What is PotCoin? The rise of Cannabis Cryptocurrency

One of the greatest problems facing the marijuana industry today is money.

It’s not that entrepreneurs and startups are foundering. Quite the contrary—marijuana in America, medical and otherwise, is a rapidly expanding industry. In 2016, it generated around $7 billion in sales.

That’s a pretty respectable influx of cash for a relatively young sector. And that’s exactly half the problem.

The other half is that marijuana still occupies a Schedule I drug slot under the Controlled Substances Act. Due to this categorization, marijuana remains extremely illegal in the eyes of the US federal government. As a result, many banks, credit unions, and credit card networks refuse to provide accounts and services to businesses participating in the marijuana economy.

This includes dispensaries, of course. But it also includes, just for example, publishers who create and distribute material about the professional or personal cultivation of cannabis plants.

This is despite the fact that the Financial Crimes Enforcement Network (FinCEN) has issued a document more or less granting amnesty to anyone dealing with marijuana-related money. All they need to do is steer clear of the points mentioned in the Justice Department’s Cole Memo. Some financial institutions have taken these documents at their words (pun intended) and are willing to deal with marijuana-based businesses as clients.

Nonetheless, if money whiffs of weed, major banks and credit card networks still remain staunchly opposed to having any dealings with it.

As a result, the marijuana industry remains primarily cash-only, since not all businesses have access to bank accounts and none of them have legitimate access to credit card networks. It’s a real sucker punch: dispensaries and other marijuana-related establishments cannot accept credit in payment for products and services, and they likewise don’t have anywhere safe to store the hard currency that provides their only avenue of conducting business.

And the value of the marijuana industry is expected to balloon dramatically in the coming years. Some estimates put the figure around 25 billion in less than half a decade. Others put it much higher.

That’s a lot of cash to have just, you know, lying around.

Creative Problem Solving for Marijuana Merchant Services

cannabis payment system

Obviously, there is a need for solutions beyond the traditional armed guards, armored cars, and ATMs.

There have, of course, been attempts at credit card factoring—running marijuana-related transactions through another business’s merchant accounts. And there have been forays into what amounts to money laundering—declaring your dispensary a tobacco shop or a bakery.

Needless to say, such arrangements are dubious on financial, legal, and moral levels. They also frequently prove to be end exceedingly quickly once the deception is discovered.

The need to move beyond physical cash and coin has turned the marijuana industry’s financial concerns into an arena for innovation.

One solution is point of banking systems, which function more or less as a cashless ATMs. Users need only swipe a credit or debit card, enter their PIN, select a preset amount of money, and the machine spits out a voucher. The customers hand it to the friendly cashier behind the counter, and the latter hands them their change and their purchase.

Another option is to save a tree and go completely electronic. CanPay is a mobile app that debits and transfers money directly. Of course, this only works for the relatively few marijuana-based businesses that are able to maintain bank accounts. The important thing here, though, is that it does, in fact, work.

But one of the most intriguing solutions to the marijuana monetary problem is also the most radical. That’s because it abandons currency entirely.

The Crypto-Economy

By currency, we mean the more general definition: a medium of exchange that is produced, sanctioned, and circulated by a government. In this alternative economy, money still changes hands. It’s just a drastically different type of money: cryptocurrency.

Cryptocurrencies are sometimes referred to as organic currencies, and there are two reasons for applying that nomenclature. The first reason is that cryptocurrency is not created and issued by any central authority. Rather, units are generated by the actions of the people who invest in and make transactions using the currency. (More on how exactly that happens below.)

Those transactions occur through a direct, peer-to-peer process. As a result, there are minimal fees for using the currency, since users are not compensating the services of a payment processor or a financial institution.

A unit of cryptocurrency is like any other unit of currency. It possesses economic value, just like the US dollar or Japanese yen or British pound, and that value allows it to be exchanged for goods and services or else converted into a different currency, whether a physical one or a different cryptocurrency. And, just like a hard currency, once a user spends a digital coin, that user cannot spend that same coin again.

That may seem strange, since the fundamental basis of the virtual realm is that things are easily reproduced. If you post a video of a cute dog on your friend’s Facebook timeline, that video doesn’t pass into that person’s exclusive ownership and control. You, your friend, and anyone else who sees it can share it, re-post it, tweet it, email it, or distribute it any number of ways, any number of times. Because that video is made up information, and because that information can be copied simply, quickly, and cheaply, the video is functionally infinitely reproducible.

So what makes a cryptocurrency different? Why can’t people just duplicate their digital dollars and get rich—or, more realistically, completely devalue the currency and crash the crypto-economy?

Well, unlike that picture of the hamburger you had for lunch, the transfer of cryptocurrency is entered on a public, distributed ledger called a blockchain. And, as the name may inspire you to suspect, a blockchain is constituted by sequences of units called blocks.

A block is analogous to a page in a ledger. Both blocks and pages contain data representing all transactions that occurred within a certain amount of time. They are ordered sequentially, one after another, in a coherent, chronological order.

A blockchain is the open, public ledger of each and every transaction made using a certain cryptocurrency. This record is distributed amongst every user of that currency. Each individual possesses a copy of this virtual ledger that is updated on a regular basis. As a result, every person with a current blockchain has a complete transaction history and can tell if any given unit of currency is legitimate.

