Toronto Building Critical Mass to Become a Blockchain Hub

Just like Artificial Intelligence a few years ago, blockchain is being classified as a game changer, a technology with the potential to fundamentally disrupt how transactions are processed by removing intermediaries from the equation and guaranteeing the integrity of a transaction. Experts believe that there is a​ ​good ​chance that blockchain will uproot the business models so dear to the incumbents, beginning with the financial services sector. Blockchain is often confused with bitcoin, a very popular cryptocurrency that has recently been making the news as the value of a bitcoin broke the US$7000 threshold. To put it simply, bitcoin is an application of blockchain technology. The real game-changer is the technology behind it, blockchain, which increases the transparency of a transaction through a distributed ledger that cannot be corrupted because every transaction is recorded. Every computer on the network has a copy of the blockchain and ensures universal synchrony before a transaction is made. The application of blockchain isn’t confined to transactions in the digital currency (e.g. bitcoin) domain; payments, identity management, smart contracts and even stock trading stand to benefit. The promise of blockchain has sparked pilot projects not just in banks and stock exchanges but also non finance sectors such as healthcare, supply chain and insurance. Just like the internet, it will take years before blockchain evolves enough to be ready for standardization. When that time comes, we may not even use the term “blockchain” to describe the blockchain based solutions just like we do not use “TCP/IP”, the underlying communication language that enables the internet, to describe the internet today

Canada’s Financial and Technology Hub

With the Toronto Region emerging as a technology hub, there couldn’t be a better time for blockchain to take off in Canada. Toronto is home to Canada’s five largest banks, the Toronto Stock Exchange, and some of the world’s largest pension funds, making it the second largest financial center in North America. With major local and international players on the ground and a stable financial system, business in the financial services sector is booming in Toronto. The financial sector in Canada is expected to spend $15 billion annually on technology by 2018. The emerging fintech market is growing quickly with Toronto-based fintech companies like WealthSimple, SecureKey and Sensibill raising millions for product development and international expansion. Over 100 Canadian fintech companies have raised over $1 billion since 2010 with $138 million in VC financing raised in 2016. Major global players such as Uber, Amazon, GM, IBM and Cisco have research and development centers in the region because they realize the value of the top talent graduating from the high quality universities and colleges the in Toronto Region.

Toronto’s Blockchain Ecosystem

Canadian banks are not taking a back seat to the blockchain phenomenon. For example, CIBC, RBC, National Bank of Canada, BMO and Scotia Bank are working with San Francisco-based Ripple Labs to speed up cross-border payments using blockchain technology. Canadians banks are partnering with IBM and SecureKey to test a digital identity network built on blockchain with the goal of keeping consumer data safe. The Bank of Canada, in collaboration with

Payments Canada, banks and R3 (international consortium of companies in the blockchain space) explored using blockchain to process transactions and found that the technology isn’t mature enough yet to settle national interbank payments. Despite the setback, this openness to even consider blockchain technology says a great deal about the willingness of the financial ecosystem to accept and tinker with innovation. The TMX Group, which owns the Toronto Stock Exchange, is using blockchain technology to create an electronic shareholder voting system prototype to improve the efficiency and accuracy of the voting process during annual shareholder meetings.

Toronto is home to a growing community of blockchain start-ups, associations and not-for- profits that have raised the profile of the nascent technology. Ethereum, probably the least known unicorn in the world, was founded in Canada in 2014 by Vitalik Buterin. Joseph Lubin, a Canadian entrepreneur who co-founded Ethereum now runs New York based Consensus Systems, which develops decentralized software services on the Ethereum blockchain. Other blockchain start-ups getting attention in the blockchain space include Nuco, Decentral and Paycase.

Toronto is also home to the authors of the Blockchain Revolution, father-son- duo Don and Alex Tapscott. Together they founded the Blockchain Research Institute in Toronto to study the application of blockchain across different industries. Besides support from private sector players IBM, Accenture, and Thomson Reuters, the institute is also backed by the Ontario government and the Government of Canada. Another recent addition to the blockchain ecosystem is ColliderX, the world’s first open-source, crowdsourced, and crowdfunded blockchain research and development hub. ColliderX strives to bridge the gap between industry problems and research.

Advocates for blockchain technology are playing a critical role in defining the future of blockchain in Canada. Recently, four players in the technology space combined forces to apply for funding under the federal government’s Innovation Superclusters Initiative designed to strengthen Canada’s most promising clusters and accelerate economic growth in innovative sectors. ColliderX, the Blockchain Association of Canada, the Information and Communications Technology Council and the Blockchain Research Institute collectively applied for a piece of the $950 million pie.

Stars are Aligning for Blockchain Adoption

As is the case for any new technology bursting onto the scene, it is perfectly normal to be apprehensive because there is always the risk that the technology is a fad destined for failure. (Remember Google Glass and the Segway?)​ However, based on the recent events, I think we are past the “fad” phase now, and blockchain is approaching wider adoption, especially in the financial services sector. Interest from Canadian banks in testing the emerging blockchain technology, organic growth in the fintech space, government support for innovative technology initiatives, top quality local entrepreneurial and technology talent, and the support of blockchain advocates represent the critical mass that is driving blockchain adoption in Canada.

In a positive step to working out regulatory issues, at least for Ontario-based companies, is that the Ontario Securities Commission (OSC) has unveiled the OSC Launchpad to support fintechs in navigating the regulatory framework successfully. In October, the OSC approved Ontario’s first ever regulated ICO. The OSC also created a fintech advisory committee, which involves several blockchain advocates, including Joseph Weinberg (Paycase), Matthew Spoke (Nuco), and Joseph Lubin (ConsenSys). Having the right people at the table to integrate blockchain innovation into the regulatory framework is a step in the right direction.​ ​Looking at the big picture, Toronto has arrived on the tech scene with a major bang. Most recently, Toronto has cemented its leadership in artificial intelligence by becoming a hub for research and development in AI. There is no reason why Toronto cannot achieve the same for blockchain.

Salman Khan is a Senior Advisor at Toronto Global, a government funded not-for-profit agency that helps international companies expand to Toronto Region. You can reach out to Salman at skhan@torontoglobal.ca if you are interested in learning more about  how Toronto Global can assist in expanding your business to Toronto.

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