Unpacking the business and regulatory impacts of blockchain & cryptocurrency

Ralph: Welcome everybody. Today we're going to talk about blockchain. We have got more files in blockchain in the last six months. It's unbelievable.

John: I always get asked this question about the adoption of blockchain and how long that's going to take, and it's funny you picked five years because I actually think five years is the right timeline. There's a tremendous amount of inertia right now in trying to understand just the sheer implications of what blockchain can do. One of the challenges that the TMX had was, really, to: (a) understand the technology. You really need to understand the merits of what the technology can do and the benefits of what it can yield. Then you need to go and actually look at specific use cases around what that blockchain can actually solve. A lot of times over the last, I'll call it two maybe three years, where there's been a tremendous amount of proliferation to try and understand how this could be applied - one of the things that was very clear was it doesn't solve absolutely everything. Is blockchain going to completely change the world completely in five years? Probably not. But will it change the world? Absolutely, yes. What I mean by that is in the world of finance, when you go and pay for something - if you go downstairs and you go to Starbucks and you order your coffee, and you tap with Apple Pay, or your credit card, whatever it might be - on the backend rails there's a whole slew of steps in getting the money that you just tapped, from your bank account to Starbucks. It's not a simple thing. If you think about what blockchain can do, it can streamline that. So the implications of that are quite massive and large. Meaning that a whole whack of industries going to evolve and mature, and a lot of the inefficiencies that you see today are ultimately going to be gone.

Usman: Picture yourself in the early 1990's, well maybe half of you were not even born at that time, but - trying to exercise that prophetic insight as to where the internet was going to go - and that's really the moment at which we're at with blockchain technology. We're all trying to figure out where's this all going and what's the implication of all of this. If you talk to the purists in the blockchain world, they would say that, particularly with platforms like Ethereum…

Anybody heard of Ethereum here? Okay. We have a few people.

… Actually a Canadian-based blockchain. So some of them are actually our clients, some of the co-founders of Ethereum. They say that that future that you see in the movies will come alive through things like a blockchain, Ethereum, smart contract platform. It's a really exciting time right now to try to be on the front line and help shape the regulation. This is a bit of a dodging way of trying to answer your question as to what will happen in the next five years. I'm really not sure. I mean, I think we'll now start seeing, we see a lot of our clients in every single industry, and Ralph had mentioned insurance, banking, capital markets, many, many others. All of them are actively engaged trying to come up with use cases and prototypes and this and that. We're going to start seeing those released and what the legal issues with them are and this and that. This coming five years is really going to be that critical period to find out where this is all going. Will it all go tremendously well? Will there be issues with it? Etcetera, etcetera... That's all being worked out.

Audience: It can be argued that blockchain structural security and the immutability offer advantages over traditional data stores. Blockchain can also provide efficiency and speed. Each of these are readily applicable to public sector organizations, hence, many government leaders are exploring its uses in government. However, blockchain does impose as least two risks on the government. Blockchain's unknown technical risks may get a dangerous tool for government agencies considering the need for a low tolerance risk system. Additionally, blockchain may create a political issue as instituting a decentralized safety network eliminates the need for a central authority who controls a database. Therefore it may feel as though power is being lost. With that being said, do you think blockchain is an appropriate tool to be used by the government? And if so, where do you believe blockchain should be adopted?

John: When I think about blockchain, it can be applied in a multiple series of industry. If you think about government, there are few that do come to mind. Let me just paint you a picture. If you look at just the health system, for example, and you go to a doctor and you say, "I need to go and get my checkup" and you fill out a whole whack of forms, and then after that, you go and do your checkup and you realize, "You know what? I want to go and change my doctors." Yet you have to go and fill out those forms again. If they refer you to a specialist, because they found something, heaven forbid, you have to fill out some more forms. Let's say something else happens and you have to go to another hospital. Yet, you have to fill out a bunch of forms. When you look at it, it's highly repetitive. They're trying to understand who you are. What's the current situation? What are they looking for, etcetera. And if you think about a decentralized network around your information, your health - how much more efficient would that experience be for you when, wherever you go, that information goes with you? That's a concept of a decentralized world. This is a big thing that everyone is looking at, especially as it pertains to privacy and the ability to share the contents of what's private, like your identity in a public environment. That's one.

