Canada: Bitcoin E-Gold Rush: Unregulated Technology Gains Currency

Conjuring memories of the Yukon Gold Rush, speculation and dreams of riches abound as bitcoin - a type of digital currency and programmable money - continues to gain currency with investors, entrepreneurs, and the tech savvy. Heralded as "the currency of the future", in November, 2013 a unit of bitcoin briefly became more valuable than an ounce of gold, soaring to $1,242 from less than $15 in January, 2013.

But all that glitters is not e-gold. Unlike gold and traditional currencies, bitcoins have no intrinsic value and are not backed by a national central bank. Bitcoins derive their value solely from market demand. Bitcoins are worth what people are willing to pay for them on any given day. As such, the value of a bitcoin is extremely unstable. And, although peer-to-peer transactions in bitcoin have the advantages of anonymity and low transaction fees (as compared to those charged by banks for similar services) transactions in bitcoin are unregulated, uninsured, irreversible, and susceptible to hacking.

As the masses head for the hills and frenzy to get their hands on bitcoins, do Canadian lawmakers and regulators have an obligation to step-in and impose a legal and regulatory framework that protects consumers and mitigates the risks and concerns associated with transactions in bitcoin? And are Canadian lenders ready for the challenges that present themselves when lending to businesses who deal in bitcoin?

Understanding the Technology

A bitcoin is comprised of a string of computer code. A bitcoin is "mined" using powerful computers running a software program that tirelessly searches for solutions to a very complex mathematical problem. When a computer solves an equation, a bitcoin is unearthed.

Creating scarcity, in 2008, Satoshi Nakamoto, the pseudonym for the mysterious computer programmer or team of programmers who created bitcoin, placed 21 million bitcoins into the virtual ground. Like the first Yukon Gold Rush prospectors, who locate gold nuggets with relative ease, the first entrepreneurs to run bitcoin software mined bitcoins using the basic hardware in their personal computers or laptops. However, as each computer solves a mathematical equation correctly, the bitcoin software automatically increases the difficulty of each subsequent equation. Presently, only 12.3 million bitcoins are in circulation and mining bitcoins requires an immense amount of computing power—supercomputers running 24 hours per day.

Since bitcoins have become extremely difficult to mine, the most common way to acquire bitcoins is to purchase them from a miner by converting "real" money (a national currency) into bitcoins at the market rate of exchange. A bitcoin owner stores bitcoins in his or her "digital wallet". Digital wallets, encrypted files save to an individual's computer, cell phone or USB key, verify that the holder is the rightful owner of the bitcoins.

Capitalizing on the Rush

Selling shovels to prospectors, Robocoin Techonolgies recently set up bitcoin ATMs in Ottawa, Toronto and Vancouver. The bitcoin ATM in Vancouver, which was operational in October 2013, was the first of its kind in the world. Robocoin will also debut a bitcoin ATM in Montreal and Asia's first bitcoin ATM in Hong Kong this month. Rival corporation, Lamassu Technologies, will also debut South America's first bitcoin ATM in Sao Paulo this month.

A Calgary-based Bitcoin company, VirtEx, is also making inroads. VirtEx plans to debut a bitcoin debit card that is compatible with any ATM in the fall of 2014. As a sign of bitcoins growing popularity among Canadians, the bitcoin ATM in Vancouver transacted a reported $100,000 CAD in its first week.

Buyer Beware

Although bitcoin ATMs and related offshoot technologies make buying-in to bitcoin more accessible to the average person, few holders of bitcoins actually use the technology as a currency. While an increasing number of merchants accept bitcoin, few report transactions in the currency. Instead, most owners of bitcoins hold on to their bitcoins like a speculative, high-risk stock.

In addition to value volatility, a major disincentive for holders to transact in bitcoin is the push-back the technology has received from numerous nation's central banks. The Bank of Canada does not recognize bitcoin as a form of legal tender.1 According to the Currency Act, "legal tender" is the coins and notes issues by the Bank of Canada pursuant to the Bank of Canada Act intended for circulation in Canada (section 8).2

Contrast this with the statement in Re Alberta Statutes,3 where the Supreme Court of Canada defined "money" as "any medium which by practice fulfills the function of money and which everyone will accept as payment of a debt is money in the ordinary sense of the word even though it may not be legal tender". This suggests that Canadian law may treat bitcoin as something more akin to a new form of payment system.

Currently, bitcoin exchanges and ATMs are not considered "money services businesses" under Canada's Proceeds of Crime (Money Laundering) and Terrorist Financing Act (the "PCMLTF"). Since the PCMLTF defines money as the coins or notes in circulation in a country, bitcoin transactions are not subject to the PCMLTF. However, bitcoin transactions will not continue to escape the scrutiny of the Financial Transactions and Reports Analysis Center of Canada (FINTRAC), Canada's financial intelligence unit responsible for ensuring compliance with anti-money laundering legislation.

