The Canadian fintech review: The use of blockchain in fintech

Konata Lake (00:07): Mohammed, why don't we start off by 10,000-foot level, what is blockchain?

Mohammed Muraj (00:12): Blockchain is a technology, it's not a product. And so when we look at a technology and we assess it, we really look at the different use cases it has. The more use cases the technology has, the more interesting and disruptive it will be. The blockchain provides a base layer upon which many different applications can be built.

Mohammed Muraj (00:34): A lot of people think about Bitcoin. And Bitcoin is one use case of blockchain. It's a virtual currency, but it's not the only one. And depending on who you ask, you get different responses and you'd be surprised at the difference in the different types of responses we get. So for instance, if you were to ask an artist what they think about when they hear blockchain, they might think about non-fungible tokens and attaching digital art to them and extracting royalties. If you were to ask a student what they think about when they hear blockchain, they might think metaverse and gaming. If you were to ask an investment banker, they might say security tokens. If you were to ask someone in the payments industry, they might think about stablecoins or central bank digital currencies. And so, as you can see, depending on who you ask, you get different responses because of all the different use cases of blockchain.

Konata Lake (01:34): Maybe you can talk a bit about how the blockchain facilitates tokenisation.

Mohammed Muraj (01:38): Tokenisation is taking something that currently exists in its original form and reducing it to a token. You can take shares in a company that exist. They may exist as share certificates today, but by tokenising it, you create a token that is supposed to embody that share and can be transferred around and that's tokenising equity. And these are called security tokens.

Konata Lake (02:05): At a high level, we touched on what is blockchain. Now let’s touch on the regulation of, or maybe more appropriately said, associated with blockchain.

Mohammed Muraj (02:14): Right. So as you said, blockchain is a technology. And technology itself usually doesn't get regulated. But the use cases of the technology do get regulated. So, for instance, the blockchain itself is smart contracts and code, but what you use it for is what will draw in which regulatory framework you fit in. So for example, if you're using blockchain to transact in virtual currencies like Bitcoin, then you trigger our money services business regulations, and you need to register as a money services business. And there's registration requirements, there's filing requirements, there's reporting, there's “know your client”, et cetera. But all of that happens because you're dealing in virtual currencies. Similarly, if you're using blockchain to create tokens, security tokens, then you would trigger securities laws. Every time there is a transfer of it, then you would have to determine, does this fall under a prospectus exemption, right? Are there any disclosure requirements? Things of that sort. And so it's really dependent largely on what the application is. So one more example, if the use is for identity, then obviously there's privacy considerations that come in. But you could see, you know, it's not like you get all these considerations for every single use case. If for instance, it’s NFTs, there may or may not be a securities component, there may or may not be a money services business. There may or may not be a privacy depending on how it's being used. And so you have to look at each use case on its own to determine which regulatory frameworks apply to it.

Konata Lake (03:52): Really, really great way of thinking about it, as people think about how we’re going to regulate this thing. You're actually not going to regulate the blockchain, what you're going to regulate is the use cases. And so it fits within the regulatory regime we already have.

Mohammed Muraj (04:04): What the blockchain does is it creates a situation where you get multiple frameworks interacting at once. So for instance, if you have a token on a blockchain, it could trigger securities laws considerations if it fits within the applicable framework, but the transmission of it, the sale of it, could also trigger virtual currency regulations as well. And so you have situations where you get one, two, three, four different frameworks applying simultaneously. And this is the first time for that. And also the way that these different frameworks, they have to adapt to the technology. And so, you know, they need to evolve as well to accommodate the technology and we're seeing challenges with that as.

Konata Lake (04:55): Right, our regulations are probably set up in silos, whereas the use of blockchain forces an interaction that maybe not has been thought of before.

Mohammed Muraj (05:02): Yeah. So for example, prior to blockchain, if you had a security, it was a security from day one. But what we noticed in blockchain what it's created as a concept, is that something could start off as a security token, right? But over time, it evolves into not being a security because it's efficiently decentralized. That concept of something starting off as a security and then not becoming a security over time is a relatively new concept. And it only came about because of blockchain. Right. And so you could see that because of the technology, the frameworks that did exist also need to evolve to accommodate it.

Konata Lake (05:40): Right. Fascinating. Great, thanks so much for joining us and I hope you enjoyed our talk in our fintech series on blockchain.