Canada's Notoriously Good Bitcoin Future?

Michael Terpin @startupgrind Toronto

Thanks to Vitalik Buterin, full time Bitcoin writer and developer, for co-authoring this post.

Dave McClure of 500 Startups likes to compare founders to pirates.

In 2010, Sleeman Breweries launched its (locally) famous “notoriously good” advertising campaign celebrating the real pirates in its founding family’s past. In one story, George Sleeman ran for mayor for the new city of Guelph in 1880 to run prohibitionists out of town.

Now the emergence of Bitcoin, a digital currency launched in 2009, raises the question: Is the buccaneering spirit that made tycoons out of Canadians like John Sleeman and Seagrams’ Samuel Bronfman alive and well in Canada or is it a bit of nostalgia to be tapped by new masters, like Japan’s Sapparo Brewery who bought out Sleeman in 2006?

Is Canada The Next Frontier for Bitcoin Startups?

The Canadian Bitcoin community has come far in the past six months. Earlier this year, all that Canada had to show in the Bitcoin world was a few restaurants accepting Bitcoins in Vancouver and Edmonton, two exchanges and Meetup groups of less than 10 people a month. Now, we have a fully-fledged 1400-square-meter Bitcoin embassy (i.e. a startup incubator dedicated to all things Bitcoin) in Montreal and Toronto recently celebrated the launch of the Vault of Satoshi’s Bitcoin exchange as well as Coinkite, a full service Bitcoin bank. This week, a Bitcoin ATM launched in Vancouver. To top it off, the Bitcoin Alliance of Canada will be making its official launch this month.

“The US - and particularly individual states like NY and California - have been unclear and unsupportive of digital currency.” says Michael Terpin, co-founder of BitAngels, a new network of angel investors launched this past May. We were grateful that Michael, who is the Director of Startup Grind Las Vegas, among other things, came to Toronto and Waterloo this week to help highlight Bitcoin related startup opportunities. “This is undoubtedly the reason that Robocoin unveils the first Bitcoin ATM in Vancouver and not in its hometown of Las Vegas,” added Terpin. “Canada can become the country that encourages Bitcoin innovation through the usual business development tools of tax credits, cutting red tape and in the case of Bitcoins, defining capital gains treatment. That could turn Vancouver, Ottawa, Montreal and Toronto into new hubs of digital currency startups.”

Terpin is growing a powerful network of investors within the wave of digital currency startups. “It’s reminiscent of the early days of the Internet in 1994 when Yahoo!, Earthlink and Netscape were formed and of social media in 2002, when LinkedIn and Friendster launched,” he says. A mere year ago, it was virtually impossible to buy a Bitcoin without executing a wire transfer outside of the US and hoping you received your Bitcoins in return.  Launched in May, BitAngels is approaching 300 members, has soft commitments of more than $25-million in startup capital and has identified more than 100 startup opportunities. It has either funded or is in the process of due diligence for about a dozen of these companies.

Where does Canada go from here?

Germany has become the first country in the world to officially recognize and define Bitcoins as a financial instrument in the German Banking Code. A move like this by Canada would set clear cut rules and standards to apply to Bitcoin startups and remove a great deal of the regulatory uncertainty. This would open the taps to American venture capital, eager to get early mover advantage while the various states and Federal regulatory authorities get their act together across the United States.

The universities of Toronto and Waterloo are renowned worldwide for their advanced computer science programs, making them the perfect ground for finding employees to work in the Bitcoin space. Much like Stanford is in many ways the epicenter of Silicon Valley, Toronto and Waterloo can provide the kindle for a burgeoning digital currency startup community in southern Ontario. Toronto’s core banking and finance communities need to get out from behind their protective regulatory curtains and show Sleemanesque hustle to add gas to the fire.

“One of the ways to build a Bitcoin community includes the work that Anthony has been doing with the Toronto Meetups and that we’re doing at the Bitcoin Alliance of Canada (BAC),” says Stuart Hoegner BAC’s official council. “Starting truly democratic, grassroots organisations to educate and advocate on behalf of Bitcoin, we want to build BAC into a community of interest for Bitcoiners: a place where enthusiasts, students, entrepreneurs, regulators, and policymakers can turn to get a full picture of what Bitcoin can do and become.”

Terpin and Hoegner agree that Canada could emerge as a leading incubator of digital currency ideas and businesses. “PayPal went though this process of mistrust and state regulatory scrutiny and came out on top, with some $200 billion a year in transactions today.” says Terpin. To kickstart Ontario he says, “A Bitcoin incubator or accelerator would be best if it was blessed if not partially funded, by the government or a quasi-governmental organizations like OMERS. BitAngels would be happy to consider investing or advising such an effort.” OMERS Capital now owns Terpin’s last startup company, Marketwire, worth hundreds of millions of dollars and generating a lot of high value jobs in the new economy.

Cheers. If we embrace the new Canadian frontier, it is not criminal to brew success from the regulatory arbitrage of laggards. Let’s be good, not notorious.