Bitcoin and Legalized Marijuana

Monday, August 15th, 2016


By Jerry Mooney

How do bitcoin and legalized marijuana go together? If you live in Colorado, Washington or Oregon, you know that marijuana is now legal. And if you are trying to become a participant in the marijuana economy, you might also know that the feds haven’t quite reconciled their relationship with these state commodities. Making money dispensing marijuana and related products in states where marijuana is legal is still murky waters from a federal standpoint and your chip enabled Square account won’t keep the feds out of your pockets. If you set up a bank account connected to your marijuana distribution business, you are subject to federal seizure. And what’s the point of having a legal business if all of your money is taken?

Well, there are solutions and they are not limited to cash and electronic payment system like Paypal or DIY E-payment systems don’t solve the problem of federal seizure. Because this is a relatively new industry (above ground anyway) there will be growing pains and tensions between proprietors, law enforcement and legislators. The feds aren’t quite sure how to handle these states and their industries. And as local stores white knuckle every bank deposit or stuff cash in an unsecured mattress, people want to know how to keep their legally earned money safe.

One somewhat obvious solution, albeit being new and generally unfamiliar, is Bitcoin. Bitcoin gained fame as the currency of the illegal marketplace, The Silk Road. However, that is simply because Bitcoin is digital cash protected by sophisticated encryption. Bitcoin itself is often conflated with the Silk Road and therefore assumed to be an illicit form of currency.

This is not true. Just like using cash to buy a lawnmower is technically illegal unless you declare your purchase to the government and pay the appropriate sales tax while the seller declares their respective earnings. These things don’t usually happen but it is not the cash that is illegal. It is the unreported transaction. Same with Bitcoin and legalized marijuana.

Bitcoin is a digital form of cash that was introduced in a white paper after the financial crash of 2007 and attributed to Satoshi Nakamoto (believed to be a pseudonym). Bitcoin is essentially a digital form of cash. It can be used to buy many things on the Bitcoin marketplace which currently transacts in the billions of dollars.

By using Bitcoin, dispensaries can have digital, seamless and efficient transactions without fear of their profits and holdings being seized. The reason for this is that Bitcoin uses an open ledger, but the participant’s identities are encrypted and anonymous. So transactions are completely safe from seizure. Bitcoin is kept in a special, digital wallet that can transfer money directly to other Bitcoin wallets without fees, delays or revealing the identities of those involved.

This also protects merchants from cyber attacks. Cyber security has become a major threat to all financial industries, but it is particularly severe in the corners of the economy where banks are less likely to insure commerce.

Currently, cybercrime is a growing problem affecting millions of people and most of the issues surround identity, retail transactions and finance. Bitcoin basically solves this problem by using a blockchain ledger to conceal the identities of the participants, while revealing the transactions. The blockchain uses encryption and sophisticated algorithms to keep identities protected. Even if someone were to hack a particular block on the blockchain, because all transactions must be validated by a consensus of the users (millions of computers) they could have virtually no impact. Additionally, only the component of the transaction would have been breached. The identities of the participants would remain unthreatened.

And Bitcoin is now able to be used with complete legitimacy. In an obvious attempt to gain tax revenue from Bitcoin the US government legitimated Bitcoin. The IRS now considers Bitcoin both commodity and currency for tax purposes. Therefore the business ledger can use digital currency without the perception that it is merely a method of tax avoidance.

What is important as the acceptance of legal marijuana struggles for legitimacy is that there is no need to put legitimate business capital at risk while the federal government wraps its collective brain around state legalization. And the emerging currency and technology of Bitcoin can help protect new business owners from the various threats to their profits, be they state sponsored or predators hiding in cyberspace. And in this digital age, it’s good to know there is a digital solution.

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