The Canadian Government’s Digital Cash Tech Is Finally Going Commercial

A Canadian startup wants to replace cash with a government-developed virtual payment platform they say is more friendly to regulators and the cops than Bitcoin.

Today, the Royal Canadian Mint announced that all of the technology and patents that went into MintChip—a failed government project to develop an experimental platform to replace Canadian cash with a virtual currency backed by the Canadian dollar—have been sold to a Toronto-based virtual payment startup called nanoPay for an undisclosed sum.

MintChip is a strange beast, part payment platform and part virtual currency. Basically, users fill their MintChip accounts with fiat from their bank accounts, and transfer funds to each other in the form of virtual tokens. These tokens are backed by the value of the Canadian dollar, instead of math, like Bitcoin. MintChip has drawn comparisons to Bitcoin, and was positioned by Mint chief financial officer Marc Brule in a 2012 Wired interview as filling "market needs" not addressed by Bitcoin payment companies in Canada.

In practice, however, MintChip works a lot like Venmo in the US. Conceptually, it seems a lot like a 90s technology called Mondex, which stored fiat value in a chip on a card and allowed for person-to-person payments.

"MintChip is a digital representation of cash in a fiat currency," Laurence Cooke, CEO of nanoPay, told me over the phone. "We're not trying to replace the Canadian dollar—we're trying to replace paper Canadian dollars with digital Canadian dollars."

In a press release, nanoPay announced plans to commercialize the system and partner with central banks and retailers. They're also billing the system as "regulator-friendly"—in part because the technology was developed by the government—which theoretically gives it a leg up on Bitcoin, which is still in legal limbo in Canada.

The idea is that users will load up their MintChip wallets with money from their bank accounts, Cooke said, and send payments to each other with virtual tokens by tapping their NFC-enabled phones together. NanoPay takes a small cut of every transaction.

Cooke also argues that MintChip is more amenable to law enforcement than Bitcoin. This is because MintChip is a centralized system with nanoPay holding all the cards with regards to customer information and transaction records—in order to comply with anti-money laundering regulations, the platform asks users for personal information like their name, address, and bank account information, but only when they make transactions larger than $250. Otherwise, an email address will do. All the feds would have to do to get this information from nanoPay is produce a court order, Cooke said.

But having a technology developed by the feds under your belt isn't enough to call your product "regulatory-friendly," according to Christine Duhaime, an anti-money laundering lawyer at Canadian firm Duhaime Law.

"It's misleading to call a technology regulator-friendly. It can't possibly be true," Duhaime told me over the phone. "For something to regulatory friendly, you need to have human services where you get a person's ID to make sure they're not a terrorist or a money launderer. Afterwards, when the customer has onboarded with you, the banking institution has to continually check that their customers have not gone on a terrorist list or whatever it may be."

These human services might include reporting suspicious activity to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), Duhaime said, which detects money laundering or terrorist financing operations in Canada. NanoPay maintains they are not required to report to FINTRAC.

MintChip is currently in the process of partnering with retailers for the initial rollout of the system, Cooke said, although he would not say who. Later, the company plans on partnering with banks and more businesses.

Canadians can expect to finally see whether or not MintChip lives up to the hype, after years of development by their government, in February.