Hungover. Trying to motivate myself to drive from Colorado Springs to Denver for the second annual Crypto-Cannabis conference. It’s 1 pm.
Chris Derose messages me:
“This conference is weird!”
“Well, there’s a lot of bitcoin pumping, with newbs. And this porn star is getting trashed. Shitfaced.”
“I should be there. I’m headed up.”
“There’s tons of beer, too much beer. And people are taking smoke breaks. It’s not a big crowd.”
Soda water. Cigarettes. And go.
And did they get you to trade your heroes for ghosts?
Hot ashes for trees? Hot air for a cool breeze?
Pink Floyd. Seems fitting as more and more of the bitcoin industry gets co-opted by corporate interests. Even Bitcoin Core developers – Hearn, Grigg, Garzik – are leaving the volunteer work to join startups for the incumbents now.
I’m going as a bitcoin skeptic. No. Not that. Bitcoin is working, although more speculative than a woman without the will to day trade cares for. But it's working. Blockchain, though… That I’m skeptical about that. I won’t be alone. Derose is vehemently so.
Blockchain isn’t a revolution.
We’re just two lost souls swimming in a fishbowl
Year after year.
Derose and I have both been in the industry long enough to know the rallying cry is a lie, that nearly all these blockchain-based businesses will find the struggles of competing at scale with the incumbents too much. And they’ll move on to a new industry. First finance. Then healthcare. Insurance as well. And then others.
An hour and a half later, I walk into a small space with about 10 people spread out across seven church pews listening to a man talk about the benefits of hemp.
The plan: To smoke a small amount of weed, which would be a large amount of weed for me, and go Gonzo. This isn’t applicable to Gonzo-ing.
A little after 3.30 pm. I sit down next to Derose. This thing is supposed to wrap up at 4.20 both days. Cute. But they’re running late. Probably the smoke breaks, the keg outside and a box full of gallon bottles of hard alcohol in the back room.
There’s one other woman in the room. Pretty standard for a bitcoin conference. Until a thin woman with dreadlocks walks in from the smoking patio.
“That’s the porn star,” Derose whispers to me.
“That doesn’t look like a porn star.”
She doesn’t have huge breasts flopping out of a skin-tight sequins dress? He shrugs.
“And what does cryptocurrency have to do with this new hemp industry?” asks the speaker, Michael Bright, chief financial officer and national sales director at The Hemp Connoisseur (THC) Magazine. “Most of these people can’t get bank accounts. Bitcoin solves all that.”
I haven’t seen it yet.
While bitcoin can be used without interacting with the traditional financial system, many people and businesses won’t use it like that for various reasons and so must follow the rules of the traditional financial system.
One of those reasons is volatility.
Merchants, like legal marijuana dispensaries won’t want to be exposed to bitcoin's price fluctuations so they'll use a third-party merchant processor to immediately exchange the bitcoin into cash. And many bitcoin merchant processors aren’t accepting businesses in the gray areas of commerce, like guns and ammo dealers and dispensaries, since that might then cause those service providers to take on quite a bit of risk (risk the bank's have decided they're better off not taking) and possibly lose their bank account. As an audience member says, he's lost around six.
A panel of the morning's speakers is up next.
But “if you stay in the crypto-space, you stay in that sphere and won’t run into the burdens of regulations and compliance,” said Joseph Ciccolo, founder and president of BitAML, which provides AML compliance help to digital currency startups.
“That could be powerful,” he says after explaining that he’d like to see a more circular economy spread through the cannabis industry with dispensaries paying their suppliers and employees in bitcoin, as well as accepting it from customers.
It could be. Cheaper. Sure. Less overheads. Faster. Yes. Ten-minute transactions too. Although the US is looking to move to a real-time payments system soon. Better. That’s ideological usually.
And while I have no doubt bitcoin will work its scaling problem out, currently there’s still a problem there, especially if another 100,000 dispensaries come online.
So why hasn't it happened? Same old, same old chicken-and-egg problem.
Most of the small merchants that accept bitcoin don’t see much volume. That can be said about clothing and accessory shops in New York City, casinos in Las Vegas and even medical marijuana dispensaries in Colorado Springs.
In MyCelium community manager, Dmitry Murashchik’s mind, we just need more bitcoin ATMs.
Most bitcoin ATMs don’t get much volume either, which is why – as one audience member mentions – most are out of service or gone within four months.
Murashchik’s sentiment also seems off – strange as a self-described anarcho-capitalist who advocates for individual sovereignty (I’m into that), private property (this has got a long history according to Guns, Germs and Steel of developing the classist nations we have today) and free markets (that’s the kicker).
So here we have a free market champion telling us that to see more bitcoin usage, we need more bitcoin ATMs. According to Wikipedia, free markets are “a result of a need being, then the need being met.”
Murashchik’s sentiment is not a free market. That is not supply and demand. That is pushing supply in our face and hoping we demand more.
No one seems to notice the discrepancy.
But Derose is instigating the panel nonetheless, telling them that most bitcoin ATM users will drive hours to get to use one and they have no problem taking the high fee (sometimes 10%) for service. Because they’re looking for something bitcoin ATMs offer over online exchanges and the traditional banking system, immediate fungibility while obscuring their identity.
“Why else wouldn’t they use Coinbase online?” Derose asks.
