Freedom convoy aside, regulators can’t only view Bitcoin and other cryptocurrencies through a nefarious lens, David Clement and Yaël Ossowski write
Following the federal government’s invoking of the Emergencies Act, Deputy Prime Minister Chrystia Freeland outlined the temporary regulations on financial institutions that would require surveillance of all blockade-related “forms of transactions, including digital assets such as cryptocurrencies.” The focus on cryptocurrencies was likely sparked by the success of the Honkhonk Hodl Bitcoin fundraising campaign for the Freedom Convoy. Whatever you may think of the convoy, this development has proven that Canadians are paying attention to cryptocurrencies. And now, so is Ottawa.
Freedom convoy aside, regulators can’t only view Bitcoin and other cryptocurrencies through a nefarious lens. These events prove why we need smart regulation of cryptocurrencies, so that we can keep this sector competitive, free, and legitimate.
This month Conservative MP Michelle Rempel Garner tabled a bill to open Canada’s institutions to cryptocurrencies. The bill would require the government to co-ordinate with industry experts to write a framework to help grow the sector in Canada. Since the arrival of Bitcoin in 2008, digital assets have been catapulted to a highly dynamic sector worth $2 trillion. Whether it is exchanges, decentralized finance, or lightning payments, there is no doubt that Bitcoin and other cryptocurrencies represent a new paradigm and opportunity.
Legislation like Rempel Garner’s could ensure that the ecosystem for the sector is protected from overzealous regulation, but only if we enact smart, focused and targeted regulations that do not destroy the industry altogether.
Any institution touching digital assets should have clear guardrails that provide legal certainty. That means no additional red tape when it comes to crypto companies opening bank accounts and insurance policies. We also need assurances that federal agencies will not penalize actors or subject them to costly and burdensome enforcement actions just because cryptocurrencies are involved.
Failing to take these steps risks pushing crypto activity to the black market or seedy jurisdictions, where no rules or regulations will be followed. The history of Prohibition or the Global War on Drugs, which have ballooned criminal and black market activity, provides us an example.
Technological neutrality should be a core tenet of any legislation, meaning that governments should not declare winners or losers. Just like the vinyl record was replaced by the CD-ROM and then the MP3, governments should not choose a preferred crypto technology and instead allow innovation, competition, and consumer choice to make that determination.
Whether it is algorithmic mining (Proof of Work), interest-bearing accounts, or easy payments, users and entrepreneurs are testing and adopting best practices for the crypto future. If the government endorses one method or outlaws another, because of environmental, financial, or legal concerns, it risks backing the wrong horse and stifling innovation.
Another important aspect of future regulation is moderate taxation. In Estonia, for example, cryptocurrencies are considered property assets but are not subject to Value Added Tax (VAT). Capital gains are taxed accordingly but kept low to ensure investment and innovation while ensuring fairness.
Overall, regulators must not pigeonhole cryptocurrencies only as investments fit for taxing. These are technological tools that empower consumers and foster innovation. A unique crypto asset class, separate from traditional securities, could also help users benefit from the decentralization and encryption that these projects offer while ensuring broader financial adoption.
Rempel Garner’s bill is a step in the right direction, but it is important that what comes of this focuses on these core aspects. Failing to do so will leave Canada, Canadian consumers, and domestic entrepreneurs out in the cold.
Originally published here