Canadian Lawyer

w w w . C A N A D I A N L a w y e r m a g . c o m J u n e 2 0 1 4 29 PUSHDATA : 0x39 sequence : 0x42 length : 0x45 integer type : 0x02 length: 0x26 X : 32 (0x20) bytes of data representing the x-coordinate of the DER signature integer type : 0x02 Y : 32 (0x20) bytes of data representing the y-coordinate of the DER signature SIGHASH_ALL : 0x01 PUSHDATA : 0x52 type : 0x04 public key X : 32 bytes of the X portion of the public key. public key Y : 32 bytes of the Y portion of the public key. ɑ chain ledger, and in exchange, get the privilege every so often of awarding themselves a few extra bitcoins. In an intriguing twist, while all transactions occur in the open by being recorded on the block chain, it provides a high degree of privacy but not anonymity as is commonly held. "There is more transparency in the bitcoin transaction than in most other types of payments, and certainly much more than cash payments," Murchison told the Senate banking committee. Another distin- guishing feature is, unlike bank transactions, bitcoin transfers are irreversible. "This allows cryptocurrencies to look more like cash and allows merchants to accept payments for transactions with- out the risk that these transactions will later be reversed," testified Lukasz Pomorski, assistant director of funds management and banking with the Bank of Canada at the same Senate committee hearing. There are signs the virtual currency is gaining traction, even though it is plainly evident bitcoin is still in the earliest phases of industry development. At present, the bitcoin market capitaliza- tion is estimated at $8.4 billion, big enough to be listed on a senior exchange if it were a company, according to the Bank of Canada. While in the first few years of bitcoin, effort was spent building infrastructure such as setting up mining services, it now appears bitcoin is entering the investment phase, where venture capital- ists, hedge funds, and other financial institutions are starting to invest capital in the new technology. Bitcoin ATMs have been cropping up across North America, with the first one in the world launched in Vancouver, joined by Ottawa, Whistler, B.C., Toronto, and Montreal. Bitcoin exchang- es, most of which emulate either stock or currency exchanges, are also growing in numbers, providing consumers with yet another way of purchasing or selling bitcoins. All told, there are currently about 100 exchanges globally, 10 of which are in Canada. That's in addition to the proliferation of virtual currency-related busi- nesses, including processing services, consultants, legal services, and special interest groups promoting virtual currency usage. But many in Canada's small but fast-growing bitcoin business community are now facing an unexpected hurdle that is making it difficult to do business in the country. It is proving to be a daunt- ing challenge for Canadian cryptocurrency businesses to obtain a regular commercial services bank account. While it may seem incongruous that a business operating an alternative currency may require banking services, the reality is they are constantly swap- ping back and forth in fiat currencies. One bitcoin business that did not want to go on record is onto its third bank after two finan- cial institutions closed its bank account ostensibly for no reason. "I think they still haven't really wrapped their minds around what this technology is, what is going to happen with it, where it's going to go, and how to deal with it since it could arguably compete with the bank's own existing services and products," says Matthew Burgoyne, a Calgary lawyer with McLeod Law LLP, who has numerous bitcoin entities as clients. Burgoyne suspects banks are apprehensive about taking new bitcoin clients because the Department of Finance has yet to introduce regulations that specifically target virtual currency operations. Matthew McGuire, the national anti-money laundering practice leader with chartered accountants MNP LLP, believes banks are apprehensive about taking on bitcoin businesses because of anti-money laundering concerns. "There are three things in a transaction that are neces- sary if you are trying to be fraudulent or you want to conduct money laundering," says McGuire. "You want anonymity, though within the bitcoin community it is argued that it's not at its core anonymous as you could determine [someone's identity] through the block chain. You want to be able to get your money in, and you want to be able to transfer money to other jurisdictions. All of those things are present within the bitcoin structure now." There are ways around the problem, such as opening a bank account abroad or resorting to merchant payment services, adds McGuire, who is assisting the Department of Finance with draft- ing the new regulations aimed at virtual currency dealers. Another solution frequently used by bitcoin businesses is to implement an anti-money laundering program and register with the Financial Transactions and Reports Analysis Centre of Canada even though many bitcoin entities are under no legal obligation to do so. In fact, FinTRAC has so far taken the position that bitcoins are not "funds" within the meaning of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its regulations. In other words, FinTRAC will not regulate many bitcoin exchange functions under money services business rules in Canada. The hope is that financial institutions are going to have less hesitation once and if the 2014 budget implementation act and its provisions are passed and the regulations come online. "Thus far Canadian banks have been very hostile, which has been a problem. That's unfortunate because I think the risks can be managed and mitigated," says Hoegner. Bankers came under fire at a recent hearing of the banking committee under pointed questions by Senator Paul Massicotte, a chartered accountant, who suggested the Royal Bank of Canada was closing down accounts of bitcoin businesses because "this is a competitor of yours, you protect your own turf, and therefore you will prejudice yourself and make sure you get an advantage over any competitor." Carolyn Burke, RBC vice president, international cards and Canadian reg- ulatory payments, said: "[C]urrently bitcoin is unregulated and the government has also said there are concerns around the source of funds. It is not something that a bank can put through the normal processes that we have." While not exactly jumping on the bitcoin bandwagon, the X : 32 (0x20) bytes of data representing the x-coordinate of the DER signature integer type : 0x02 Y : 32 (0x20) bytes of data representing the y-coordinate of the DER signature SIGHASH_ALL : 0x01 X : 32 (0x20) bytes of data representing the x-coordinate of the DER signature integer type : 0x02 Y : 32 (0x20) bytes of data representing the y-coordinate of the DER signature SIGHASH_ALL : 0x01 sequence : 0x42 length : 0x45 integer type : 0x02 length: 0x26 X : 32 (0x20) bytes of data representing the x-coordinate of the DER signature sequence : 0x42 length : 0x45 integer type : 0x02 length: 0x26 X : 32 (0x20) bytes of data representing the x-coordinate of the DER signature sequence : 0x42 length : 0x45 integer type : 0x02 integer type : 0x02 X : 32 (0x20) bytes of data representing the x-coordinate of the DER signature 1 bitcoin = Cdn $482

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