If you think about something else that could potentially be private. Let's take, for example, a financial transaction. That could be a private or a closed network where you have a multitude of nodes. The concept is still the same. Except instead of it just being way out there, you've got a serious of trusted parties that can actually go in and work together to contain what you call a private node. If you want to go and move your bank accounts between, let's say CIBC and BMO, or between TD and RBC, just the concept of going through that account opening process and the laundry list of papers that you need to fill out - imagine not even having to worry about that because all of that information is readily available. There are definitely applicabilities on how you could do that. The concepts of the maturity of the technology, obviously before we go and adopt it, just like anything else, there's probably going to be some growing pains. But that's sort of along the lines of what Usman was saying earlier where there's a whole of bunch of prototyping experimentation that's going on right now that is truly stressing the technology. When you do that, the engineers - the guys that have open sourced all this - are actually going in and making the edits and corrections. You're starting to see the robustness and the stability of the underpinning technology. It gets stronger and stronger at a pace that just blows my mind because I can barely keep up.

Audience: The internet mentions that you're authoring an upcoming book called "The Law of Blockchain Technology". Today there are more than one thousand cryptocurrencies actively trading on the financial market. Does the book mention how the laws are regulating and affecting the adoption of blockchain technology? Also, do you believe that most cryptocurrencies on the market are declining because of regulatory and concerns and questions it arises?

Usman: So, yes, we're writing a book on the law of blockchain technologies. You can probably imagine it's a very difficult, never-ending process because the law is constantly evolving in this space. It's almost as if every week goes by there's a new law. There's a new regulation. There's a new amendment on the books. There's a new position that is being taken by a regulator with respect to something or another, involving cryptos. We're trying to cover the field by addressing all different aspects of cryptocurrencies. To the first question that you have, if I recall it correctly, is - yes, we're planning to look at all of the regulatory aspects surrounding cryptocurrencies. Now, you asked as well about whether regulation is impacting the value of cryptocurrencies, if I recall it correctly, and I think it is. Let me ask you this:

How many of you here, if anyone - I'd be surprised if there was no one - hold cryptocurrencies? Okay. As it turns out John, here is a crypto billionaire.

Ralph: No. I saw a hand at the back. A guy.

John: There's quite a few. A number of people.

Ralph: Oh. Quite a few people. Okay.

Usman: So, what would happen, let's say, if you couldn't convert that crypto into fiat? So, US or Canadian or Yen, because any of the exchanges that you could transfer those cryptos through to another person, or to convert them to fiat, were shut down. One of the big issues right now is with respect to exchanges. I mean, what rules, what laws, really apply to them? Should they be governed as the Toronto Stock Exchange? Should they be governed in some other fashion? That's just one of the issues that people are dealing with. Once a regulator, or a government, moves to affect exchanges or some of the other critical aspects, or moves to regulate, there's almost like a shock to the system for a number of the cryptocurrencies. So we see that kind of reverberate and we've seen, for example, South Korea, China, make movements against cryptocurrencies. It definitely has, I mean I don't have a line of causation, but timing-wise, it appears to be the case that regulation and a hint of regulation could definitely impact it.

One of the big issues that a number of our banking clients have with cryptocurrencies is that you can't really do proper KYCAML cheques. KYC is Know Your Client or Customer; and AML is Anti Money Laundering. They have to make sure they're complying with laws; that they're not facilitating terrorism and terrorist financing. How do you do that with Bitcoin where it's a pseudo, anonymous kind of ledger, where you can see all the transactions but you don't really know who's behind them? That's a big issue for a number of governments, a number of banks, a number of legislators and we're going to see in the coming years, and the coming months frankly, a lot of development on that side to address that, among many other issues.

Audience: With over 20 years of involvement in both business and technology you have gained experience in global payments. Under the current system, sending money across the world is insufficient as wire transfers and fees are high and it could take several days for a recipient to receive the funds. Cryptocurrencies help solve both issues as the fees are much lower and the transaction speed is anywhere from a few seconds to 45 minutes. We have gotten used to the Canadian dollar, US dollar, Euro and Japanese Yen and a lot more currencies and even gold, so why haven't more banks adopted cryptocurrencies for global payments as of yet?

John: If you think about some of these cryptocurrencies - and again, I'm not going to look at these tokens with one slight for all of them - I mean, they are different, depending on the attributes of which cryptocurrency you're looking at. But if you look at Ethereum or Ether and Bitcoin, these things are perceptions of value or stores of value. The intended audience for what Bitcoin was when it was first created was that actual reason, to say, "I want to go and use this as a value of store to buy something, or sell something, or move value across borders without having to worry about it.” The problem is if you actually try to do that today, you have to ask yourself, "Okay, if I'm going to move a thousand Canadian dollars and move it to South Korea, to the Wan" and you know you can actually do the wire, go through a whole slew of correspondent bank networks, there's probably some fees along the way but eventually, it gets thereafter, call it three days or four days - depending on how many hops, some of these can take a lot longer. The value of store there remains somewhat constant. In a perfect world where there was stability in the pricing of what Bitcoin is, or Ether is, the argument stands true. It could happen. But what is happening right now? The volatility is actually hurting the intended purpose of what Bitcoin was. If you think about even trying to go, and I'll use the coffee thing because I love doing the coffee bit… If you think about the intended purpose of a Bitcoin, it was to go and buy goods, buy things, replace fiat completely. This is where the purists will come in and say, "That's what it is was intended for. Screw you government." But if you had one Bitcoin right now and you had two Canadian dollars right now and you went down to the Starbucks and, let's just say for hypothetical situation, they actually would accept the Bitcoin. Would you buy that coffee with the Bitcoin or would you buy it with the Canadian dollar?