After a certain period of time, at something called a checkpoint, blocks become integrated into the cryptocurrency’s programming. This makes the preceding transaction record nearly impossible to tamper with.

For all these reasons, cryptocurrencies are favored by illicit markets—a category that the marijuana trade still falls into in many parts of the United States. Due to the fact that many financial organizations are unwilling to deal with money associated with marijuana for precisely this reason, cryptocurrency presents a strong alternative to cash for the marijuana industry.

Enter PotCoin

what is potcoin

PotCoin, introduced in 2014, is one such industry-specific cryptocurrency. Its stated goal is to become the primary cryptocurrency exchanged on the burgeoning legal marijuana market—not just in the United States, but worldwide.

Unlike CanPay—which is likewise industry-specific, but for which both vendors and customers must first apply and be approved before availing themselves to the service—anyone can purchase and use PotCoins. Both brick-and-mortar stores as well as online marketplaces can be set up to accept payments in PotCoins. It offers low transaction fees, extremely fast completion times, and no chargebacks—when an exchange is finalized, it is truly final, as per the open and distributed nature of the blockchain.

For both businesses and private individuals, PotCoins are stored in a wallet. This wallet can exist on a computer, a mobile device, or on a web-based platform. Wallets are assigned individual public keys, called addresses, for the purpose of making transactions. Each wallet is also assigned a private key which is used to redeem that wallet’s contents.

Wallets are stored in a single location—for example, a smartphone. The benefit to this is that the user has direct control over his or her wallet. The downside is that, should the smartphone be lost or broken beyond recovery, that user’s PotCoins are lost. To protect against that eventuality, some people prefer to use online services that are designed to host PotCoin wallets; users access these wallets remotely.

Like many other cryptocurrencies, PotCoin is open source; the technology’s source code is free and available to the public. This situation creates absolute transparency. Anyone who wants to can examine the source code that makes the currency tick. Similarly, because this code is easily accessible, upgrades and improvements can be developed and made available by system administrators as well as interested volunteers from the public; thus, the currency and its mode of exchange are extremely robust and adaptable.

How PotCoin Works

PotCoins—the unit of currency—are generated (minted) through a process called Proof of Stake Velocity (PoSV). PoSV is also the process by which transactions within the PotCoin economy are validated. Stake refers to investment in the currency (i.e., holding stake in something of value). Velocity is the speed at which currency circulates within the crypto-economy.

When a user connects to the network and opens his or her wallet (a practice called staking), his or her CPU is tapped and used to confirm the veracity of other transactions that are occurring on the PotCoin network. Users who engage in staking will potentially be rewarded (through a sort of random lottery) for the time and processing power with additional PotCoins, which are minted through this process.

The amount of potential additional value PotCoins generate through staking is based on a quality called coin age. This is, as the term indicates, the age of a specific PotCoin. Coin age has a growth rate by which its value increases over time. However, this growth rate is one of exponential decay. The rate at which the value increases will decrease over time; older coins accrue value at a deteriorating rate. This additional value earned through successful staking asymptotically approaches a finite limit.

The coin age of a specific unit of currency resets whenever that coin either changes hands or is successfully staked. It then begins accruing potential value all over again. This aspect of the currency encourages stakeholders to exchange currency and to facilitate transactions (through verifying those transactions in the process of staking) rather than just purchasing the currency and sitting on it, waiting for it to accrue market value. By encouraging economic activity, additional currency is generated and more of that currency is circulated; greater circulation velocity allows the restricted crypto-economy to expand without increasing the available supply of currency, which would instantly devalue it.

Valuing PotCoins

In this way, new units of cryptocurrency are created by the people who use it. In contrast, hard currencies like the dollar are created by a national mint and then issued through a central bank (or other, similar organization, such as the Federal Reserve System).

This is the second organic aspect of cryptocurrencies like PotCoin: they are decentralized. There is no overt control by a central authority. As a result, PotCoin is therefore not subject to the rules of any particular government, financial institution, or controlling party.

By that same token, PotCoin is not subject to artificial adjustments or manipulations. Its value is defined by the market itself through the vicissitudes of supply and demand.  Thus, the converted value of the currency is relatively unstable.

For example, when PotCoin conspicuously funded Dennis Rodman’s fifth trip to North Korea, its value rose 97 percent. The next day, 14 June 2017, it dropped 23 percent. Presumably, everyone was dazzled by the hype and then suddenly remembered that this was Dennis Rodman and North Korea we’re talking about. Regardless, this recent incident illustrates nicely just how wildly this currency’s value can fluctuate based on the fundamental rule of all markets.

The current value, market capitalization, and volume of PotCoins are constantly on display in the footer of their website.

Despite the major disadvantage incurred by its free-roaming exchange rate, PotCoin does possess distinct advantages. It is less cumbersome and less risky than cash, and it is nearly infinitely more available than transactions with banks and credit card networks, whether direct or mediated. In time, it—or some other cryptocurrency—may come to pervade and dominate the marijuana market. But that potential depends largely on how long the federal government maintains its stance on marijuana, thereby keeping banks and credit from participating in the sector.

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