DEFINITION of 'Potcoin'

Potcoin is a digital currency that allows consumers to buy and sell cannabis products anonymously. Think of potcoin as bitcoin that is used only for marijuana, hemp, and cannabis products.

Potcoin was launched in January 2014 by three enthusiasts online with the pseudonyms Hasoshi, Mr. Jones, and Smokemon 514. The cryptocurrency was created to fill a gap in the legal marijuana industry where regulators and financial institutions were slow in adapting to the economic change that US states were bringing about by legalizing marijuana.

BREAKING DOWN 'Potcoin'

As of June 2017, there are eight states including the District of Columbia where recreational marijuana is legal, and 29 states where medical marijuana is legal. The number of states that legalize marijuana for one purpose or another is expected to grow as the states' legal systems explore the steps to decriminalize and legalize the plant for retail use. Retail sales in marijuana in the US from 20 jurisdictions was $6.5 billion; a number which is projected to rise to $30 billion by 2021 and $50 billion by 2026.

Even though some states have legalized marijuana and more are expected to, the plant is still illegal under federal law and labeled as a Schedule I substance, falling under the same category as heroin and LSD. Marijuana operators and businesses, therefore, cannot utilize the services of banks who are prohibited from conducting business with legal marijuana sellers. Many cannabis businesses, therefore, operate on a cash-only basis which is inconvenient and highly vulnerable to theft. The statistics presented above on the growing marijuana industry coupled with the cash-only policy of most operators creates a conundrum where marijuana growers and dispensaries need safe and convenient ways to deal with their daily transactions. Potcoin aims to solve this challenge.

Potcoin provides a banking solution that brings marijuana businesses and consumers together on a decentralized peer-to-peer platform, allowing participants all around the world to make secure transactions. To start, a user creates a digital wallet which generates a unique public address to receive the coins and a private key to access the funds. Potcoins transferred to a user’s wallet can be used to anonymously buy and sell cannabis products on a global scale.

Like bitcoin, potcoin is an open source infrastructure, which means that improvements and changes to its code can be made by the currency’s administrators or external supporters. In 2017, potcoin moved away from a mining system like bitcoin to a proof of stake (PoS) system whereby participants earn 5% to 7% interest on their potcoin holdings and transaction history.

As with the value of any medium of exchange, the value of any cryptocurrency like potcoin is directly tied to how much demand it has i.e. how much it is used for transactions. As of June 2017, potcoin does not have a large community behind it compared to bitcoin or ethereum, and hence, is quite volatile on the crypto market. For example, when it was revealed that potcoin sponsored Dennis Rodman’s trip to North Korea on June 13, 2017, the value of the coin soared 64.35% from $0.1049 to $0.1723 on the same day.

Potcoin is limited in terms of what one can purchase with it. Critics claim that this presents a lack of anonymization for the cryptocurrency, even though the currency’s development team claim transactions with the coin are anonymized. The currency’s specific use limits its user base to only marijuana consumers and dealers. This means that if the government decided to round up marijuana dispensaries, they only need to dig out transactions made under the banner of potcoins. The data that would be gotten from the potcoin blockchain would be easier to decrypt since the volume would not be as high as other transactions carried out with the most popular cryptocurrencies.

As the world of marijuana keeps growing, one can only wait to see what becomes of potcoin. Until then, it’s userbase would remain thin and its value would stay volatile.

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