Audience: <Inaudible>

John: Exactly. Why would you take that risk? Because of the volatility of Bitcoin that could become an extremely expensive cup of coffee. Right?

Ralph: Or free.

John: Or free. That's right. Actually it could completely tank but you don't know. But the point is the volatility of it, and that perceived value of store, when you buy that coffee at that point in time, the confidence you have in the fiat currency is significantly greater because you know that value of store is relatively constant. And yes, the Canadian dollar does move. But does it move or spring a thousand dollars every four hours? No. So, when you think about that, the intended use of it is very, very different. Of course, not to mention, the legal ramifications of the legitimacy of the currency itself, is what the governments are having a very difficult time in actually acknowledging, hence the bank themselves. That's sort of the reason why you haven't seen this massive adoption.

Audience: One of your areas of expertise is cryptocurrency litigation. I'm curious to know what are the most common types of litigation that you see in such a new and disruptive industry such as cryptocurrency. And what do you suggest companies and individuals do to protect themselves from risk when getting involved with cryptocurrencies?

Usman: In the early days tons of litigation in the criminal area. Unfortunately, Bitcoin got tarnished, sort of like the internet as well in the early days with criminality and this and that, because it was new and certain features of it lent itself to facilitating crime. The early cases that everyone hears about in the criminal litigation sphere are the Silk Road trilogy cases. Which is really this underground, under web, dark web operation that you could use to basically buy murder for hire, narcotics, any type of other contraband and the underlying payment system was Bitcoin. The FBI, through various mechanisms and procedures, were able to commence prosecutions against a number of those individuals and shut it down. We saw in the early days a lot of criminal prosecutions involving Bitcoin. The features, again just to elaborate a little bit, Bitcoin is a pseudo anonymous ledger. So again, although you can see all the transactions right to the genesis blog, being the very first transaction. We can see somebody having bought something for 10,000 Bitcoin, which right now would be worth $158,000,000.00, or something like that. It was actually for two boxes of pizza. That pseudo anonymous nature of the platform lent itself to that. Now, what we're seeing is a ton of litigation, and particularly prosecutions or regulatory investigations, in the capital market space.

Who has heard of an initial coin offering? Or an ICO? Or a TGE? Okay, so it seems quite a few of you have.

We're counsel on quite a number of cases where regulators, both here in Canada like the Ontario Securities Commission or the AMF, the Quebec securities regulator, and also the United States Securities and Exchange Commission, are saying, "Wait. These tokens that you're issuing are basically securities and you didn't comply with securities laws." All of those people should have received a document called a prospectus which gives disclosure and has to satisfy a very high standard of disclosure, full, true and plain. We're seeing a lot of litigation in that area. We're seeing a lot of tax authorities now trying to make inquiries in this space as well. They're seeing a lot of transactions occurring over exchanges. In the United States, the US government or the IRS, said, "You only have about a thousand five hundred people who reported capital gains on their tax filings. There must be something wrong here." So, they're making a lot of inroads. That's the first part of your question. The second was, I completely forgot what your second question was. Go ahead.

Audience: It was just, what do you think businesses and individuals can do to protect themselves if they are involved in cryptocurrencies?

Ralph: Hire Gowling WLG. That guy over there.

Usman: Yeah. So, if you're involved in an ICO, or an initial coin offering, one should seek the proper advice prior to getting into those because you may, in fact, be entitled to rights under securities legislation to protect you. Oftentimes, these are sold as utility tokens where they say they're not securities and therefore you get, sometimes in the early days - it'd pretty much be on a napkin or a one or two pager - the disclosure that these people would get, and then these projects would raise 300,000,000 within seven minutes. It was remarkable. I haven't seen anything like it. Now, people are starting to realize that securities laws apply and are issuing the proper documents and we're assisting on a number of those. That's just some advice I'd give but oftentimes consult proper counsel.

Audience: This question is regarding TMX Group's innovative use of blockchain. Your company has been recently developing prototypes for businesses using blockchain technology. The easy proxy voting system, that is meant to increase the efficiency and accuracy of the shareholder voting process, and another that tracks natural gas flows and deliveries. How will the latter prototype increase the safety of natural gas flows and what are the potential risks of using this new technology?

