The first three quarters of the 2022 cryptocurrency industry have seen immense changes. In my own practice, the following developments have been top of mind: more useful NFTs, cryptocurrency litigation, large investments into platforms, politicians taking notice, proof of stake, and more.
The Rise Of Interesting NFTs
An executive at one of my clients told me recently about being offered a limited, non-transferrable experience offered by a celebrity whose name graces a number of NFTs that they hold. They are a true fan and this creates a meaningful connection with the people who they've been cheering on, which is now translated into an in-person experience. This is the rise of useful NFTs.
The concept of fan engagement is just one of my directions that the NFT field is moving in, as people go beyond simply collecting art. One of my clients is a leader in this area, building out communication, ticketing, and other tools for administering NFT and token-based communities: https://www.sentr3.com.
Above, I wrote "simply collecting art" but there's nothing simple about the multibillion dollar global art market. NFTs are increasingly a part of this, both for provenance and access. In June I wrote on this blog about Damien Hirst's NFT collection. The famous artist recently held a gallery exhibition that included the owners of the NFTs: https://news.artnet.com/market/damien-hirst-the-currency-exhibition-2180681. When famous artists start exploring a new technology trend, others pay attention. Expect more innovation in this space as technologists and artists collaborate.
My work as an expert witness in a major cryptocurrency case involving a smart contract system called "Indexed Finance" was featured in Canadian Lawyer Magazine in March: https://www.canadianlawyermag.com/practice-areas/litigation/code-is-law-defence-to-be-tested-in-case-of-allegedly-stolen-crypto/365022. Bloomberg and other outlets have covered this story in greater depth.
Lawyers from BLG have written a short commentary on the use of an Anton Piller Order in the case, on CanLII Connects.
The lead counsel in this case is a great lawyer at McMillan named Benjamin Bathgate, who you can read about on his profile page. I expect litigators like Mr. Bathgate to become a larger part of the blockchain legal space in the coming years, if only due to the ever-increasing amounts at stake.
Major Investment Into Cryptocurrency Platforms
2022 is the year that large funds and investors have taken notice of the rise of Canada's cryptocurrency industry. One of my clients, the market leading platform Shakepay raised $44 million in its Series A at the start of this year.
Alberta-based Bitvo was acquired for an undisclosed sum by international crypto trading giant FTX in June. I expect more international interest in the Canadian industry in the years to follow, in part due to the new regulatory regime created by securities regulators ("restricted dealers").
Toronto-based Coinberry was acquired for $25 million by WonderFi. WonderFi was previously most known for their acquisition of Bitbuy, as part of a $45 million raise conducted by Canaccord, Cormark, and other well-known brands in the Canadian investment community. Investment banks have taken notice, but they're not the only ones looking at the growth and thinking they should be a part of it.
Politicians Take Notice
Cryptocurrency took off a few years ago and the terms "Bitcoin" and "Ethereum" have gone from tech community meetups to mainstream brand recognition. In 2022, politicians have taken notice of the popularity. Conservative Party leadership candidate Pierre Poilievre promised to make Canada the "crypto capital" of the world, but the newly minted leader of the CPC has gone silent amidst criticism from other political leaders. He's now deleted his crypto-boosterism, but the page can still be found on the Wayback Machine.
At the start of the year, MP Michelle Rempel introduced a private members bill (with no real substance) that promotes cryptocurrency. The last speech in Hansard that mentioned this bill (which is more a type of political grandstanding than an attempt at legislation) was in June, and none of the non-Conservative MPs have had much good to say about cryptocurrency: https://openparliament.ca/bills/44-1/C-249/#. All of this follows the Emergencies Act decree earlier this year that sent banks, insurers, virtual currency dealers, and everyone else scrambling as they tried to understand what the government was seizing in the hectic days following a regulation that was rescinded a week later. A public inquiry will slowly make its way forward over the coming months and years, which will probably involve more politicians speaking about cryptocurrency, likely not to the benefit of industry.
Political developments in Canada have so far been quite political, with not a lot of legal changes or substance. Developments in the United States may influence political thought here, as the White House is moving forward with their own plans for digital assets, released a few weeks ago. The main legal action in Canada continues to be at the level of provincial securities regulators.
Ethereum Is Now Proof Of Stake: The Environment Benefits
In September, the second largest cryptocurrency, Ethereum, went proof of stake in an event called
Proof of stake is a type of blockchain in which large holders of the cryptocurrency play a role in authenticating the chain that is considered definitive. In other words, it eliminates the costly process of mining (which involves GPUs and electricity in large data centers) and replaces it with a far more environmentally-friendly approach. This is a big step forward for blockchain technology, and marks the culmination of years of effort by the Ethereum development team. The most notable aspect of this change was its complete lack of impact on network participants. Every smart contract kept working just as before. The only change was on the backend side, where mining takes place. Ethereum's experience will likely influence other blockchains.
The change to proof of stake knocks out a major argument that's been raised by environmental campaigners and politicians, which is the environmental footprint. I wrote about this in late 2021 as the #1 issue that's been raised against cryptocurrency. What's amazing about this change is that it's been purely driven by technology, and the result is a technologically better system. With 99% of the environmental burden eliminated, Ethereum has knocked down an argument raised tirelessly by advocates against cryptocurrency.
Cryptocurrency Continues To Be A Global, Low-Cost, Permissionless, Public System
Bitcoin and Ethereum continue to operate round-the-clock with no downtime and no centralized control. This isn't news, but it's an often forgotten point. These technological platforms are an amazing innovation that continues to offer benefits that may seem mundane as they've been around for a few years and become mainstream. These systems continue to run globally and be accessible to anyone on Earth who has access to the Internet, at no cost. A blog post I wrote on this topic at the beginning of this year remains as relevant today as it was several years ago.
Supply chains and suppliers continue to look at ways to integrate blockchains to make transactions more auditable and traceable. I've been working for two clients who have been carefully building for some time now in this space. Industrial and B2B applications don't generate as many press releases as publicly-marketed token projects, but this slow and methodical work is essential to bringing the benefits of new technology to old industries. The bulk of Canada's economy continues to be outside of the digital space, but that doesn't mean it can't be boosted by greater application of modern technologies.