Cryptocurrency is like the cannabis of the financial world. It’s the hot new commodity with promises of boom or bust for anyone brave enough to stake a claim. While both markets take shape, they just might strengthen each other’s quest for legitimacy.
First, here’s a short primer in case you haven’t taken the dive into the world of cryptocurrency, an emerging field that’s mired in confusing terminology and full of concepts that may, at first, seem inaccessible to people without degrees in finance or computer programming.
The basic idea of cryptocurrency is that it’s decentralized money, acting as both a currency and a transaction system. The most famous cryptocurrency is bitcoin, which became a household term last year during its wild rise in value from about $1,000 per bitcoin to more than $15,000. Bitcoins were selling for more than $6,000 as of this week.
Unlike official currencies such as the dollar, euro, or yen, no government authority tracks how much cryptocurrency is in circulation or who’s using it. Instead, these all-digital currencies use a process called blockchain.
The easiest way to think of a blockchain is as an electronic ledger that gets updated with each transaction.
Every time someone makes a cryptocurrency transaction, that data, along with all previous transactions in the chain, gets stored in a new block.
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The kicker is that blockchains are secure by design. Because transaction information gets stored in every new block, it’s difficult to tamper with or alter that data without compromising its authenticity.
That’s where blockchain’s role in the cannabis market comes in.
So far, several cryptocurrencies have popped up specifically to try and carve out a niche in cannabis. The first, PotCoin, launched in 2014, hoping to cash in on Colorado’s adult-use cannabis legalization.
Another, CannabisCoin, bases its value on cannabis itself, where 1 CannabisCoin equals 1 gram of cannabis.
But cryptocurrencies might not be ready to ease financial insecurity in the cannabis industry, a problem created by the unwillingness of banks to conduct business with companies selling a Schedule I controlled substance.
Cryptocurrencies’ ability to hold value is uncertain, said Moe Asnani, owner of Downtown Dispensary and D2 in Tucson.
“There’s so much junk out there in the crypto world that it’s hard to discern what’s valuable and what’s not,” he said.
Much like the cannabis market, cryptocurrencies are just forming and settling into various roles, and battling it out for market domination.
“It happens with all industries where you can be too early,” Asnani said, “and I think anybody who is trying to use crypto in the marijuana industry today is too early.”
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However, cryptocurrency could still fulfill a valuable role in bringing the industry mainstream. Blockchain technology, as opposed to the currency itself, could provide third-party verification of transactions in the industry, Asnani said.
Anti-money-laundering laws are some of the biggest hurdles to legitimate cannabusiness banking , Asnani said, and having the verifiable ledger stored in high-security blockchains would demonstrate the market’s legitimacy.
A system of transactions registered securely with blockchains would allow state agencies and auditors to review market data and discern whether industry players are trustworthy enough to grant full access to the banking world.
While several blockchain companies have popped up around the country aimed at serving the marijuana industry, none have yet filled the role of financial recording in much of the industry. But as entrepreneurs implement new ideas, blockchain could be the next piece in the cannabis banking puzzle.