John: The nat gas flow, the natural gas, is actually not a safety mechanism. So, the dangers of getting physical delivery of natural gas from a well tip in Alberta to your house here in Ontario, those risks still exist. This is not, blockchain is not going to be able to go and replace a physical pipe. But what we did there, and I kind of talk about this a little historically because the TMX Group actually sold NGX, which is the nat gas exchange, this past December… Prior to that what we were doing was actually the clearing and settlement of physical natural gas units. What I mean by that is if you think about how that journey of natural gas actually gets from the well… I mean everyone here lives in Toronto right now, and aside from today, this winter's been kind of crappy and it's been very, very cold. When you go home there's just a natural assumption that when you turn your furnace on, there's gas there for you to burn. If you think about the journey of where that gas came from, it came from a well tip somewhere, and it made its way through a myriad of daisy chains of pipes that are not owned by one single entity. They're owned by separate operators that look after that little piece of that pipeline, and they work their way all the way to a municipality and then over to your home. If you think about the clearance settlement of that, each company that is really daisy chained together, is responsible for moving that unit however many miles, or kilometers, to get that gas across. It's technology. Sometimes there is danger and sometimes the flow of natural gas has to stop. There might be a leak or whatever. So, when you do that the failure to deliver becomes real. How do you track that? Who is liable? Who's responsible? That whole process is very, very manual and takes upwards of 30 days to figure out who failed to deliver, in that whole daisy chain. Who's the one that shouldn't fully get paid? Who's the one that has to pay the penalty for failing to deliver that natural gas? If you think about blockchain, and the nature of how you could actually commit the successful delivery of each of those things, you can know figure out who failed to deliver within seconds.

At the end of every fiscal year for some of these companies, if you own shares of any particular company, there is a filing requirement to call an annual general meeting. Some of these things that happen, you get these wonderful physical mailings, you get a nice booklet that says, "This is how much money the company made. This is how much money the company spent." The disclosure requirements. Something that this smart guy over here was talking about: securities law requirement. As well, there's a piece of paper that says, "Oh, here's your vote. Who do you want to vote for your board of directors? Who do you want to vote in terms of your overall auditor? Who do you want to go and look at to approve the executive compensation program?" You as the shareholder have these rights to actually go and place these votes. It's on a physical piece of paper. When you think about how that gets tabulated at the annual general meeting, how do you think that gets done? Manually. We go through a wonderful reconciliation process to ensure that eligible votes are actually counted as part of this. This is, again, adhering to the integrity of the capital market system. You actually go through a very laborious process to make sure that these votes that were counted were actually eligible.

Now imagine what blockchain could do when you apply that technology. The tabulation is immediate. Who's eligible to vote is immediate. The lists of how you actually put it together, because they're bifurcated, the whole issue around privacy of who owns what, has to be maintained. That's why they're split… again, because of the immutable nature of the blockchain, as well as the privacy, you can actually tier this out. That was our prototype, to actually look to see if you can use that technology in a way to streamline this process. If you can do it, you wouldn't need - I think it's 30 days - to actually go through all of this. Take that, multiply that by the number of issuers that we have, which is about 4,500, and they all do their AGM in between April to July, and then you can quickly see the challenge that we have in just doing the tabulation to count these votes.

Audience: You are seen to be a leader on blockchain and distributed ledger technology, including its application to the capital markets. What influenced you to become so invested in the technology and law integration? And did you predict that cryptocurrency would have such a booming effect in the legal system? And I do have a random question as to when your book will be coming out.

Usman: Did I predict this? I was sort of thrust into this area, in part, because our clients developed, maybe such as yourselves as well, some of you, this almost unhealthy obsession with the topic, and would constantly ask us for legal advice about what is blockchain technology? They got over the hump of Bitcoin and they started to see that the revolution, actually, is the underlying technology. When they started looking at the underlying technology they said, "Wait. This could potentially totally disrupt our lines of business." For those of you who are, I'm not sure how many of you read that piece by IBM on "Blockchain for Dummies" or "Bitcoin for Dummies", but look at our conventional system. Right?

How do you go about doing a banking transaction? You'll go to your bank. You want to send five bucks to, let's say, Sahel, over here in front of me, and you'll go to your bank, they'll confirm that you have a bank account. They'll check your ledger, being your debits and credits, make sure you have five bucks to spend. Then through all these intermediaries, ultimately, there will be a communication to Sahel's bank and that five dollars will be ultimately deposited. Everyone's going to update their respective ledgers. So what about a world in which you can basically send that five bucks to Sahel in a pristine, almost uninterrupted way without any of those intermediaries whatsoever? It could be done quicker than the conventional system within, let's say, ten minutes regardless of whether he's sitting across a room from you or in Japan. Banks started to consider this and said, "Oh. This might have an impact on many of our lines of business."

