If Canadian regulators don’t already have their eyes on blockchain, that should change, because blockchain is coming to Canada sooner than they’d think, according to a new report from the C.D. Howe Institute.
The report, dubbed Blockchain Technology – What’s in Store for Canada’s Economy and Financial Markets? and authored by Thorsten Koeppl, an associate professor and RBC fellow at Queen’s University, and Jeremy Kronick, a senior policy analyst, is intended to outline the potential of blockchain technology and advise regulars on how to approach the challenges that this emerging technology entails.
“Blockchain technology has the potential to transform how a modern economy deals with maintaining and updating records, and has already created lots of turbulence in financial markets,” said Koeppl in the report. Kronick added, “The challenge for regulators is to balance letting markets figure out how to best use this technology while ensuring consumer safety and efficiency.”
The report covers three categories: potential applications of blockchain, the areas and industries that it has the most potential to be impactful in, and the priorities government regulators should focus on.
Koeppl and Kronick believe that the potential of blockchain exceeds that of a currency like bitcoin or a record-keeping system. They look at using blockchain for smart contracts and universal online identification systems as prime examples of this potential. Also included are concepts like cryptographic communication protocols and distributed data storage.
Ultimately the two authors have picked out four areas of potential: payment systems, smart contracts, corporate governance, and financial markets.
With blockchain, the report states that organizations can use this technology to modernize their infrastructure and offer clients safer and cheaper systems. Areas they believe will soon be able to make use of this technology include financial services, retail payment transactions, large-value transfers, and private equity markets.
“It will also be crucial to achieve safe and secure applications of this new technology without stifling innovation. In determining this balance, policymakers and regulators will have to decide whether to design rules and regulations along a principle-based methodology like was done with the internet in the 1990s, or whether to operate on a case-by-case basis,” the two state in the report.
As for what the government regulators in Canada should prioritize moving forward, Koeppl and Kronick suggest three main points of focus:
- Design a principle-based regulation regime that achieves high safety standards, legal certainty, and a stable environment for transactions based on distributed ledger technology.
- Ensure that this technology leads to appropriate end-user cost efficiences rather than simply a redistribution of above-normal profits among intermediaries.
- Determine areas where government involvement is advisable, be it in the role of facilitator for a private or public distributed ledger, or as a direct central node that applies elements of the technology but retains the monopoly of managing the ledger entries.
You can find the full report on the C.D. Howe Institute’s website.