Financial Literacy Newsletter – June 2023

Understanding crypto assets

A few words from FCAC

Welcome to FCAC’s June issue of the Financial Literacy Newsletter. Whether you are taking some well-deserved time off this summer or still hard at work, we hope that you will consider adding our newsletter to your summer must-reads list.

The theme of this issue is “Understanding crypto assets”. You are likely hearing the “crypto” buzzword more and more often these days. Crypto assets are an example of the new and emerging technologies that are significantly impacting the financial sector. Like most technological change, crypto assets have the potential to bring benefits to consumers of financial products and services, but they can also carry significant risks. In today’s complex financial environment, staying up to date on emerging trends like crypto assets is vital to making informed financial decisions.

The goal of this newsletter is to help you learn about crypto assets so that you can better understand what they are, how they work, and the risks associated with them.

We are also fortunate to have contributions from organizations undertaking work on crypto assets of importance to Canadians. You will learn from the Canada Revenue Agency about crypto assets and taxes and from the Competition Bureau Canada about how to protect yourself against crypto asset fraud, which is common and rapidly growing. The Canadian Securities Administrators Investor Education Committee looks at the risks associated with investing in crypto assets and the regulations that protect investors. The Bank of Canada shares how it is preparing for a Central Bank Digital Currency and explains how it differs from cryptocurrencies. Payments Canada describes how new technologies are transforming the way we pay. Finally, if you have always wondered what an NFT (or Non-Fungible Token) is and how it fits into the digital finance universe, the Autorité des marchés financiers has prepared just the explanation you need.

A great way to start your reading? Take our quiz to see how well you know some key vocabulary related to crypto assets and then take it again after reading the articles to see what you’ve learned.

Please share these articles and resources with your colleagues and friends and family. You can follow us on social media, on Facebook, Twitter, and Instagram. We are also on YouTube and LinkedIn.

Happy Reading!

Quiz: Test your knowledge of crypto lingo

By: Financial Consumer Agency of Canada

Cryptography, blockchain, digital wallets, private and public keys… For those who are new to the world of crypto assets the vocabulary can seem unfamiliar and difficult. But learning the lingo is a good way to improve your understanding of how crypto assets work and why they are considered risky.

Take the quiz below to see how many words you know. To see the correct answer, click on the drop-down arrow.

1. A crypto asset is:

1. a digital asset whose data is secured with cryptography
2. a digital asset created by a group of computers linked together
3. a digital asset that records the transactions using an Internet ledger system
4. all of the above

2. A stablecoin is:

1. a crypto asset whose value constantly changes, similar to Bitcoin and Ether
2. a crypto asset that is meant to maintain a stable value
3. a crypto asset that is legal tender in Canada
4. none of the above

3. A blockchain is:

1. a non-fungible token that displays chains of colourful blocks
2. a kind of crypto asset that changes value based on supply and demand
3. a timestamped online record of transactions involving the purchase, sale or exchange of crypto assets
4. none of the above

4. A digital wallet is:

1. an online wallet that stores your crypto assets
2. a physical device that stores your crypto assets
3. a wallet that has the option of being connected to the Internet
4. all of the above

5. A public key is:

1. a code that identifies your digital wallet, similar to an email address
2. a code that allows you access to a crypto trading platform
3. a password that you store in your digital wallet
4. none of the above

6. A crypto ATM is an automated teller machine that:

1. reads the bills you insert and converts the cash into cryptocurrency
2. sometimes exchanges your cryptocurrencies for cash
3. can send the equivalent of cryptocurrency to the address you provide
4. all of the above

7. A crypto trading platform is:

1. an online trading platform that is never protected by securities regulation
2. an online trading platform that is sometimes protected by securities regulation
3. an online trading platform that is always protected by securities regulation
4. none of the above

7 risks to consider before using crypto assets

By: Financial Consumer Agency of Canada

Crypto assets are very risky. Unlike the Canadian dollar, crypto assets are not legal tender in Canada. A government or central bank doesn’t issue or oversee them. Understanding what can go wrong when using crypto assets will help you to think through the potential impact on your finances.

Here are 7 risks to consider before using crypto assets.