 

Now throw in smart contracts and this automated way of doing things that sort of lives off these blockchains, and then you have potential massive disruption to the capital markets, which is where my day job was prior to blockchain coming into my life. Then you have massive disruption to the insurance space. You have massive disruption to many, many different areas. You even have Sweden, for example, moving to get rid of its entire land registry system, to tokenize property and have it move through a blockchain distributed ledger technology platform or network. To answer your question how I got into this, I started to see that our clients were massively interested in this area and then, I'm not sure, John, if you had this moment as well, is that you read your first thing on blockchain and you have this moment. A lot of these developers have this, Vitalik as well and Anthony too, is that you find out about it and then you basically lock yourself in a room for three days, not to emerge, just having read and not slept and just obsessed with what the implications of this technology are. That happened to me as well. At that point I was hooked and then I started to look at the implications from all legal spheres as to what's happening. That's how I got involved. Now I'm helping to advise cabinet ministers and prime ministers, and this and that, as to where this is all going, how to structure themselves, how to deal with this potential disruption that's coming. I don't mean that word in any particular pejorative sense. I'm talking about the impact that it will have on many different ways of how we operate.

In terms of the book, it's scheduled for this year. We're working hard to target for this year. That being said, the challenge in this area is that we're on the front lines. This area is constantly shifting. New legislation is constantly coming out, that it's hard to get any stability in any given chapter because the law keeps changing. So, what we're thinking of doing is sort of rolling it out in pieces now, and constantly updating that which is coming out, then ultimately bringing it together just so that at least we can start getting views out there in this space.

Audience: Hi John.

John: Hi.

Audience: So, in April 2017, TMX Group announced that it was launching its first blockchain-based prototype to maximize company efficiencies and find solutions to a variety of client issues, on a daily basis. Given how recently implementation of this distributed ledger technology occurred, one could assume that TMX has spent the last several months adjusting to the new technology and exploring the benefits it poses to the organization. One could also assume that before this announcement last April, your organization had done a great deal of research and development for this blockchain application. Therefore, my question to you is, what was it like a VP of Innovation and Enterprise Delivery to implement this application? Was it well received by employees using it and in what ways did it live up to, or not meet, your expectations?

John: When you think about the disruptive nature of this technology the first thing that I'll say is there are people that are really, really excited about it. But there's also a bank of folks that would look at that and go, "Wait a minute. This is completely disrupt and eliminate the need for my job." You did get a bit of mixed reviews especially if you think about some of these prototypes where you actually go and apply it. I should clarify that these prototypes, the technology components to it were very, very quick. They're very, very rapid to actually go and vet out. But it's a multi-pronged challenge because, not only do you need to figure out how to operate it and run it, you also need to look at the business model as well. So this has cultural elements too because if you deploy this, let's say to an organization, and you realize that 40 of the jobs are no longer required - you can't just go and slap in there and go, "Oh, by the way you guys, go do something else. Figure something out." There's a socialization element, and a cultural shift element, that we really look at very, very carefully when we actually look and explore this. A big part of the prototyping is actually to address this on multiple prongs. Everyone always talks about the technology piece, the technology piece actually is by far the easiest, because there's a beginning and an end. Here it is. The demo's workable. But then when you see the results of it, that's when the real work starts. You look and you go, "Wait a minute. This has massive regulatory implications. This has massive audit benefits," for example, in terms of traceability, "Wait a minute. This completely eliminated the need for three different types of reconciliation. Hold on. In order for this to actually work you need to get the entire banking system to actually go and adopt this. Hold on. If I do that than their business operations would need to get impacted." Then you can start to quickly see how this becomes a massive ripple effect in terms of how you can actually go and move something into production.

It's not a simple challenge where you look at it from a multi-pronged approach. We learned a tremendous amount through that. The one thing that I will say is as we go and explore it, the hardest one, was the cultural shift of the people. If you look at people that have jobs that have been very, very skilled, very trained, know their job inside and out, and they've been doing this for 15 years and then to find out this technology can ultimately eliminate the need for it, that's not something that an average person can just say, "No problem. I'm good." There's a big transition in terms of re-tooling the people to look at the new emerging jobs and positions that this would actually create, so that you can actually pivot and shift the work force, to actually make it real.

Ralph: What advice would you give these, what are you guys, fourth year, business students, legal business, smart, and when you're hiring I want you hiring Ryerson students here.

