Why Cryptocurrencies Could Replace Traditional Banking in the Cannabis Industry

If you have been living under a rock for the last year or so, you may not have heard of the cryptocurrency phenomenon which is headed by the digital currency known as Bitcoin. Cryptocurrency is an investment, technology, and currency. The first example was Bitcoin which was developed by Satoshi Nakamoto and released as open source software in 2009.

Nakamoto created it as a decentralized digital currency since it works without a single administrator or central bank. It is a peer-to-peer system with transactions taking place directly between users without the need for an administrator. There are now hundreds of cryptocurrencies, and while the market has been derided as a giant Ponzi scheme by the traditional banking system, its market share continues to grow, and this new currency could solve a very big problem in the marijuana industry.

Marijuana & Traditional Banking Problems

Even though marijuana is now legal for recreational use in 8 states and medicinal use in 29 states plus D.C., it is illegal on a federal level. According to CNBC, the industry was worth around $6 billion in early 2017 and is projected to reach $50 by 2026. However, it is an industry in need of a financial solution because only around 500 banks in the United States will work with medical marijuana companies. This is despite the fact that FinCEN guidelines issued in 2014 allow financial institutions to give state-level companies bank accounts.

Most dispensaries can’t access typical merchant services, which mean they can’t accept debit or credit cards as a form of payment. As a result, merchants can only accept cash which leads to logistical and security concerns.

Could the Cryptocurrency Market Come To The Rescue?

Bitcoin alone has a market cap of over $232 billion at the start of 2018 but its dominance of the market may end within a couple of years as altcoins such as Ripple, Ethereum, and Litecoin grow. At the beginning of 2018, there were 35 altcoins with a market cap of $1 billion+.

An increasing number of start-ups, including POSaBIT & SinglePoint Inc., allow marijuana purchasers to use bank-issued cards. These companies use cryptocurrency as an intermediate step and dispensaries would be wise to consider these organizations.

Take POSaBIT as an example. When you decide to buy your weed, a dispensary employee will ask if you want to pay in cash or digital currency. If you choose the altcoin option, you can use your credit card to purchase a cryptocurrency through one of the company’s kiosks; a transaction fee will be added to the price of the marijuana. At this point, you own cryptocurrency equal to the value of your purchase so you can redeem the currency in the store to get your weed.

Reputable merchants comply with state and federal laws by asking customers to produce photo ID which is scanned, encrypted and stored. These organizations also have sophisticated fraud detection programs and require all customers to have a bank account.

SinglePoint encountered problems in 2014 when it placed terminals in dispensaries around Washington State. Just six months later, banks closed everything down because there was too much risk attached. At that time, Bitcoin wasn’t well known, but now that it has gained some form of acceptance, SinglePoint is very much back in business.

Benefits of Using Cryptocurrency in the Marijuana Market

Even in states where marijuana is legal, the government wants to know where the plant comes from so all transactions have to be recorded. The Blockchain technology that has launched the cryptocurrency revolution could solve the age-old issue of transparency. At present, cash-only dispensaries are targets for criminals. By using digital currency, merchants will have less cash on hand. Also, cash-only customers don’t need bank accounts. When they use cryptocurrency, they have to supply proof of a bank account.
At the same time, as blockchain technology tracks people by an identification number, the names of customers remain private which reduces the level of risk.

Which Cryptocurrencies Should You Use?

The trouble with the industry is that only 12 million people use cryptocurrency at the time of writing. The relatively low adoption rate, plus the insane volatility, of Bitcoin, means it is not a good choice. However, there are several ‘Canna’ Coins available. These are altcoins specifically designed for the weed industry; here are four of the best known:

PotCoin (POT)

potcoin-logoThis was one of the first Cannacoins and was launched in January 2014. It barely made a dent in the market until June 12, 2017. On this day, former NBA star Dennis Rodman wore a potcoin.com t-shirt while in North Korea which enhanced its visibility. When it was launched, one PotCoin was worth less than $0.005, but it was worth $0.42 by January 2018 with a market cap of over $92 million. There are 219 million circulating PotCoins from a total of 420 million.

CannabisCoin (CANN)

cannabiscoinThis was also introduced in 2014, and as at January 2018, one CANN was worth $0.27, and it had a market cap of $21.5 million. There are around 106 million CANN in circulation.

DopeCoin (DOPE)

Adam Powell created DopeCoin in February 2014, and one is worth $0.20 as at January 2018 with a market cap of over $23 million. There are over 116 million DopeCoins in circulation.

ParagonCoin (PRG)

Co-founded by The Game and a former Miss Iowa, ParagonCoin is the subject of a lot of hype. The company had received $25 million in funding before the ICO which occurred in September 2017. The currency has grown rapidly and is now worth $0.77 with a market cap of almost $128 million.


Final Thoughts on Cryptocurrency & the Marijuana Industry

The rules and regulations associated with traditional banks mean that marijuana merchants and purchasers have a hard time. Cryptocurrency offers a genuine way forward for the industry as a whole, and if the likes of Bitcoin become mainstream, it could create an entirely new payment structure. However, despite the hype, the cryptocurrency industry is still in its infancy and has a long way to go before it becomes a commonplace form of transaction.

Related article: Cannabis vs Bitcoin; A Similar Opportunity?

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