Risk #1: Your deposit is not insured.

Federal or provincial/territorial deposit insurance plans don’t cover crypto assets. For example, the Canada Deposit Insurance Corporation (CDIC) covers eligible deposits in Canadian dollars at member financial institutions if the institution fails. If the crypto trading platform or wallet provider that has your crypto assets goes out of business or bankrupt, you may lose your money.

Learn more about deposit insurance.

Risk #2: You could become a victim of hacking, fraud and scams.

Someone may hack into the technology or platforms used for crypto assets, steal your keys and gain access to your wallet and your crypto assets. Fraudsters use Internet ads, social media or websites telling you to buy crypto assets and promising high returns. In some types of scams, fraudsters may demand that you make payments by using crypto ATMs.

Learn more about crypto scams from Competition Bureau Canada.

Risk #3: Your transactions are not reversible.

Purchases and transactions made with crypto assets are not reversible once verified and confirmed on the blockchain.

This means you may not be able to:

• reverse the payment if you didn’t receive what you paid for
• get your crypto assets back unless the seller agrees to return them
• be able to stop or cancel a payment

Risk #4: Crypto assets are unstable and high risk.

Crypto assets, including stablecoins, are risky investments because their value may rise and fall suddenly and significantly. These changes in value are hard to predict. When you exchange your crypto assets for traditional currency, they may be worth much less than when you bought them.

Learn more about recognizing crypto risks from the Canadian Securities Administrators.

Risk #5: Lack of regulation of crypto assets limits your protection.

A government or central bank doesn’t issue or oversee crypto assets. You won’t have the same level of disclosure of important information. You also may not have access to a complaint-handling procedure and other consumer protections.

Check out the Canadian Securities Administrators warning about the risks of trading crypto assets.

Risk #6: You may have a hard time using your crypto assets.

Crypto assets may be difficult to use. You may not be able to exchange them for cash or to purchase goods and services. Most businesses don’t accept crypto assets as payment.

Risk #7: You may lose access to your crypto assets.

If you lose your private key (the password to your crypto accounts), you lose access to your wallets and your funds. Consider what will happen if you become ill or die and no one can access your wallets. If no one knows the locations and passwords of your wallets, no one can recover the funds.

How to protect yourself when using crypto assets

By: Financial Consumer Agency of Canada

Understanding crypto assets and their risks is the most important step you can take to prevent crypto assets from negatively impacting your finances. If you decide to use crypto assets even after considering all the risks, here are some additional measures you can take to protect your money and investments.

Check a crypto company’s registration and investor alerts

Anyone who sells or provides advice in securities must register with their provincial/territorial securities regulator. A crypto asset trading platform (CTP), depending on how it operates, may be subject to securities regulation. Some CTPs claim to be registered businesses, but this isn’t the same as being registered with a securities regulator.

To protect yourself:

• Check the Canadian Securities Administrators’ list of CTPs that are authorized to provide services to Canadians
• Check investor alerts to see if any regulators have issued warnings about the company

Know the merchant’s refund, return and dispute policies

It is important to know the policy on refunds, returns and disputes of the merchant you’re dealing with. This is especially important as crypto assets are not reversible once a transaction has been verified and confirmed on the blockchain.

To protect yourself:

Before you make a purchase using crypto assets, find out:

• what the exchange rate will be
• if refunds are available
• how refunds work: in crypto assets, in Canadian dollars or in store credit
• how to contact someone if there’s a problem

Protect your digital wallets

A digital wallet is an online service or a physical device, like a hard drive, that stores your crypto assets.

To protect yourself:

• Keep your wallet and any backups in a safe place
• Don’t share your private key with anyone
• Secure your wallet using encryption software
• Secure any copies you make or online backups
• Use a strong password that contains letters, numbers and symbols to help prevent fraudsters from accessing your crypto assets

Understand what the costs will be

Using crypto assets may come with fees. For example, there may be fees to exchange crypto assets for cash. There may also be trading platform fees.

To protect yourself:

Find out what fees apply.