John: I'll keep that in mind.

Ralph: Remember that. But what advice would you both give to these students with respect to career paths and things like that, as it relates to this particular entity. Because you said there's going to be more jobs. We want to be ahead of the curve and, it was not anyone's question, but I'm asking it.

John: Ironically, I was actually thinking about this for my kids. I said, "Well, I'm almost positive that being a typical Korean family growing up, my parents had this vision that in order for my kids to be successful they have to be a doctor, they have to be a lawyer, you know, or they have to be some sort of professional. Anything else and you're crap. You're a complete failure." When you think about those elements, by that definition, I'm a complete failure. But what I've realized is over the next five years, my advice to all of you, is look at the industry trends. When you think about the disintermediating elements, you will actually start to see the triggers, and then think about the implications to industry. Think about the implications to regulatory. Think about the implications to society as a whole. You will see, it is like a pebble in a pond, where you're going to start to see these impacts. When that happens it'll be pretty fast. When that happens you will see massive gaps all over the place. To try and figure out where that skill set would be needed, I would say, just go in and focus and on that. The one thing that I am seeing, especially when you think of the revolution, it is being empowered by very cheap computing power, and tremendous amount of technology enablement. If you think about those key areas, these are the areas that I would suggest exploring, and it doesn't mean you need to be a technologist. There's going to be a tremendous amount of support, infrastructure, to help foster and grow that.

Ralph: Anything to add, Usman?

Usman: At the end of the day, as we say to a lot of our law students, or the students that we have that are young lawyers - this profession is a marathon. It's not a sprint. You have to love what you're doing, at the end of the day. So that's the most primordial, basic of points. So whatever you do you have to enjoy doing it. Nowadays, gone are the days of our fathers and mothers, where you stick with a profession and you stay in a job for 50 years and that sort of thing. A lot of people end up switching and see career progression as picking up skills from here and picking up skills from there. So you always have enjoy, as the most basic point, what you're doing. That being said, you have to be smart about what you're doing as well. In my own career, for example, I saw that where this particular industry was going with blockchain and became a bit of a first mover in it. I happen to really like it. I mean, blockchain, for example, is an area where we're dealing with questions of first instance every single area that we look. I mean, what is Bitcoin? Is it a security? Is it a commodity? Is it property? Is it a new asset class? Is it a currency? Is it all of the above? These are questions that are fundamentally, intellectually stimulating, rather than just doing the kind of mundane, sort of, corporate commercial litigation. These are cases that are a lot of us are fascinated by.

I would say, again, go back to what you really enjoy and then be somewhat smart about where the winds are going. If you're interested in law, we're now telling a lot of students that you should try to understand coding as well, because we see where the wind is going in that area, with smart contracts and at one point, we as lawyers, are going to have to know whether the written text and the smart contract code, in fact, memorializes or reflects that written text, in a contract - and have we, as lawyers, discharged our obligation to our clients if we don't know whether that code is actually implementing the intent behind that contract? We actually have hired a number of students, I'm talking about law students in our coming class, that do have that background and do understand that and we're hiring coders as well. Blockchain coders and working on proofs of concept stuff of our own. I guess you just have to understand where the trends are going.

Audience: Your biography says your litigation expertise includes crisis management. One recent and popular example of a crisis management disaster was the Equifax data breach. As of September 2017 at least 23 class action lawsuits were filed against Equifax. Androvett Legal Media and Marketing says the value lost in diminished reputation may far outweigh the cost of litigation. My question is in what ways can companies facing crisis mitigate damage to their brand or reputation, and should brand reputation or solving the crisis be a company's first priority?

Usman: It's a little bit of a tougher question to ask because it sort of depends on the company. It depends on the issues but, I mean, companies right now know that it's a brave new world… that it's a whole new different ballgame with cybersecurity threats and so on and so forth. On the data security side, a lot of companies now are really having an introspective moment to find out where the crown jewels are of the company. Personal data, where are they harboring it? Equifax had quite a lot of personal data and then what methods they can take to protect the integrity of that data, make sure that it doesn't get dissipated - either because of insiders who may have clicked on a phishing email scam and unbeknownst to them have suffered, or gotten trapped in that - a whole host of things are being looked at.

