Canada’s government-issued Bitcoin, the MintChip

By Christine Duhaime | February 18th, 2014


The MintChip was cancelled on the day in which its AML consultant and I were scheduled to talk about it at a Bitcoin Conference in New York City and on the local news in New York. My speech was as below, that it was inconsistent for Canada to launch a MintChip when the Minister of Finance was saying Bitcoin was a terrorist financing risk; his speech was going to be that the Royal Canadian Mint had written approval of the Minister of Finance to launch the MintChip without financial regulatory supervision (e.g., it would launch and be subject to no financial regulatory laws). 

Canada’s MintChip

Canada recently announced the prototype of its own official digital currency,  the MintChip, named because it was developed by the Royal Canadian Mint and has a chip, hence “MintChip”.

Similarities to Bitcoin

The MintChip has some similarities to Bitcoin.

Like Bitcoin, the MintChip will not require a proprietary network to authenticate or process transactions. It will be a direct transfer of value from consumers to businesses, or from person to person. But unlike Bitcoin, its value will be stored in a computer chip and transactions will be chip-to-chip.

Identical to Bitcoin, the MintChip will operate with anonymity and transactions will be instantaneous. Interestingly, according to the Royal Canadian Mint, there will not be any age restrictions for its use. And like Bitcoin, will be vulnerable to hacking.

Also like Bitcoin, the MintChip can be used at ATMs, although the processes are different.

MintChips will also make it impossible to process chargebacks, like Bitcoin, and therefore once a transaction is complete, it will be essentially over and irreversible, legally and financially speaking.

Differences to Bitcoin

The MintChip will have some material differences with Bitcoin. For one, it will be backed by the Canadian government (i.e., the Canadian dollar – the Loonie) and the Royal Canadian Mint proposes to have its equivalent collective value in circulation in Canadian dollars to ensure its viability.

For another, it will operate more like an open loop stored-value, or prepaid access product than anything else except that it will have the additional ability of allowing chip-to-chip transfers of cash (or value) and not merely between consumers and businesses. Open loop prepaid access products are branded and may be linked to credit card issuers (Visa) or charge card issuers (American Express), and unlike closed looped prepaid access products, are re-loadable.

Financial Crime

On the financial crime side, the MintChip will face the same issues that Bitcoin faces and for which Bitcoin was recently identified by the Canadian government in the Federal Budget 2014, namely that the anonymity of Bitcoin transactions make it vulnerable to money laundering and terrorist financing and pose a risk to the financial system. But those risks appear theoretically greater with the MintChip than Bitcoin because the MintChip will be much more widely integrated into the financial system and accepted at millions more merchants, resulting in millions of transactions that are outside the scope of regulatory oversight and susceptible to financial crime.

Although the Federal Budget did not articulate this risk, there are salient risks with digital currencies being used to circumvent, inadvertently or intentionally, economic and trade sanctions. The MintChip can be used to deal in property owned or controlled by designated persons or entities and to facilitate financial transactions that are prohibited under, inter alia, the United Nations Act, R.S.C., 1985, c.U-2, or the Special Economic Measures Act, S.C. 1992, c. 17.

There are also tax evasion issues with digital currencies. They include, but are certainly not limited to: (a) as an individual, from prospective capital gains from buying and selling digital currencies; (b) as a merchant, from off-the-books transactions paid for by digital currencies that are not traceable in the normal course; (c) as a prospective immigrant, from undeclared currency transferred to Canada via digital currencies; and (d) as an individual, from receiving money from anyone at any time that is stored in the recipient’s anonymous digital currency wallet or chip.

All of these risks also apply to more traditional anonymous forms of payment such as diamonds, cash and gold, and are by no means new or unique.

On the consumer protection side, the MintChip will also issues  – minors will be able to use it when they lack the legal capacity to comprehend the value of losses they may incur; it will be susceptible to fraudulent online transactions from merchants, hacks or as a result of identity theft, without the ability of consumer protection chargebacks; and the fact that minors can obtain and use a MintChip opens the door to concerns over the facilitation of underage Internet gambling.

Curiously, the fact that the MintChip has the same financial crime and consumer protection risks as Bitcoin that appear incapable of mitigation without fundamental changes to its character, bodes well for Bitcoin acceptance in Canada by the government.

It will be inconsistent for Canada to take a tough regulatory approach to Bitcoin and, at the same time, develop a competitor product with what appear to be the same attendant characteristics of risk as Bitcoin that Canada has identified as requiring criminal remediation with amendments to the Proceeds of Crime (Money Laundering) and Terrorist Financing ActS.C. 2000, c. 17.

And if it moves to legislate against one but not the other, there’s bound to be an anti-trust argument that can be pursued.

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