File a complaint about crypto assets

Crypto asset frauds and scams are becoming increasingly common. According to the Canadian Anti-Fraud Centre, Canadians reported losses of $308.6M to investment fraud in 2022 compared to $164M in 2021. Many of these reports involved Canadians investing in cryptocurrency after seeing a deceptive ad.

To protect yourself:

If you’re a victim of a crypto asset–related fraud or scam you may contact the Canadian Anti-Fraud Centre. Learn what to do if you’re a victim of fraud.

If the complaint is about a crypto trading platform, contact your provincial/territorial securities regulator. See the list of provincial/territorial securities regulators.

Learn more about protecting yourself when using crypto assets.

What’s new

In the news

FCAC report highlights a need for more education about open banking

FCAC has published a report titled Open Banking and Consumer Protection: Canadians’ Awareness and Expectations. The report shows that Canadians’ knowledge and understanding of open banking is low. The report will help to inform the approach to open banking in Canada, including a need for strong financial consumer protection policies and more consumer education.

FCAC Money Management Competition for Students (Grades 6 to 12)

This September, FCAC will once again be offering students and schools a chance to win prizes while learning basic concepts and strategies for money management via a gamified exploratory quiz! To participate, all students need is a free ChatterHigh account. Learn more about FCAC’s money management modules.

Assessing early withdrawal from Registered Retirement Income Funds

The FP Canada Research Foundation published research assessing the value of withdrawing more from RRIFs than required, earlier on. Canadian retirees with investments in a RRIF must withdraw a minimum amount each year starting at age 72, but should you withdraw more and start earlier?

New FCAC web page on crypto assets

FCAC published its new page on crypto assets with information on what they are, how they work, their risks and much more. Learn more today!

Learning tools

Considering transferring your banking products or services to another financial institution

FCAC recently published new web content on what to expect when transferring financial products or services to another financial institution.

Do you know what a mortgage trigger rate is

Interest rates have risen dramatically in the past year. When your mortgage has a variable interest rate with a fixed payment, you may reach a trigger rate when interest rates rise. Learn more about managing your money when interest rates rise.

Updates to the Vehicle Lease or Loan Calculator on Canada.ca

The Office of Consumer Affairs (OCA) has updated the Vehicle Lease or Loan Calculator. The tool is available now to help you compare the costs of leasing a vehicle or obtaining a loan to buy one.

Podcast informs consumers about their rights

The second season of the Mes/aventures podcast (in French only), produced in collaboration with the Office de la protection du consommateur, is designed to encourage consumers to learn more about their rights and make better choices.

Stay up to date on the latest tricks of romance scammers

The Canadian Bankers Association (CBA) has released a new CBA Briefing on how to uncover the latest tricks of romance scammers. According to the Canadian Anti-Fraud Centre, romance scams were responsible for some of the highest fraud-related dollar losses in 2022, costing 1,056 victims more than $60 million in losses.

Get smarter about crypto

The Ontario Securities Commission (OSC) has developed a dedicated website, GetSmarterAboutCrypto.ca, to help Canadians learn more about what crypto is, how to trade, rules and regulations, and fraud. The site also includes a glossary of terms.

Webinar for women investors

Chartered Professional Accountants of Canada (CPA) offers an on-demand webinar that helps women understand the complexities of investing and become more investment savvy.

Webinar and articles on the First Home Savings Account

ÉducÉpargne has published a new webinar and two articles (all in French only), Le CELIAPP et Quatre idées pour aider mon enfant à devenir propriétaire, to help you learn more about the First Home Savings Account (FHSA) and how to take full advantage of this new personal savings product.

Personal finance summer reading list

Money Mentors share their recommendations of personal finance books to read this summer. Which one will you add to your reading list?

Online course for low-income Canadians

Prosper Canada has created an online course to help people living on a low income organize their finances and explore ways to increase the amount of money coming in and reduce what is going out. It contains activities, videos, handouts and resources that are also downloadable.

Kids’ game teaches healthy money habits

MoneyPrep helps kids aged 5 to 12 create and build strong money habits through fun interactive games. You must install the MoneyPrep app to play.

