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develop a blockchain-based identity system for its 20 million users. “We are building an online profile that would flag fraud in mobile payments in the same way credit-card companies are doing today,” says Brown, noting that rather than a password that can be compromised, a person’s identity would be based on transactions and past purchasing behaviour. “Eventually we could do the same with cryptocurrencies.” While he’s owned bitcoin since 2012, Brown recognizes that


many people have trouble wrapping their heads around the technology. “I’ve finally gotten my father to invest and he’s do- ing incredibly well,” he says. “But it’s a really hard thing to invest in if you don’t understand the concept and security functions.” Brown’s father, Stewart, admits that he probably wouldn’t


have added bitcoin to his portfolio without his son’s encourage- ment — and even now, it still makes up less than 5% of his overall investments. “I’ve watched the currency go up and up, and slowly over time Duncan has made me realize there is something different happening in the fintech world,” he says. “I don’t really understand it yet or know where it’s going but I don’t think it can be ignored.” Tekin Salimi, a Toronto-based corporate lawyer with a fo-


cus on blockchain technology, likes the fact that a lot of the technology was either created or is supported close to home. “Canada has a unique position in the whole blockchain evolu- tion because ethereum was born in Toronto and Waterloo so there is a hub of experts in both cities,” he says. That’s partly why he thinks, for those looking for an alternative (high-risk, high- return) asset class, there’s never been a more exciting option than cryptocurrencies today.


So why aren’t more people investing? There are a number of reasons why many investors are steer- ing clear of cryptocurrencies, at least for now. For one, invest- ing directly is complicated: you have to figure out the technol- ogy. Also, the options for investing indirectly are limited. And Salimi says investors need to do a significant amount of due diligence in researching each token to determine the creden- tials of the company behind it, the underlying code it is built on and its value (i.e., is it just a currency or does it have addi- tional functionality?). Some blockchains, for example, allow token holders to receive a percentage of the value of all trans- actions that happen on their network, and others will give investors voting rights on any upgrades to the currency’s pro- tocol rather than leaving that to the developers. “It’s also important to ask about total supply as some currencies are limited,” he says. Another drawback is that there is no established body of law


around cryptocurrencies yet. The space is new and token inves- tors are relatively unprotected, compared with shareholders for traditional businesses, whose rights are established, Salimi says. He also points out that “coding this stuff is incredibly dif- ficult and still on the forefront of research.” By way of example, he refers to Parity Technologies’ multisignature wallet, which temporarily froze about $280 million in ethereum last Nov-


BITCOIN: A BRIEF HISTORY


As the original cryptocurrency, bitcoin still holds rank as the gold standard. It was first developed and introduced to the world in 2008 by a mystery person or group (under the alias of Satoshi Nakamoto) via a paper called Bitcoin: A Peer- to-Peer Electronic Cash System. It outlined the technical de- tails of the first online system that would allow users to exchange payments without using any financial institution. The following year, the first bitcoins were created through a digital process called “mining” and released for purchase for mere pennies. Today, bitcoins are accepted as payment by major companies such as Microsoft, PayPal and even some Subway franchises. —RS


ember. “All of this is evolving in real time and there are growing pains with that.” With no official rating systems for the blockchains that pro-


duce currencies, Salimi says third-party firms are oſten hired to “audit code” them before the release of their first coins, also called initial coin offerings. “You want to see who the core teams building these projects are and whether they have a histo- ry of abandoning the networks once launched, instead of build- ing value over time,” says Salimi. “It’s really a unique class of risk that doesn’t apply to other investments.” A final red flag for would-be investors is the fact that govern-


ment regulations are still preventing the widespread use of cryp- tocurrencies in retail environments. “When it gets to the point that I can come to any cash register and pay with bitcoin, that will be powerful, but if I can’t exchange it for goods and ser- vices what do I really have?” says James Zsebok, who is based in Windsor, Ont., and traded billions in foreign currencies for his clients when he was CFO for Flex-N-Gate Corp. He’ll oſten advise investors inquiring about digital coins to consider more stable options such as gold. “In my personal portfolio I use gold to manage risk because theoretically the belief is you can ex- change it for other things,” he says. Zsebok hasn’t ruled out investing in cryptocurrencies entire-


ly, but says he’s more interested in ventures such as ethereum, which is still affordable and has smaller fluctuations in price than bitcoin. “But I still consider investing in any of them like buying a lottery ticket — it’s a leap of faith.” Whether to get into the cryptocurrency game and how much


to invest comes down to risk tolerance and perspective, says Bragonier. “The currencies are increasing in value because the risk is high, but then so is the return,” he says. “A sophisticated investor will simply look at these coins as another investment opportunity — a purchase of something now for future value.” Given his age and the amount of disposable income he feels comfortable investing, Bragonier isn’t willing to take the risk. “But if I was in my mid-30s I probably would.”


ROSALIND STEFANAC is a freelance writer in Toronto JANUARY 2018 | CPA MAGAZINE | 37


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