Ian: Yeah. You know what? I’m more terrified than Anthony or the other
gentlemen who were on this panel earlier. Unknown: I’m more terrified than you. Ian: Well, I imagine you are. But when I get terrified it’s like I gotta
learn some stuff and get involved. I’m reminded of, there’s a woman named Blythe
Masters who was a big shot trader for a long time and founder of digital asset holdings. Her sort of big hub point was we’ve had lightning
fast trading on the front end of systems in the capital markets for a long time. But on the back end there’s increasing cost
and revenues in the investment banks have gone down. We’ve got all these layers of regulation and
compliance, in part because this need for trust and verification. Maybe there’s such a thing as too much democracy. I’d like to see it first and then reflect
upon it. If these kinds of systems, if Blockchain systems
are going to allow us to take out layers of unnecessary administration and cost and have
more liquidity in the market place, I don’t see that as being a bad thing. Manie: At the very least what the Blockchain
technology allows us to do is to start automating processes. But at the same time it creates unbelievable
transparency and immutability and time stamping and recordal and so forth. I’ll give a quick example. Friends of mine run a company called Blockchain
Intelligence Group out of Vancouver. They’re hired by RCMP to trace illegal transactions
using Bitcoin and other stuff, effectively. If you use that example, and translate it
to everything’s going to be on a Blockchain, it means you can start tracking and tracing
everything. What is our interest from a government side
in all of this? You want to make sure you pay your taxes. Report your income. The usual stuff. But it’s going to become automated. It’s going to become more direct, peer to
peer, as well call it in the decentralized world. Bitcoin. Somebody made a statement recently on a panel. Bitcoin is on track to become the largest
bank in the world. And at first I thought, “What do you mean?” And I thought about it. Yes. Looking at the volume and the way Bitcoin
works transacting between people, exchanging money, is what banks should have been doing
from the beginning. Without a middle man. Without the layers and the costs and delays
and so forth that we’ve become used. There’s only a paradigm emerging here, to
use that paradigm word. New ways of dealing with privacy and information
and transparency and governance. We need to think about this. Usman: Great. Another question. Audience: … The panel has focused on the
security side. Can we get an update on the role of the initiatives
by the Canadian chartered banks and the Canadian payment system, their views and what initiatives
you are taking with Bitcoins? Ian: I’m a securities lawyer and I’ll admit
that I’m not as up to speed on some of this stuff as others. We have other panelists in here, and other
people on our team, certainly we’ve been engaged with those folks. I don’t know if you want to speak to someone
else on our team. Usman: Yeah. On the payment side we’ve, again, we have
a whole crypto team with other professionals involved and have that focus but JP Morgan
Chase, for example, just came out with a quite extensive Blockchain interbank payment system. Despite Jamie Diamond’s remarks about whether
Bitcoin is a fraud or not, in fact, his institution has been working on a quite cutting edge platform. A few of us, one of my partners, Parna and
I, attended the very same day that RBC launched their shadow ledger on the payment side. That’s a private Blockchain solution to RBC’s
cross border branching. It’s a payment system as between the branches. So, what they’ve done is basically created,
as I understand it, a mirror or shadow ledger to track those same payments. To test it out and see how it will work. We understand from RBC that in 2018 they plan
to launch a loyalty based program on a Blockchain platform as well and that well go live in
2018. Usman: I had talked about various bank led
initiatives on the Blockchain side, particularly with respect to payments, but then let’s talk
about Blockchain enterprises that are looking to disrupt what the banks are doing. So you have groups like Ripple which is looking
to disrupt the international remittance payment system. You have groups that are Canadian grown like
Paycase looking to do exactly the same thing. We talked about many different industries. Payments is definitely an area that many of
us have been watching with great interest in terms of the Blockchain applications that
we’ve been seeing. Ian: I think from a regulatory standpoint
the other areas to note so, derivative trading would be a relevant consideration whether
you fall into the regulatory gambit of that. If you’re dealing with consumers, what consumer
protection considerations are relevant, both on a federal level in Canada and also on a
provincial level. Those would play a role. You gotta think about, there’s a regulatory
analysis across sectors depending on what you’re intending to disrupt. You can play the uber game of go first and
try and catch them on the regulation or try and influence changes. Or you can think about more carefully in advance. I would obviously advocate think about it
carefully in advance. But those are there. Manie: I advise quite a few financial institutions
in Canada, and specifically Credit Unions, and they’re tiptoeing around this and to confuse
matters completely, Blockchain’s come in different flavours. Ripple, by the way, is not a Blockchain. It’s just an IOU tokenized exchange, if you
wish. It’s a Swift. Another version. Banks are steering away from tokens all together
using platforms such as … The latest research shows 1 in 4 financial institutions use your
public Blockchains like Ethereum. The other 4 use Hyperledger, or private Blockchains,
which has no tokens. You can attach a token. You can attach a smart contract. But I think the banks are looking at how do
we get rid of this token issue which could create other dimensions and let’s just get
the whole private side sorted. Sorry, it’s my phone. Again, this is all still evolving as we speak. I think the banks are going to follow the
safe and secure and what we can measure, methodologies are in place, and so forth route which will
take time. And that’s pretty much the outcome we had
from the Bank of Canada experiment with distributed ledger technology and I think Bank of Canada
was involved. And the conclusion of their report was inconclusive. We still need to wait and see. One of our Finance Minister here in Ontario
refers to Blockchain as still the experiment. I think that’s very much the mode of your
regulator and your financial institution. This still needs to play out, I think, as
Anthony said. And Anthony was one of the people that got
me involved day one. It’s still early days. There’s still a lot of experimentation going
on. What form shape and flavour of token, not
to mention Blockchain platform, will emerge eventually? If not many. We still need to wait and see. Usman: Right. The Bank of Canada project that you’re referring
to is Jasper project. I saw another question here. Maybe that’ll be our last one but go ahead. Audience: Just related to the bank issues
and interbank payments and Jasper. Core technologies assessed during that was
R3 Corda DLT, so I’m wondering what your views on that is. It’s interesting that we had a conversation
about banks and Canadian banks, which are members of the R3, but I was wondering more
in particular Manie, your view of that, which isn’t a pure Blockchain play either. There’s a centralized dormant function. I was wondering your opinion of R3. Manie: R3, increasingly, I can’t speak for
them, obviously. But Corda, as you probably now know, is in
a partnership with Hyperledger. You can now use Corda on Hyperledger. I think they found that some components were
missing in terms of functionality and so forth. I presume. R3, I think, has been a tremendous initiative
around the table. That’s the feedback I had from Tim Swanson,
who used to be the head of strategy. There’s a lot of discussion. A lot of open minded thinking about where
is this all going without final conclusions being drawn. I think it’s still a wait and see in that
regard. But I know Corda is now working with Hyperledger. That much I’m aware of. I think they’ve been talking to the Ethereum
enterprise alliance as well. Usman: Okay, well, I want to thank this panel. Manie, you’re terrific as always. As a token of appreciation we’ve seen Anthony’s
style, and we know that you have style as well, but do you have Gowling socks.

Stephen Childs

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