Financial guide for new Canadians

Canadian Immigrant magazine has published The New Canadian’s Financial Pathway to Prosperity: an informative guide with tips and tools to support immigrants and refugees aiming to build a financial foundation in Canada. They also published a guide on building a strong credit history and credit score.

Words from our collaborators

What to know about crypto assets and your taxes

By: Canada Revenue Agency

A crypto asset can be described as a digital representation of value that relies on a cryptographically secured distributed ledger or a similar technology to validate and secure transactions. Common examples of crypto assets include (but are not limited to): cryptocurrencies, utility tokens, security tokens and non-fungible tokens.

You can obtain crypto assets in many ways and use them for a wide range of activities, such as buying goods, paying bills, holding rights, accessing services, or investing.

If you’re interested in crypto assets or have experience with them, you can learn more about crypto asset activities and associated tax implications by visiting the Canada Revenue Agency’s (CRA) tax tips:

• What is cryptocurrency
• Investing in cryptocurrency
• Mining cryptocurrency
• Valuing cryptocurrency
• Keeping records of your cryptocurrency transactions

In any case, you should stay up-to-date with the tax implications of transactions involving crypto assets and be sure to keep financial records of activities relating to them. As crypto assets continue to develop, it is important for you to be aware of how to meet your tax obligations. To help you further understand your tax obligations with respect to crypto assets, the CRA has created a Guide for cryptocurrency users and tax professionals.

How to correct your tax affairs

If you did not report your previous income or capital gains from transactions in crypto assets, you may have to pay tax, penalties, and interest on that income or capital gain. You can avoid or reduce penalties and interest by voluntarily correcting your tax affairs. To correct your tax affairs (including corrections to GST/HST returns) and to report income that you did not report in previous years, you may:

• Ask for a change to your income tax and benefit return
• Adjust a GST/HST return
• Apply for a correction through the Voluntary Disclosures Program

Beware of crypto investment fraud: Protect your money

By: Competition Bureau Canada

Thinking of investing in the crypto craze? Be cautious. When it comes to investing in cryptocurrencies, a healthy dose of skepticism and a thorough understanding of the risks are essential.

Canadians are losing record amounts to investment fraud. According to the Canadian Anti-Fraud Centre (CAFC), Canadians lost $308.6M in 2022, up from $164M in 2021. That’s a massive increase in a single year! Many of these losses happened because consumers were lured into investing in crypto by deceptive ads.

Crypto scammers use various tactics to deceive you. They create a false sense of urgency, capitalizing on your fear of missing out. And they have many tools in their toolbox. They may use fake websites, reviews or celebrity endorsements. And even fabricated videos to make their “investment opportunity” look legitimate.

They can lure you in with deceptive ads on social media, apps and websites, through phone calls, emails, and text messages, or even through romance scams via dating platforms. And they all make the same false promise — a huge return on investment!

Crypto scams exploit the complexity of digital finance and currency. Many Canadians don’t fully understand cryptocurrency beyond knowing that it’s a newer form of payment. Scammers take advantage of this lack of knowledge to deceive people. With cryptocurrency gaining popularity, no one is immune — scammers are even victimizing businesses.

So next time you get an offer urging you to “invest now before it’s too late!”, follow these tips to avoid becoming a victim of crypto investment fraud:

Don’t act quickly: Take a step back and think before making any investment decisions. Fraudsters often use high-pressure tactics to get you to hand over your money.

Be wary of “too-good-to-be-true” offers: No matter who they come from, be skeptical of unrealistically enticing investment opportunities. Beware of those who tell you not to discuss the investment with others.

Understand the irreversibility of crypto transactions: You can’t reverse a completed cryptocurrency transaction. Fraudsters exploit this and then vanish with your money, leaving you with little recourse.

Disregard claims of official backing: Don’t fall for claims that cryptocurrency investments are backed by the Bank of Canada or other regulators, or that they are legal tender. Verify the legitimacy of investment companies through the Canadian Securities Administrators’ National Registration Search Tool.

Do your research: Check to see if a person or company has been flagged as a risk to investors on the Investment Industry Regulatory Organization of Canada website and with your provincial and territorial regulators. Every province and territory has one or more bodies to regulate financial institutions under their responsibility.