In Canada's 2014 Federal Budget, the Government of Canada indicates it will introduce anti-money laundering and anti-terrorist financing regulations for virtual currencies, such as bitcoin, in the coming years. FINTRAC will receive up to $23 million over the next five years to monitor virtual currencies and online casinos to ensure neither technology is used by crime syndicates and terror groups. As stated in the budget:

The Government of Canada is committed to a strong and comprehensive regime that is at the forefront of the global fight against money laundering and terrorist financing and that safeguards the integrity of Canada's financial system and the safety and security of Canadians...It is important to continually improve Canada's regime to address emerging risks, including virtual currencies, such as bitcoin, that threaten Canada's international leadership in the fight against money laundering and terrorist financing.4

Although the proposed regulatory amendments and changes to the scope of FINTRAC's purview in the budget come out of a five year review of the PCMLTF by the Senate Committee on Banking, Trade and Commerce, Canadian lawmakers were undoubtedly influenced by the Silk Road scandal in the United States. Silk Road was an online black market that allowed users to anonymously purchase illicit drugs and guns using bitcoins. Two men (one a Canadian citizen) were recently arrested in Miami, Florida, for their involvement in Silk Road and each was charged with operating an unlicensed money service business, money laundering between $300 and $20,000, and money laundering currency valued at more than $20,000. The Silk Road scandal demonstrates the inherent risks presented by digital currencies and makes Canada's commitment to regulatory reform all the more timely.

E-tax Considerations

Although Canada does not recognize bitcoin as a form of legal tender, the Canada Revenue Agency (CRA) stated that transactions in bitcoin are not tax exempt. Depending on the facts, a bitcoin transaction may fall within the CRA's definition of "Barter Transaction"5 or "Transaction in Securities".6 As a result, income or gains from the sale of goods and services for bitcoins must be included in the seller's income for tax purposes. Similarly, any resulting gains (losses) resulting from trading in bitcoins (for example, when bitcoin holders cash-in their bitcoins for Canadian dollars), could be considered, for income tax purposes, to be either gains (losses) on either income or capital account, depending on the facts. Finally, taxable goods or services purchased with bitcoins are also subject to GST/HST.

Several other jurisdictions, including the United States, Norway, Germany, Finland, Switzerland, France, Korea, China and Thailand, have also renounced bitcoin as a form of legal tender. Like Canada, although these nations do not consider bitcoin a form of legal tender, they do recognize the technology as a unit of account or asset for tax purposes.

Should Lenders be Concerned?

From the standpoint of lenders to debtors whose property consists of bitcoin or bitcoin-denominated accounts, the legal issues raised by bitcoin will give rise to unique challenges.

Under the personal property security statutes in force in most Canadian provinces, taking security in bank accounts and securities of a borrower can generally be accomplished by signing a standard form security agreement or entering into a securities control agreement between the lender, the debtor and the debtor's bank or securities intermediary. Taking security in and ensuring control over bitcoin in a "digital wallet" stored on a remote server will certainly not be as straightforward. As a software-based system characterized by a lack of regulation and a high degree of anonymity, lenders will be rightly concerned about the ability to access bitcoin proceeds in any scenario where the borrower's viability appears to be compromised.

Further, the continuing volatility in the value of bitcoin can lead to significant fluctuation in a debtor's asset base - creating angst for both borrowers and financial institutions.

Together with the uncertain regulatory landscape discussed above, the attendant business risks of transacting in bitcoin may in fact – at least in the near term - lead lenders to restrict its use by borrowers, or at the very least lead to more in-depth due diligence as to how much of a risk factor bitcoin is in any particular business.


Bitcoin is a fascinating technological innovation; but, like buying a volatile option on a start-up stock, bitcoin is a risky investment and (certainly today) an impractical medium of exchange. In order to instill mainstream confidence in bitcoin for regulators, lenders and borrowers, an appropriate legal and regulatory framework will need to evolve. At this time, bitcoin is in its infancy. Until the technology proves to be a true national concern - and not just a fad - the Canadian financial services community is well advised to stay abreast of the technology and proceed cautiously, rather than rushing to cash in on the bitcoin bonanza.


1. David George-Cosh, "Canada Says Bitcoin Isn't Legal Tender", The Wall Street Journal (16 January 2014).

2. Bank of Canada Act, RSC, 1985, c B-2.

3. Re Alberta Statutes, [1938] SCR 100.

4. Economic Action Plan 2014, "Supporting Jobs and Growth: Fostering Job Creation, Innovation and Trade" The Government of Canada at pp 133-134.

5. Interpretation Bulletin IT-490.

6. Interpretation Bulletin IT-479R.

The foregoing provides only an overview. Readers are cautioned against making any decisions based on this material alone. Rather, a qualified lawyer should be consulted.

© Copyright 2014 McMillan LLP

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Stephanie M. Robinson
Stefanie Di Francesco
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions