Tuesday, December 30, 2014

A Legal Non Bank Infrastructure for States without Criminal Marijuana Laws

The remarkable thing about governments is their persistence in pursuing failed policies of ancient generations regardless of the harm caused to present constituents. Fortunately a bit of imagination sidesteps the lumbering posture of slow-moving and dim-witted dinosaurs.

A case in point is the US Federal Government’s refusal to clarify banking regulations for States that legalized recreational or medical use of marijuana. The consequences of inaction mean large amounts of cash dangerously moving from point to point without a home in either the underground or the above board economy.  Fortunately it is a relatively simple problem to solve for the most inexperienced payment system architect, although tragically, the legal marijuana industry has yet to employ one.

The basic ingredient for the payment solution is a large building in a remote location with sufficient guards, gates, and guns to make any armed attack against the facility (without the equivalent of an army division) unsuccessful. Members of the industry, (let’s call it the Aging Hippy’s Benevolent Fund or AHBF) then take their cash and deposit it there. The depositor owns their cash; the industry owns and manages the facility.  The AHBF hires the staff and equipment necessary to account for funds from the moment members place cash on deposit to the moment members remove it.

Once the funds have found a home, the AHBF creates a cyber currency by issuing electronic cyber currency to their customers.  Marijuana purchasers do not buy marijuana directly they buy an amount of cyber currency which is the exact same as purchasing a Bitcoin and therefore completely unambiguously legal. The consumer payment can come from any electronic account including bank accounts.  Once the consumer has their non-reputable certificate of value securely placed on the electronic medium of their choice, it is relatively simple to transfer that certificate to a marijuana provider that in turn can transmit it the AHBF, which in turn, augments the provider’s account accordingly.

If the industry just wanted to make a safe haven for their cash, then the above solution provides the haven and allows customers to purchase goods without using cash. However if the industry wants to profit from the innovation then they will provide a secure application that allows purchasers of the cyber currency to transmit the electronically stored value to any electronic device; the AHBF will allow their currency to freely circulate.  Consumers may redeem the issued currency the next day or they may never redeem it. Thus issuance provides excess funds allowing seamless operation of the AHBF facility without a membership fee. Likely they will have to distribute the profits to members on a periodic cycle.

The AHBF may also want to provide a special large value currency that allows the industry to move product in needed quantities to themselves.  To do this they can use the method described above but allow for a special cases. Wampum provides a solution (please see: http://paymentnetworks.blogspot.com/2014/10/concept-of-large-value-non-fiat-digital.html for further details)

Next Blog: New discussion on Fraud, its detection, and industry failure to do so.