If you believe you have been misled or think you’ve seen a crypto investment fraud, report it to the Competition Bureau.

Crypto regulation and investor protection in Canada

By: Canadian Securities Administrators Investor Education Committee

The crypto market has become easily accessible, but it is not for everyone. Investing in crypto is very risky and comes with challenges that investors need to consider. To help navigate the space, the Canadian Securities Administrators (CSA) have released an Investor's Guide to Cryptocurrencies, providing essential information on how crypto works, and how regulation can help protect investors in the crypto space.

What are crypto assets

Crypto assets are digital assets that use digital ledgers, cryptography, and distributed ledger technology (such as blockchain) to create, verify, and secure transactions. Crypto assets are traded through decentralized financial systems which are different from centralized banking. There are different types of crypto assets that can serve multiple purposes and functions.

Cryptocurrencies were created as an alternative to fiat money with their value being based largely on supply and demand in the market. Two examples are Bitcoin and Ethereum. They are not yet widely accepted as a payment method. Stablecoins, an emerging type of crypto asset, are designed to maintain a stable value relative to another asset or group of assets. Some stablecoins claim they are backed by collateral such as the US dollar, while others use algorithmic mechanisms. Digital tokens are crypto assets that can be traded and tracked on a ledger. There are different types of digital tokens such as utility tokens, governance tokens, security tokens, and non-fungible tokens (NFTs). NFTs are unique digital assets that are used to represent ownership of a specific item, such as a piece of art or a collectible. They can be bought and sold like other cryptocurrencies.

Crypto regulation in Canada

To help protect investors, all crypto asset trading platforms must be registered in Canada. Registration adds a layer of investor protection because for a crypto asset trading platform (CTP) to be registered in Canada, it needs to meet the same standards (designed for your protection and to promote stability in our investment markets) that apply to every other investment dealer in the country. Registered firms and individuals are subject to certain requirements including risk management, disclosure, and dealing honestly, fairly, and in good faith with clients. If you choose to buy or trade crypto assets, you should always work with a registered CTP. Check with your local securities regulator to see if the individuals or companies have followed the necessary rules and if the CTP is registered before trading. But remember, just because a firm, CTP, or individual is registered does not mean they are without risk.

Understand risk and avoiding scams

All investing involves some degree of risk. Crypto risks are generally high. It is very volatile, meaning prices can rise and fall quickly and many times a day, trading platforms may not have enough assets to cover orders, service providers and intermediaries can be difficult to identify or locate, and technology used for trading can be vulnerable to hacking.

Furthermore, scammers are taking advantage of the relative newness, market excitement, and complexity of crypto to target investors. Crypto-related scams often claim to be exempt from regulatory requirements, promise high returns with little to no risk, and are aggressively promoted online through social media, dating or messaging apps, email, or websites. Be prepared to spot a crypto scam by learning the common signs of a crypto scam.

The bottom line is, investing in crypto can be highly risky and it isn’t suitable for everyone. Even stablecoins have experienced sudden, steep declines in value, failing to deliver on their promise of stability. Don't let the fear of missing out drive you to invest in crypto if the risks are too high or you don’t fully understand the investment. If you do decide that crypto is for you, do your research, work with reputable and registered CTPs, and consult with a financial professional to ensure that you are complying with all applicable tax laws and regulations. Keep in mind that while the potential rewards may be higher, so are the risks.

What is an NFT (non-fungible token)

By: Autorité des marchés financiers

An NFT, or non-fungible token, represents an asset that is created and traded on a blockchain in the same way as Bitcoin or Ether. The main difference between an NFT and a crypto asset (crypto) like Bitcoin is that an NFT represents a unique asset that cannot be replaced with another asset. This is what makes the token non-fungible.

How NFTs work, what are NFTs used for and are there any risks with NFTs? Read more.

Learn more about crypto assets.

How a digital Canadian dollar is different from cryptocurrencies

By: Bank of Canada

The Bank of Canada is exploring the possibility of issuing a digital form of the Canadian dollar, also known as a central bank digital currency (CBDC). As Canada’s central bank, we need to prepare for whatever the future holds. That’s why we — like many other central banks around the world — are exploring the possibility of issuing a digital version of our national currency.

