New PIAC Report: Assessing the Emergence of “Alternative” Currencies and Legal Risk: The Consumer’s Perspective

OTTAWA – A new research report by the Public Interest Advocacy Centre (PIAC) shows that there are high consumer risks associated with the use of alternative currencies (referred as “cryptocurrencies” in the report). PIAC’s study indicates that consumers lack knowledge about the risks associated with cryptocurrencies, affecting their ability to make well-informed decisions.

PIAC’s research shows that cryptocurrencies in their present form also are of little relevance for the average consumer as functioning payment systems. Cryptocurrencies today suffer from a litany of woes resulting from their current design limitations, which affect their speed and potential volume of daily transactions. Cryptocurrencies’ level of acceptance as payment systems by both consumers and merchants consequently remains low.

“Consumers should generally avoid cryptocurrencies as payment mechanisms or investment vehicles until regulators can make enough sense of the area to ensure basic financial consumer and investor protection,” stated John Lawford, Executive Director and General Counsel at PIAC.

There is no secure system to reimburse financial losses, and no secure storage mechanism. The cryptocurrency exchanges remain effectively unregulated from a fiduciary or a consumer protection perspective, with no financial security guarantees. Given their volatility, and unpredictable swings in value, cryptocurrencies presently also remain of limited practical use and relevance to the average consumer as a payment system and, as speculative investment vehicles, present extreme consumer risks.

Our research shows that several jurisdictions are moving towards imposing strict regulatory frameworks; however, at the time of writing, no clear and comprehensive framework could be identified in the context of payment systems. Central banks are found to be unwilling to accept the idea of cryptocurrencies operating as mainstream payment systems. The idea of a central bank issued digital currency, also known as a CBDC, has been analyzed by several central banks. However, at this time it does not appear that any central bank would engage in the issuance of a CBDC in the foreseeable future, although the benefits of such a currency for consumers, if it were to be proven to be feasible, could be substantial.

“It is surprising to see central banks’ apparent reluctance to issue a CBDC, considering the advantages it may hold for consumers in the near future,” noted Tahira Dawood, PIAC’s Policy and Research Analyst.

The report identifies an imminent need for raising consumer awareness, regarding the risks associated with the use of these currencies. It recommends consumers to exercise caution when dealing with cryptocurrencies, either in form of payment systems or as investment vehicles. The report recommends the creation of a working group of key stakeholders within Canada to review and address consumer risks in this space. The report also recommends that the Canada Revenue Agency consider introducing a simple, easy to understand guide for consumers concerning the tax issues arising from cryptocurrencies.

To view the report in English, please see the following link.
To view the report in French, please see the following link.

The Public Interest Advocacy Centre has received funding from Innovation, Science and Economic Development Canada’s Contributions Program for Non-profit Consumer and Voluntary Organizations. The views expressed in this report are not necessarily those of Innovation, Science and Economic Development Canada or of the Government of Canada.
For more information please contact:
John Lawford
Executive Director and General Counsel
Public Interest Advocacy Centre (PIAC)
Tel: 613-562-4002 x 25

Tahira Dawood
Policy and Research Analyst
Public Interest Advocacy Centre (PIAC)
Tel: 613-562-4002 x 23