Bringing this back a little bit to the blockchain side, it's interesting because our firm is hosting in, I think it's early March, Ralph you might not actually know this, but we're hosting a round table on digital identity. This is being co-hosted with the Province of Ontario and DIAC. We're going to have the Governor of the Bank of Canada. We're going to have a lot of the banks and many, many other key parties who are looking at how blockchain technology and - to use, I don't know if you've heard this book called, "The Blockchain Revolution" but it was authored by Don and Alex Tapscott. If you always talk to Don he'll say, "Well, we'll be able to create", he uses the word, "a digital avatar." - basically a replica of ourselves, electronically, that holds all of our personal data, and we’ll be able to be permissioned and we'll be able to have complete control over the information that relates to us qua human being and be able to control who gets access to it, be able to control how long that person may have access to that information through cryptography, etcetera, etcetera. So, John can maybe elaborate more on that digital avatar and the integrity of that. But that's considered to be a solution to a lot of this. If you look at blockchain technology, what is it trying to cure in part? Well, right now we have in our traditional system, banks. We have clearing agencies. We have many, many other people, or entities, that basically all harbor personal information relating to an individual, that each in themselves, can be attacked and be a source of data leakage. Now, what happens if you can create a digital representation of yourself and that could be secured through the technology that is blockchain? I don't know, John, if you wanted to elaborate on any of that, but that seems to be somewhat of a solution to what we're seeing with Equifax and other companies that are being attacked.

John: I can tell you, for the TMX Group, brand and brand reputation is of paramount importance. If you think about a depository, which is part of the TMX Group, it's been classified as something called an "SFMI", which is a Significant Financial Market Infrastructure. What that really means is this thing is trading, or transacting, about a trillion dollars' worth of asset value on any given day. For the investing community, when you trade through the Toronto Stock Exchange, there isn't a single person that has an issue with the fact that my money is there, I just bought a security and now I'm worried that I'm not going to get the security. That just doesn't happen because there's just implied trust. We take a lot of precautions to ensure that the bad guys that would actually go in and try to do a cyber breach, or anything like that, can't get in to access the data; because if you think about the old days, where you had a physical stock certificate in a vault, there was a bit of security around that because it was a physical piece of paper. Right now we're 99%25 dematerialized. Which means a lot of these securities are already set up as digital assets. It's one glorious ledger.

The data and the precautions to ensure that the data doesn't get breached is significant. We have what's known as rings of defense so that if a bad guy were to try and get in, not only would we detect that, but they still wouldn't be able to get into the core depository. These are some of the controls that we have to put in place to ensure that when there's money being transacted, or assets being transacted, that the investor community doesn't have to worry about the fact that, "Oh wait a minute. 500 million dollars of so and so's portfolio just vanished. What just happened?" That's not something that we tolerate. If there was a data breach at the exchange, there would be significant implications to the country, to be honest. That's why from a brand and brand reputation standpoint we take a tremendous amount of time, energy and resources to ensure that actually doesn't happen.

Audience: The staff notice that was published by the CSA on August 24, the notice describes the factors CSA staff consider in assessing whether prospectus, registration or market place requirements apply. Do you think that this notice provided good guidance of the growing activity in this novel area? In your opinion, what do you think is missing and should be added to strengthen or improve it?

John: So, my personal view and not that of the TMX Group or the fact that I'm an advisor for the OSC - it was a first stab at it. I think one of the biggest challenges around the whole token craze from last year, and I think I alluded to it earlier, is that all of these ICOs are not necessarily created equal. There are some very legitimate ICOs but they're just completely crowded in a sea of potential fraud and the whole bit. So the space is confusing. A big part of that is because of KYC, because of the lack of it; and if you think about the prospectus filings that you need to go through to ensure that the investment that you're trying to issue is a legitimate investment, and the lack of that, it becomes difficult. One of the challenges that I would see, that hopefully we can clarify, and I think Usman mentioned it earlier, this space is changing constantly. The laws are changing constantly as they try to, to be honest, keep up with the pace of how the technology's evolving. The classification of these tokens, or these coins, is something that hasn't been standardized. The default standard, as a result of that, is everything's a security. The fact of the matter is some of these things actually are not because they're not backed by an actual asset. I think as the space matures there's going to become a classification of these tokens saying, "These are bad tokens. There's absolutely nothing here." to "These are absolutely legitimate." That, hopefully, will create a framework that will allow the CSA and the regulations to actually go and clarify their position a bit. And, again, one thing that I've learned is trying to change rules is not something you can do overnight. It takes a while.

Audience: The Ontario Securities Commission has been criticized in the past for being too lax on its security fraud dealings compared to its US counterparts. Decisions in the OSC usually go to a tribunal which require a balance of probabilities. The legal process usually takes long, where witnesses die before they go to trial, and the US Securities Commissions are usually more willing to go after big fish in the industry because they want to send a message. In your opinion, what measures can the OSC take to step up its game and pose as a more effective deterrent for potential security infringers, like its US counterparts?

