Senate recommends Ottawa use a ‘light touch’ when regulating Bitcoin

TORONTO – A report from Canada’s Senate says Ottawa should use a “light touch” when considering any regulation of Bitcoin and other digital currencies, to avoid stifling the growth of these new technologies.

The report recommends that the federal government should employ “almost a hands off approach” when it comes to virtual currencies, monitoring the situation as it evolves and only introducing regulations as necessary.

Bitcoin is a digital currency that is exchanged through peer-to-peer computer networks and is not issued or controlled by a central bank or any other authority.

Virtual currencies like Bitcoin employ blockchain technology, which is computer code that that makes up the currency’s underlying architecture.

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The Senate report says blockchain technology has many promising applications, and recommends that the federal government consider using it to enhance the protection of private information.

“Our committee was told that by cutting out third parties, blockchain technology can give consumers and governments a more effective level of online security – particularly relevant given the cyber attack on government of Canada websites this week,” Senator Irving Gerstein said during a news conference Friday.

He was referring to a co-ordinated denial-of-service attack that blocked access to federal government websites for nearly two hours on Wednesday. The hacking group Anonymous claimed responsibility and said the attack was to protest the government’s anti-terrorism bill C-51. Public Safety Minister Steven Blaney said no personal information was compromised.

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The Senate’s report on digital currency is the culmination of 14 months of research by the Standing Senate Committee on Banking, Trade and Commerce, including interviews with 55 witnesses and a fact-finding trip to New York City.

Blockchain technology could be used to securely and permanently register marriages, births, real estate deals and a “myriad” of other transactions, Gerstein said.

Digital currency can also benefit people in the developing world by providing them with access to financial services, thus improving their quality of life, he added.

“However, there are two sides to every coin – even a Bitcoin,” said Gerstein. “The power offered by blockchain technology for people to protect their identity has a flipside.”

Related: Hacker with access to Canadian ISP stole $83K in bitcoins: researchers

In particular, the committee report noted risks that the technology could be used to launder money or finance terrorist activities.

“The consequence of this risk of criminality means a certain amount of regulation is needed,” Gerstein said.

“However, balance is something almost all witnesses stressed, and the committee is of like mind. We recognize that these new technologies may have other innovative and, as of yet, unimagined applications, and we are at a delicate stage in their development. Accordingly, the committee has concluded that the best strategy dealing with digital currencies is to tread carefully when contemplating regulations so as not to stifle innovation.”

The committee also suggested it perform another review of the regulatory environment for digital currencies in the next three years.

The Bitcoin Alliance of Canada said it a news release that it welcomes the report’s findings and urges the government, as well as the private sector, to consider them.