Canada: Virtual Currencies And Blockchains: A Primer

Last Updated: April 20 2016
Article by Benjamin Geva

With the advent of virtual currencies and blockchain technologies the global payments landscape may be irreversibly transformed. This bulletin is designed to present basic concepts underlying this transformation.

What You Need To Know

A report published in February 2015 by the ECB,1 defines a virtual currency to be:

a digital representation of value, not issued by a central bank, credit institution [i.e. "bank"] or e-money institution, which in some circumstances, can be used as an alternative to money

Similarly, according to an IMF study, virtual currencies are defined to be:

digital representations of value issued by private developers and denominated in their own unit of account 2

Virtual currency schemes are predominantly decentralized, namely, have neither a central repository nor a single administrator. They use encryption techniques, particularly public-key cryptography,3 to regulate the generation of units of currency and verify payments.4

The currency of which the generation of units and verification of payments are regulated by cryptography is thus called cryptocurrency. It is a digital asset with verifiable mathematical properties that can be transferred directly between users on a distributed ledger without relying on a centralized protocol operator.

A distributed ledger is an asset database that can be shared across a network of multiple sites, geographies or institutions. Its underlying technology is the blockchain, which is:5

a type of a database that takes a number of records and puts them in a block... Each block is then chained to the next block, using a cryptographic signature. This allows block chains to be used like a ledger, which can be shared and corroborated by anyone with the appropriate permissions.

Accuracy of the ledger is corroborated by consensus.

Participants in a cryptocurrency network hold their keys in digital wallets. A payer pays with his or her digital coins stored in the blockchain using his or her private key and the payee's public key. For virtual currencies, specialized trading platforms function as marketplaces while exchanges offer trading services.<>6

The emergence and rise of virtual currencies as cryptocurrencies has raised significant legal and regulatory questions. An overarching one is whether a virtual currency is "money" or "currency."7 This is a matter of importance for both private and public laws. A virtual currency is however certainly a means of payment so as to be of interest to central banks in relation to the stability of prices, the financial system, and the payment system. Central banks are also concerned with the lack of legal basis and the risk to their reputation.8 Other regulatory concerns  include financial integrity, consumer protection, taxation, exchange controls and capital flow management.9 Underlying many of the concerns are both the fluctuating value of each virtual currency and the absence of central governance authority. And of course there are the "usual" payment system issues of transparency and fairness of terms and fees, hacking, finality of payment, and the allocation of losses caused by fraud, error or insolvency.10 In Canada there may also be an issue as to the appropriate level of government to address each issue.

In the United States a draft of the Regulation of Virtual Currency Business Act is currently emerging as a project of the National Conference of Commissioners on Uniform State Laws (NCCUSL).11 The project covers licensing, examinations, reports and records, permissible investments, and enforcement. Subject to some refinements and express exclusions, Section 103(24) of the present draft defines "Virtual currency" as "any digital unit of value that is used as a medium of exchange or that substitutes in transaction for money but that is not money." "Money" is defined in Section 103(8) by reference to its issue or designation by a government body.

Bitcoin12 is both the originator of the blockchain technology and at present the predominant cryptocurrency scheme. It is a peer-to-peer payment network and virtual currency based on an open source protocol, which makes use of a public transaction log. Another innovative player to be mentioned is Ripple. Besides for a native currency, its protocol also provides for currency-agnostic payment rails for multi-currency payments in both other virtual and fiat currencies across the world.13 In the UK, other than over Ripple rails, a privately funded venture called SETL intends to develop a specialized blockchain that will allow the settlement of securities transactions on a peer-to-peer basis in central bank money.14

In the final analysis, sooner or later regulatory and legislative measures will have to take place to accommodate the quickening pace in which virtual currencies and blockchain applications evolve.


1 See European Central bank/Eurosystem, Virtual Currency Schemes- a Further Analysis, February 2015, at 25 available online at:

2 See IMF Staff Discussion note Virtual Currencies and Beyond: Initial Considerations, January 2016, at 7, available online at:


4 See:

5 See UK Government Office for Science, Distributed Ledger Technology: beyond the block chain (2016) at 17.

6 Voluminous information on the mechanics of a cryptocurrency payment is available in the reports and studies cited herein as well as in a Report of the Standing Senate Committee on Banking, Trade and Commerce (Canada), Digital Currency: You Can't Flip This Coin! (June, 2015).

7 Both "currency" and "money," together with other relevant terms, are defined in the 2015 ECB Report, above note 1 at 33.

8 See European Central bank/Eurosystem, Virtual Currency Schemes, October 2012, at 22-46 available online at: Further discussion including a summary of national responses is available in the 2015 ECB Report, ibid. at 26 – 33.

9 See e.g. IMF Report above note 2 at 24-34.

10 See e.g. Sarah Jane Hughes, and Stephen T. Middlebrook, "Advancing Framework for Regulating Cryptocurrency Payments Intermediaries" (2015), 32 Yale. J. on Reg. 495.

11 The most recent Draft is that of the Drafting Committee Meeting of February 19-21, 2016, available online at: For a review see e.g.:

12 Conventionally "Bitcoin" capitalized refers to the technology and network whereas "bitcoins" lowercase refers to the currency itself. 

13  Jessie Cheng and Benjamin Geva, "Understanding Block Chain and Distributed Financial Technology: New Rails for Payments and an Analysis of Article 4A of the UCC," Business Law Today 25 no. 7 (March 2016),

14 The UK Government Report, above note 10 at 60.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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.

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
Check to state you have read and
agree to our Terms and Conditions

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.

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 by clicking here .

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.


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.