Usman: I used to be a prosecutor at the Ontario Securities Commission. So, okay, so it's a good question. People properly put the indictment on, not only the OSC but other regulators, that they haven't stepped up to the level that their American counterparts. Particularly of late, you may have seen the Globe has been going to town on this particular issue as well. There's a few things, I guess. The first thing to appreciate is that our capital markets are much smaller than the United States. It's hard to sort of compare apples and apples to the Americans and here. But that being said, it's a fair point to say in the United States that there's been a lot more criminal prosecutions by the Department of Justice and the New York attorney's office as well.

There's a few things that need to change in Canada. One, for example, I used to be in the insider trading unit for the OSC. These are the hardest cases to prove. The reason why is that it is very similar to, frankly, it's probably not the best analogy to make, but to communication for the purpose of prostitution. In that circumstance you have a crime that is unlawful under the Criminal Code but you have no witness who is going to come readily to the authorities and say that I was victimized and therefore you need to prosecute. Same thing with insider trading and tipping. Assuming all goes well, you don't really have a victim who is going to come to the regulator and give all their evidence - like somebody would in an assault, for example. What we have to do is build, what we have to do, what I had to do in that circumstance, is build a case based on circumstantial evidence. Okay? So build it piece by piece. Looking at the phone record. Looking at the date and time of the trade. Going back to the trade ticket and looking at the exact second and trying to fit this whole chronology to compel the commission to say on the balance of probabilities, based on the wealth of evidence that we put before you, that you should find that this individual did engage in insider trading or tipping. Okay. The Americans have a tool in the United States that we don't have in Canada, at this time. Which facilitated a lot of criminal prosecutions in the US, which is the ability to wiretap. The ability to wiretap allows the criminal authorities, like the FBI for example, to tap into the line of two people who are suspected of insider trading and tipping, to capture contemporaneous evidence from the horse's mouth, where they're actually conveying material non-public information from one person to the other, followed by a trade or what have you, to secure on a beyond a reasonable doubt basis, that conviction. That's how Preet Bharara, for many of his cases, was able to bring down many key players on Wall Street, and others, on the basis of that tool. One thing that we're missing in Canada is those statutory amendments. There hasn't been that amendment to the Criminal Code to authorize wire taps for criminal prosecutions. I think that's one reason and then, frankly, there's probably a whole host of others so I'm happy to chat with you afterwards, but I think that's one of the things, some of the amendments as well, and the size of the prosecutorial teams are not exactly the same, etcetera, etcetera.

Audience: As of late in the news there's been some applications from companies to create some sort of ETFs surrounding tracking cryptocurrencies and stuff like that. What do you recommend for an individual to get exposure to cryptocurrencies and do you think that an ETF would be lucrative and a good investment tool for a person that wants to get minimal exposure to cryptocurrency?

John: I obviously can't give you investment advice because I'm not a licensed investment advisor, but ETFs are a mechanism by which you can get some exposure to it. Some of these ETFs that are being generated are operating under the confines of securities law. If there is a way that you can get exposed to some of that, I should quantify the fact that you are getting into it and it's being managed. So there is going to be a basket of crypto, theoretically, that's going to be underpinning it. A very, very new instrument. The ETFs actually have been around for a long time but, obviously this one being crypto, is a little bit different. There is, let's just say, some caution around how that's moving forward. I think that is an example of how you can kind of see Canada looking to transform, or embrace, some of this new technology. Instead of just going straight all in these are some of the, I'll call them innovations, that are actually coming out to operate and get some exposure to this stuff without breaking the law. That's a perfect example of that.

Audience: My question is since cryptocurrencies, at some levels, pose as a competitor to existing currencies within nations, for example, Bitcoin and Canadian dollars accepted by a few merchants here in Canada. Would you say it is a possibility or a probability that we'll eventually see central banks across world, and in particular in Canada, begin to issue their own digital currencies in an effort to maintain control over their domestic money supply?

Usman: John is working with the Jasper Project, so.

John: Yeah, so, I'm actually trying to answer that question myself. What I can share with you is last November, the TMX, myself, Payments Canada and the central bank, the Bank of Canada, have entered an agreement to go into a pilot project called "Project Jasper". That project, what that is meant to do, was to literally put a Canadian dollar on a blockchain which theoretically would compete with Bitcoin and Ether and the whole bit. Now, obviously, the implications of that you can pretty much see what that would imply. The other element of that project is that we're introducing the assets, the securities, into that ecosystem. When you do that and you try to understand the interaction model between a cash leg, which would be a Canadian dollar on a blockchain, to an asset or a security - again, on a blockchain - that can now interact with each other instantaneously, what the hell happens? That's the project. We'll actually have the results of that in probably mid to late April.

Ralph: Okay. If anyone wants to speak to this speakers after the class, I want to thank our two guests, John and Usman.