The first medical marijuana dispensary in the United States opened in California back in 1996. Since then, the growth of the cannabis industry has rapidly accelerated. While 25 states have already legalized marijuana, major banks and credit card companies still refuse to do business with growers, distributors, and dispensaries. That is why many pot dispensary owners were forced to look for alternative ways, and Bitcoin appeared to offer an obvious solution.
Before we go down the rabbit hole, you need to understand what Bitcoin is and why it is cool.
Like paper money and gold, Bitcoin is a currency that allows exchanging value. One Bitcoin can be swapped for almost every other type of currency without intermediaries. Using Bitcoins to buy marijuana is almost the same as using electronic bank payments.
Bitcoin was invented by a software developer Satoshi Nakamoto. The idea was to introduce the first digital currency independent of any central authority. According to the original white paper “Bitcoin: A Peer-to-Peer Electronic Cash System,” online payments are sent directly from one party to another without going through financial institutions.
The value of a Bitcoin is not tied to the value of any other existing currency—it is determined by buying and selling in the open market.
There are no physical forms of Bitcoin. If you are eager to know how to buy weed with Bitcoins, you first need to learn where to get them. You can obtain Bitcoins either by trading money, goods, or services with others or through mining. The mining process involves running software that performs complex math equations for which you are rewarded a number of Bitcoins.
The legal cannabis industry and the banking sphere seem to exist on different planets. There is a very limited number of banks that interact with marijuana businesses. Due to the fact that the drug is placed on the Schedule I list, American banks are afraid of regulations and do not want to deal with money culled from cannabis-based businesses, even in states where marijuana is legal. Banks that are willing to collaborate with legal weed sellers are at risk of losing their federal charter or deposit insurance.
So, cash is the most common option for buying legal cannabis. Visa is treating credit card-based weed sales with a touch-and-go approach, meaning that if something happens, merchant banks take full responsibility. MasterCard considers using its card to purchase marijuana as illegal. American Express is monitoring and blocking those pot shops that are trying to accept the company’s cards. In order to facilitate bank transactions, some dispensary owners have been known to use their personal accounts or create shell companies.
Bitcoins are an open resource not controlled by any group or government. So far, nothing managed to stop companies from accepting them: many companies, from Dell and Microsoft to small coffee shops, are beginning to take Bitcoins.
Furthermore, while many credit card processors charge 2-3 percent for a transaction, transferring Bitcoins from one digital wallet to another is performed without fees, delays, and revealing the identities of those involved. It is also very likely that if the government allows banks to work with marijuana businesses, the processing fees could rise to 15% or more, and that cost will be passed on to the final consumer.
Many people suspect credit card companies in collecting personal information. After all, some banks publicly claim that they block marijuana-related transactions, meaning that they are closely tracking purchases in order to enforce these policies.
But even if you pay for your purchase in cash, it does not guarantee you anonymity. Although the Colorado statewide drug addendum to its constitution, known as Amendment 64, forbids the collection of personally identifiable information of a marijuana buyer, states rules require dispensary owners to use video surveillance aimed at the counter to clearly show both the seller and the buyer.
Digital currency seems to be a viable solution to be used until the problem of the relationship between banks and the marijuana industry is solved. By using Bitcoin, marijuana businesses can have efficient digital transactions without fear of their profits and operations being seized. The reason is that Bitcoin uses an open ledger, but identities of all participants are anonymous and well encrypted. It makes transactions completely safe from seizure.
PotCoin is the first cryptocurrency created to facilitate transactions within the legal weed industry. Like with Bitcoin, users can obtain PotCoins by buying them on an exchange or mining new ones. According to the creators, PotCoin may be attractive to marijuana consumers who want to support the industry and see their money promote its development.
Did you know that Gorilla Seeds gives you 20 percent off if you buy weed with Bitcoins? Or that there is a repository of cannabis genomes stored on the Bitcoin Blockchain that allows you to check the strain's origin?
The UK-based seed company Gorilla Seeds loves cryptocurrency so much that it gives a client 20 percent off of all the marijuana seeds they order if they pay with Bitcoins. Additionally, it tosses in up to nine extra seeds for free on top of the ordered amount. Such love is understandable: because it is really complicated to operate with cash only, and buying weed online is still a bit of a gray area, dispensaries are trying to encourage people to pay with Bitcoins.
Moreover, now, when choosing among hundreds of cannabis strains, you will always know what you are getting and be sure that if you order OG Kush, you will receive OG Kush, not Girl Scout Cookies grown in some basement. It is all due to the fact that a company called Medicinal Genomics started a repository of marijuana genomes that is stored on the Bitcoin Blockchain. It runs tests on cannabis plants to look for microbial contaminations and determine their cannabinoid content. For $600, growers can buy a DNA purification kit for their strain and ship the genetic material to one of Medicinal Genomics partner laboratories for sequencing. Once the sequencing is done, scientists compare the strain’s genome to a reference strain and determine whether it is a unique one. Then, they create a file documenting the properties of the strain, run it through a cryptographic hash algorithm that assigns the strain a random string of numbers, or hashsum, and tack it on to a Bitcoin transaction. The company currently has more than a thousand of different strains registered on the blockchain. Nearly 420 of them are publicly accessible through their genomic repository called KannaPedia.
Actually, this process can help claim the ownership of the strain protecting growers from someone else patenting that particular strain. However, the project is not just about intellectual property but also about enabling effective branding for pot businesses who want you to know that the Green Crack they are selling to you is actually Green Crack.