By Mark Goldfogel
There has been quite an uptick in the discussion of BitCoin as an alternative to fill the banking need for cannabis.
I do not believe it is even a temporary solution to the problem.
Since Colorado created a “for profit” model for cannabis distribution, every aspect of this industry has been subject to invasive government oversight. “Seed-to-Sale tracking,” which I helped to develop, created a paradigm that uses technology to cover every movement of the plant on its way to market.
To add an alternate currency at the end of the transaction further muddles the legitimate sale of cannabis.
However since every state is legitimizing adult use differently, the potential need for an alternate currency exists, especially for the black and gray markets. BitCoin will not provide any protection from drug trafficking prosecution, or seizure, but is popular for exactly that.
Every dollar needs to be transparent and accounted for
I do not endorse BitCoin for cannabis because I want every last dollar of this industry accounted for and taxed and regulated, without obfuscation. That is the safe and transparent way to build a new industry.
While my BitCoin account only has $6.32 worth of BitCoins in it today, it started with only $2.00 a few months ago when I started researching this alternative currency and opened an account just for fun. But, its value can vary dramatically.
Let me try to explain BitCoin based on my very limited knowledge.
Imagine that we live in a world where anyone who wishes can use their own form of currency (one such example is called BitCoin). But this currency is not controlled by any government. It is traded primarily through the Internet and establishes value by supply and demand.
One person sends currency, the other receives it. A transaction can’t be reversed and can’t be altered. It is amazingly simple, fast, cheap, and transparent.
The real magic is in the system that keeps track of these BitCoins and other currencies called the Block Chain. This system tracks, generates and limits the creation of BitCoins. This, in turn, creates and maintains value. If you recognize that the American Dollar is only backed by our country’s belief in its value, you recognize the resemblance.
The ultimate difference between BitCoin and the U.S. dollar is the belief in the American government.
What is backing BitCoin as a currency?
A fiat currency is any currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat money is derived from the relationship between supply and demand rather than the value of the material that the money is made of, or backed by.
In this way, a currency has only the value that we believe it has. When we had the huge recession in the 2008, the U.S. poured trillions of dollars into our economy to avoid a loss of confidence in the U.S. dollar. Quite frankly the process worked amazingly well and our economy has rebounded from a heart attack that could have been fatal to our currency, and with it, our economy.
The problem is that I am not sure we really learned our lesson.
Like a heart attack victim who recovers and feels great, going back to fatty foods, stress and smoking will just create another catastrophe. For this reason, a prudent person may well dabble in BitCoin, but the Cannabis Industry will continue to do business primarily in cash.