Why The Cannabis Industry Is Not Ready For Blockchain
By: Patrick Vo, President and CEO, BioTrackTHC
Many companies have speculated on the possible advantages of blockchain. Even though major corporate players like IBM are integrating blockchain into many industries, there has yet to be a company to lay out a realistic cannabis-blockchain framework, let alone effectively implemented a blockchain solution. And I believe that is for good reason.
With nearly 10 years under our belts in cannabis and being a leader in both government and commercial cannabis seed-to-sale solutions, we at BioTrack do not think blockchain is all that it has been made out to be.
Since the industry’s inception, security (both physical and virtual) has always been top of mind in everything that cannabis businesses do; both licensed businesses and governments are collecting medical patient information and PII. Because of that, the industry has always placed heavy importance on data security and ensuring compliance; and even with the introduction of blockchain to cannabis, that priority remains unchanged.
With the recent mainstream awareness of blockchain technology, plenty of people have emerged that are more than happy to capitalize on regulators and consumers alike who have heard of the concept but lack the technical expertise to properly evaluate the benefits and drawbacks that come with utilizing a distributed database. We, as providers of seed-to-sale and government tracking technology, have a responsibility to ensure that the industry is informed on the technological limitations surrounding blockchain technology before committing to something that may turn out to be all hype.
There are significant limitations to blockchain technology that would limit its effectiveness within a cannabis context. To understand these limitations, we first need to understand that on a high level, blockchain technology is a distributed database around which a system needs to be designed. In other words, it is simply a technology that is designed to be incorporated into something larger; for example, a cryptocurrency or a seed-to-sale traceability solution.
The few white papers that have been published on the concept as a potential solution to the cannabis industry have been extremely vague, and that vagueness is intentional in my opinion. In fact, there are enough good reasons against using blockchain in cannabis that I cannot go into all of them in detail here, but here are some of the larger concerns we have.
Government traceability is designed with the idea that the government is the entity providing oversight. One of the defining concepts and primary benefits of blockchain technology is decentralization; they are designed in a way that government oversight is not a consideration. With blockchain technologies, you are relying on independent miners who develop a consensus on what data is legitimate and what data is not.
One of the ongoing concerns with some of the larger blockchain cryptocurrencies has been avoiding the 51 percent mining problem. Remember that the integrity of a distributed ledger is that it is decentralized; that there is no one central point of failure. If 51 percent of the computing rate were to ever be controlled by any single entity, or a group of entities who wish to collude, they would have the ability to rewrite the entire history of the blockchain, at which point the other 49 percent would adopt the altered timeline by default, due to the way blockchain technologies are designed to operate by consensus. This would provide a huge financial incentive for anyone attempting to subvert the blockchain.
This incentive is further amplified by the lack of incentive for mining. Miners are the backbone of blockchain technologies as they are the entities that incorporate requested transactions into the chain. Without them, the blockchain comes to a screeching halt. Any new blockchain that debuts must compete for resources from the millions of miners out there, all of whom have electricity costs associated with mining.
In essence, blockchain systems compete against one another for miners who are ultimately motivated by profit. Any blockchain that was developed for this purpose would need to provide sufficient financial incentive that meets or beats what the average miner is producing in terms of profit. For that to happen, any sort of cannabis seed-to-sale blockchain would likely need to heavily subsidize the initial mining and provide the necessary marketplaces to exchange the coins back to fiat currency. For a market as large as the Washington recreational/medical cannabis market, this would likely require subsidization to the tune of $50-$100 million over the course of the first year alone. Without this sort of subsidization, the only miners that would be attracted to mining this currency would likely have an agenda if they were doing so at this type of an opportunity cost (not to mention those electricity costs).
Additionally, the size of the blockchain would be massive. It is estimated that the size of the bitcoin blockchain ledger reached 149 gigabytes in December 2017. With detailed logging, the Washington traceability database reached 1.1 terabytes over our 4-year contract. With some removal of data points and perhaps a reduction in the level of detail that our traceability system captures, it might have been possible to reduce the size of the database down to 200-300 gigabytes.
Even at that size, that would make it almost double the size of the bitcoin blockchain ledger, which currently has hundreds of thousands of miners at any given moment. Data can only be stored on the blockchain by miners; therefore, it would take computing power twice the size of all bitcoin miners currently around the world to store Washington’s database within a blockchain. For scale, California’s newly legalized adult-use program is larger than Washington’s, Colorado’s, and Oregon’s, combined. A blockchain ledger of that size would require a computing power that is simply unreasonable and impractical; let alone as part of a national legalization program.
As of this article, the current market cap of bitcoin is over $150 billion, so it is difficult to imagine convincing miners around the globe to drop that asset for one in which no monetary gain would be expected. Ultimately, that is why so many cryptocurrencies have come and gone; without uptake, the blockchain simply grinds to a halt.
Even large Fortune 500 entities who have expressed interest in entering this industry vis-a-vis blockchain technologies have purposely not provided any level of substantial detail. Building off of a fad or hype makes it almost trivial to convince governments, or even private entities, that this latest and greatest technology is the way to go, and that they would be more than happy to provide details once a contract is secured.
Then, the onus is on the engineers to accomplish the impossible. By the time the buyer realizes that the newfangled technology turns out to be hype and salesmanship without any meaningful substance, it’s too late. Government contracts are usually then reduced in scope as opposed to terminated, and the industry incurs the costs without the promised benefits.
Blockchain vs. Current Seed-to-Sale Technologies
Current seed-to-sale technologies that have undergone industry standard technology and security audits are definitely stronger than potential blockchain technologies as they might apply to this industry. We are not aware of any other seed-to-sale technologies currently deployed, beyond our own, that have undergone such audits, and there is something to be said for systems which have lacked such transparency.
Though the well-known limitations of blockchain technology are many, we at BioTrack are always evaluating new and innovative technologies to determine if their components, or the underlying concepts, can benefit the industry.
In fact, as a result of our initial analysis of blockchain’s relevance to cannabis tracking, our engineers developed a hybrid technology that utilizes blockchain immutability concepts, making it so audit trails cannot be modified by anyone, including ourselves, without users incurring the significant costs of the blockchain itself.
We are continuously evaluating other ways in which we can incorporate new and emerging technologies, including blockchain technologies and principles, so long as they allow our Seed-To-Sale Software to operate with the same or higher level of reliability and traceability that we have always strived for.
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