Ultimately, Parliament and the Government of Canada will determine if or when to issue a digital Canadian dollar.

What is a digital Canadian dollar

Simply put, a digital Canadian dollar would be a digital form of the cash in your wallet. Like cash, it could buy the things you need. But the advantage is that you could also use it for online purchases and to transfer money between family and friends. And businesses could use it to pay each other.

This new form of money would be issued by the Bank of Canada and provide benefits similar to cash: it would be safe, accessible to everyone and private.

However, a digital Canadian dollar would complement cash, not replace it — we will continue to supply bank notes as long as Canadians want to use them.

How a digital Canadian dollar is different from cryptocurrencies

A digital Canadian dollar would not be a cryptocurrency, also known as a crypto asset or private digital currency. The value of cryptocurrencies — like Bitcoin — goes up and down quickly and often relative to the Canadian dollar. These currencies can have expensive transaction fees, take a long time to process and allow for limited recourse if things go wrong. That’s why cryptocurrencies are generally used as an investment rather than for everyday spending.

In contrast, a digital Canadian dollar’s value would not change because it’s simply another form of the current Canadian dollar, and it would be backed by the central bank in the same manner as cash. That means $10 in digital Canadian dollars would always have the same value as a $10 bank note. Our goal is to design a digital Canadian dollar that would be fast and low cost to use, just like cash is now.

Why we’re researching a digital Canadian dollar

Right now, anyone can use cash. But as the world becomes more digital, Canadians are using cash less often. If this trend continues, there may come a time when cash is not widely accepted in day-to-day transactions, which could exclude many Canadians from the economy.

A digital Canadian dollar could help protect our economy by ensuring Canadians always have an official, safe and stable digital payment option in the Canadian dollar. And only a central bank can guarantee that public interest — not profit — is the top priority.

To learn more:

• Watch our video Exploring a digital Canadian dollar
• Understanding money in the 21st century — what money does and how we’re handling it in the digital age
• The road to digital money — how you might pay for things in the future

New technologies transform the way we pay in Canada

By: Payments Canada

The payment ecosystem in Canada is evolving. Over the last few years, we have seen the adoption of new payment technologies continue to rise and consumer appetite for new, fast and flexible digital experiences continue to grow.

While the COVID-19 pandemic highlighted the importance of fast and convenient payments and the need for real-time payments, it also shifted how Canadians think about money and currency more generally. According to data from Payments Canada’s Canadian Payment Methods and Trends 2022 Report, Canadians are increasingly aware of digital assets and central bank digital currencies. While still in their infancy, nearly half (45 per cent) of Canadians would consider using digital assets to send money to other people or businesses. Younger Canadians in particular are more likely than older Canadians to have an interest in digital assets.

The shift to e-commerce, digital payments and the reduction of cash usage isn’t new. In fact, it’s a trend we have seen over the last few years that was only accelerated by the pandemic. Despite the pace at which the payment landscape continues to evolve, the fundamentals of what Canadian consumers and businesses want have not changed. Consumers want faster payments, quicker access to funds, and enhanced security.

Payments Canada is working closely with the payment ecosystem to modernize Canada’s payment systems to deliver just that. Payment modernization, and the introduction of real-time payments, will transform our economy, with huge benefits for everyone, including consumers, businesses, and governments.

The launch of the Real-Time Rail, Canada's first national real-time payment system, will benefit Canadians in many ways.

Consumers who rent will be able to pay rent to a landlord immediately and in turn, landlords won’t need to wait for a cheque to clear or for the money to be available for use in their account. The Real-Time Rail will also make it possible to make a down payment on a property in one click instead of having to physically visit a bank to pick up a paper bank draft. In the case of an emergency, Canadians will be able to receive money in seconds from their insurer to cover damages. This new payment system will allow Canadians to initiate and receive payments within seconds, any time of day or night, 365 days per year.

New technologies are transforming the way Canadians pay. The introduction of a real-time payments system in Canada will support the evolution of payment experiences through the immediate availability of funds, and the capability to include information about the payment with the payment. Canadians are ready for what comes next. And so are we.