Founding Fathers like George Washington and Thomas Jefferson traded in hemp. The founders of America’s thriving new marijuana industry trade in PotCoins.
The latest virtual currency to rise to prominence since Bitcoin became a well-known brand, PotCoins are held by medical marijuana dispensaries, weed growers, Colorado coffeehouses and other potrepreneurs looking to squirrel away cash.
Most banks don’t accept proceeds from marijuana sales out of fear of breaking federal laws. So weed businesses that are legal under state laws often accumulate piles of money that attract thieves and lead to violence, like when brutal kidnappers allegedly severed the penis of a California pot dispensary owner in 2012 after he wouldn’t or couldn’t reveal the location of his bankroll.
Like with Bitcoin, Dogecoin, Litecoin and a host of other cryptocurrencies, PotCoin buyers put their cash in cyberspace.
“In theory, it provides an excellent way to help businesses keep their money in a safer form than keeping cash in a back room,” Erik Altieri, communications director for the pro-marijuana legalization group NORML, told VICE News. “Cash in hand creates a really dangerous situation.”
Like Bitcoin, PotCoins are tallied in an online ledger that bypasses the traditional financial system — no declaring cash at customs or paying exchange fees, wire fees and, until recently, taxes, as the IRS just ruled that virtual currencies incur capital gains.
Their values — now less than .002 PotCoins per $1 — fluctuate on an exchange as they’re bought, sold and traded like stocks on Wall Street. Bitcoin prices soared to as high as $1,200 before settling at around $600 on Wednesday, according to CoinDesk, a Bitcoin research firm.
But Altieri said that he doesn't think PotCoin necessarily heralded a golden age for weed commerce.
Most dispensaries and retailers would like to operate like normal businesses with a checkbook and deposits, he said. Hackers can steal Bitcoins. Federal authorities have prosecuted drug dealers who use virtual currencies, like the now-defunct online narcotics marketplace Silk Road. That’s hardly a good business model, he said.
But weed businesses have little choice but to try something new, absent federal regulations that would grant immunity to banks dealing with them, added Altieri. “This seems like a natural evolution considering the U.S. Congress’ refusal to take leadership on the issue,” he said.
CoinDesk editor Pete Rizzo doesn't think PotCoin reflected particularly well on cryptocurrencies. But he noted that PotCoins were backed by marijuana in the same way corn or wheat might back a loan or other deal.
“Something like PotCoin, its long term utility is pretty questionable, but as an experiment, it’s a testament to how open the virtual currency industry is now to new ideas,” Rizzo told VICE News.
Critics who question whether PotCoin buyers can trust the cryptocurrency to retain its value forget that the bottom can fall out of national currencies, like the euro, too. So long as pot businessmen buy PotCoins, the digital money will be valuable, he said.
“It doesn’t matter if it’s worth money if people use it to exchange value,” Rizzo said. “What is the value of money?”