Crypto Cannabis

CRYPTO CANNABIS

Could cryptocurrency be the answer to the cannabis industry’s digital payment roadblocks?

BY EMMA SIMARD ILLUSTRATED BY DIANA GONZEAUX

What is cryptocurrency? By now, most people have heard of it and understand that it’s a digital money exchange, but for many that’s where their knowledge ends. For most people, it’s just a buzzword. Cryptocurrency is a public accounting ledger that is accessible to anyone with an internet connection. It was created in 2009 by Satoshi Nakamoto, whose true identity remains anonymous. Because cryptocurrency is not controlled by any governments or banks, customers are able to use their money however they please—for buying and selling goods and services, just as they would with cash—for significantly smaller transaction fees. For example, sending money to another country usually takes one to four days and tends to cost between $35 to $45 in transaction fees, plus a cut of the exchange rate; with cryptocurrency, users can expect a fee of $5 or less, with a 1 to 1.5% cut of the exchange rate, and their money transfers in an hour or less.

Cryptocurrency exchanges happen directly between merchants and customers. It’s similar to using cash without the liabilities of cash. “A company that adopts cryptocurrency payments can just bypass the whole issue of, ‘How do I accept digital payments when Visa or Mastercard or my bank won’t work with me?,’” says Peter Wilkins,* a veteran of the crypto industry. The cannabis industry in particular is one that has struggled with digital payment roadblocks. Due to federal prohibition, cannabis businesses are not allowed to use banks for their transactions. Because the cannabis industry is already so comfortable operating on a cash-only basis, accepting cryptocurrency payments to reduce cash liabilities seems like a natural progression.

One major difference between cryptocurrency and cash is the ability to print or create more. Cash is printed by governments and, when an excess of what is already in circulation is printed, inflation happens, causing the value per dollar to decrease. Additionally, political unrest can make the value of the dollar more volatile. Cryptocurrency largely combats these issues. Bitcoin, in particular, which was created as the original crypto token by Nakamoto in 2009, is resistant to inflation. Bitcoin was printed in a finite amount (21 million tokens) and is slowly being released to the public for purchase. More bitcoins will never be created, so the value per coin continues to go up. But not all cryptocurrencies are printed in a finite amount, so not all tokens are inflation-proof.

Understanding how cryptocurrency works can be somewhat complex. The digital tokens are stored on something called a blockchain, which is the operating platform and the digital registry of every transaction that takes place. But what makes it so valuable? “It’s run by the largest, most powerful computing project on the entire planet,” says Wilkins. It’s more powerful than all of the supercomputers from every government and bank combined. And everything is enforced by math—there’s no cryptocurrency CEO. “It’s just hardcoded mathematical operations that control things like the supply and how the transactions are secured,” says Wilkins. The cryptocurrency CPU (central processing unit) can’t process anything besides cryptocurrency, but it does it so well that the ledger is virtually impossible to tamper with.

There are now thousands of cryptocurrencies being exchanged on the digital market today, and several of them cater specifically to the cannabis industry. PotCoin and HempCoin are the top cannabis cryptocurrencies as of this writing, but it changes regularly. It’s a rapidly growing industry, and doing your research is crucial before making an investment. “It’s important to educate yourself on why Bitcoin has forged this path,” Wilkins says. He suggests starting with reading the Bitcoin Whitepaper, which is essentially the constitution of cryptocurrency. “It just lays out the why and how—all these other cryptocurrencies that exist have basically drawn from what Bitcoin started in that whitepaper,” Wilkins says.

There are a number of pros and cons to consider before integrating cryptocurrency into a cannabusiness. For starters, it’s a legal and secure way to exchange digital currency with low transaction fees and complete privacy. Access to cryptocurrency is available anywhere that has an internet connection, and the funds are settled immediately with total transparency. Cryptocurrency has yet to go mainstream, so there might not be enough crypto-customers to make implementing the payment method worth it. (It costs about $10,000 to $15,000 to have a cryptocurrency ATM installed.) Using cryptocurrency will also complicate doing your taxes, and since the industry is so new, it’s still somewhat volatile. Plus, with more and more states legalizing medical and recreational marijuana, federal legalization could happen in the relatively near future, meaning traditional banks could soon work with the cannabis industry.

For those who are interested in adopting cryptocurrency into their business, hosting a cryptocurrency ATM gives customers direct access to buying digital tokens. “An ATM is a great way to help your customers get [cryptocurrency], and in turn, the merchant can receive it for payments,” Wilkins says. The trend, however, is to treat cryptocurrency as more of a savings account than a spending account because the value per token continues to grow. “Since 2009, there has been an undeniable level of success in the cryptocurrency industry, but it has yet to be used as a regular payment method,” says Wilkins. “When people start using it to buy a cup of coffee, or a joint, that’ll be a sign of its success.”

ILLUSTRATED BY DIANA GONZEAUX