DIGITAL CURRENCY: YOU CAN’T FLIP THIS COIN!

SENATE S?NAT CANADA

DIGITAL CURRENCY: YOU CAN'T FLIP THIS COIN!

REPORT OF THE STANDING SENATE COMMITTEE ON BANKING, TRADE AND COMMERCE

The Honourable Irving R. Gerstein

C.M., O.Ont., Chair

The Honourable C?line Hervieux-Payette

P.C., Deputy Chair June 2015

Ce rapport est aussi disponible en fran?ais

*********************** This report and the committee's proceedings are available online at:

senate-senat.ca/banc.asp

TABLE OF CONTENTS

MEMBERS ................................................................................................................................................... 4

ORDER OF REFERENCE...........................................................................................................................5

EXECUTIVE SUMMARY .............................................................................................................................6

LIST OF RECOMMENDATIONS ................................................................................................................ 9

CHAPTER 1: INTRODUCTION.............................................................................................................10

CHAPTER 2: THE COMMITTEE'S THOUGHTS..................................................................................12

A. Digital Currency Types and Uses.................................................................................................. 12

B. Digital Currency-Related Opportunities......................................................................................... 13

C. Digital Currency-Related Risks ..................................................................................................... 14 1. Use of Digital Currencies to Launder Money and Finance Terrorist Activities .......................... 14 2. Protecting the Users of Digital Currencies ................................................................................. 15 3. Taxation Challenges in Relation to Digital Currencies............................................................... 16

D. Focusing on the Future.................................................................................................................. 17

CHAPTER 3: WITNESSES' TESTIMONY............................................................................................18

A. Digital Currency Types and Uses.................................................................................................. 18 1. Definitions for "Digital Currency" ................................................................................................ 18 2. Common Types of Digital Currency ........................................................................................... 18 3. Potential Uses for Digital Currencies ......................................................................................... 19 4. Bitcoin as an Example................................................................................................................ 27

B. Digital Currency-Related Opportunities......................................................................................... 32 1. Innovation ................................................................................................................................... 32 2. Transaction Costs....................................................................................................................... 34 3. Payment Options ........................................................................................................................ 36 4. Identity Protection and Recording of Transactions .................................................................... 39

C. Digital Currency-Related Risks ..................................................................................................... 40 1. Potential Criminality and its Effects............................................................................................ 40 2. Losses ........................................................................................................................................ 47 3. Taxation ...................................................................................................................................... 52 4. Access to Information and Protection for Users ........................................................................ 54 5. Other Challenges in Using Digital Currencies............................................................................ 56

CHAPTER 4: CONCLUSION ................................................................................................................ 58

APPENDIX A: WITNESSES ................................................................................................................... 59

APPENDIX B: FACT-FINDING MISSION TO NEW YORK ? FEBRUARY 2-4, 2015........................... 62

APPENDIX C: GLOSSARY OF DIGITAL CURRENCY-RELATED TERMS ......................................... 64

MEMBERS

The Honourable Irving R. Gerstein, C.M., O.Ont., Chair The Honourable C?line Hervieux-Payette, P.C., Deputy Chair and The Honourable Diane Bellemare The Honourable Douglas Black, Q.C. The Honourable Larry W. Campbell The Honourable Stephen Greene The Honourable Ghislain Maltais The Honourable Paul J. Massicotte The Honourable Pierrette Ringuette The Honourable Scott Tannas The Honourable David Tkachuk

Ex-officio members of the Committee: The Honourable Senators Claude Carignan, P.C., (or Yonah Martin) and James S. Cowan (or Joan Fraser). Other Senators who have participated from time to time in the study: The Honourable Senators Marjory LeBreton, P.C., Michael L. MacDonald, Fabian Manning, Don Meredith, Percy Mockler, Thanh Hai Ngo, Dennis Glen Patterson, Rose-May Poirier, Nancy Greene Raine, Michel Rivard, Betty E. Unger and David M. Wells.

Parliamentary Information and Research Service, Library of Parliament: Micha?l Lambert-Racine, Brett Stuckey and Adriane Yong, Analysts. Senate Committees Directorate: Keli Hogan, Danielle Labont? and Barbara Reynolds, Committee Clerks; and Brigitte Martineau, Administrative Assistant.

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ORDER OF REFERENCE Extract from the Journals of the Senate of Tuesday, March 25, 2014: The Honourable Senator Gerstein moved, seconded by the Honourable Senator Lang: That the Standing Senate Committee on Banking, Trade and Commerce be authorized to examine and report on the use of digital currency including the potential risks, threats and advantages of these electronic forms of exchange; and That the Committee submits its final report no later than June 30, 2015, and that the Committee retains all powers necessary to publicize its findings until 180 days after the tabling of the final report. After debate, The question being put on the motion, it was adopted. Gary W. O'Brien Clerk of the Senate

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