We're working up to it.
“What’s the demographic of a typical ATM user?” Derose continues.
Oh boy. Here it comes.
Ciccolo responds, sidestepping. “We had operators that would put them on college campuses where there were a lot of international students. But that didn’t work very well. The areas where terminals work the best are those areas where underbanked individuals live.”
“So inner city neighborhoods where there are a lot of minorities. Would you say most bitcoin ATM users are black?” Derose asks.
That’s what he sees in Florida (where he lives). That’s what I’ve seen and heard from bitcoin ATM operators who wish to remain anonymous. But no one wants to go on the record and say that. No one.
“I’m not going to answer that,” Ciccolo says.
“Any other questions from the audience?” the moderator asks.
Ten people are silent. You can count on Derose not to be. He’ll continue asking leading questions. And while it can seem headless and a bit cocky, he generally makes good points.
But it’s descended into experiential arguments. I saw this in Aruba. I saw that in Stockholm. I see this in Florida. And it’s nauseating.
Maybe that’s the hangover?
I’m getting out of here.
Derose messages me at 1pm as I haven’t made an appearance yet. The morning is hands-on bitcoin basics sessions and I’m not interested.
“Seems like you made an impression on the porn star yesterday.”
“Oh yeah? What’d she say?”
“She thought you were hot, wants to hook up tonight. :)”
For fucks sake.
I pop a quarter of a cannabis-infused gummy candy in my mouth before entering the space. Edibles typically help relax my paranoia as I forget I’ve even indulged.
“The real problem is that we don’t have the infrastructure.”
Talking about industrialized hemp. But isn’t that the truth about everything. There are new and better ways of making paper, creating energy, managing money, but we’ve built ourselves into these huge, complicated structures that aren’t easily moved. Loggers, ‘Big Oil’, ‘Big Banks’...
The next speaker, Adella Toulon-Foerster, an independent consultant focusing on bitcoin and blockchain and an associate at Cogent Law Group in Washington DC picks up the bitcoin ATM conversation again. In all states, a bitcoin ATM operator would have to apply at the federal level as a money transmitter.
“That’s the easiest part,” she says.
The harder part is applying for licensing state-by-state, each state with its own definition of money transmission and a provider’s requirements. This process can cost up to $2m, she says.
Another contradiction for a group of people that claim the federal government is a disaster which should be disbanded for individual sovereignty. State sovereignty, it seems, is making things more challenging. Centralized institutions and their umbrella rules have a place.
During Toulon-Foerster's talk, a man in the audience recounts his struggles with the traditional financial services industry. He’s a bitcoin entrepreneur of some sort with a know-your-customer (KYC) policy and has lost six bank accounts. He's now blacklisted from many other financial institutions.
And this is why:
Dispensaries are afraid of bitcoin, says Kevin McKernan, founder, CEO and chief sales officer at Medicinal Genomics, a company that distributes platforms for safe, quality testing of cannabis products for clinical applications.
“Because they already have the stigma of cannabis and then they don’t want to put the bitcoin sticker on there too so they have that stigma as well,” he says.
A break. A smoke. For me just a plain old cigarette, but for most others the product of the conference’s namesake. I’m floating a bit already.
Derose is talking to me about the ridiculousness of most of the private blockchain projects.
Sure, you can hash information onto a blockchain. A hash which unlike encryption cannot be reverse-engineered. And the blockchain puts a nice little time-stamp on that hash.
“But timestamp servers already exist,” he says.
“I know. I know. That’s why all these blockchain startups talk in big, tech-heavy words that most people won’t understand. Because all they’re actually doing is hashing data and timestamping it for integrity of that data. It’s simple. But they don’t want people to know that.”
“Because then they won’t get funding.”
It's a damn conspiracy.
I grab a beer to ground me.
Back inside, another talk about cannabis or hemp, I can’t remember. A young man sits beside me in the back church pew.
“What are you, like 27?” “Yes. Good guess.”
I’m short. I can tell by the way he moves – that tech bro “I am on the cutting edge” pseudo-swagger – he’ll piss me off.
He starts talking about pumping and dumping different coins, using their acronyms. “I have no idea what you’re talking about.”
“Oh,” he laughs, going into how XST or was it SDC is an altcoin like DarkCoin, now DASH.
He makes lots of money – 100%, 1000%, one time he could have made 10,000% but he cashed out early.
“I’ve learned not to be greedy," he says.
“I guess. If making 10,000% by pumping altcoins isn’t greedy.”
He laughs. I don’t.
“Are you writing a story about the conference?”
“Be sure to pump CureCoin.”
He laughs. I don't. I give him a fake smile and type CureCoin in my notes under the label, douchebag.
I stop listening to the speaker. Just the wahhh, waaahhh, wah, like the teacher on Charlie Brown as I check Twitter.
“Did you used to be chunky?” the young man says.
“Did you used to be chunky when you were younger?”
“Why are you asking me that?”
“I just think I’m good at reading people. And I would have thought you were fat when you were younger.”
I stare in front of me. I try to yell "Fuck you" but "That’s appropriate" comes out. The meekness you learn as a woman in a male-dominated industry. This is the kind of shit that keeps diversity out of this industry. And gives me a bad high.
A question from the audience: How much has bitcoin materialized rather than just being talked about in the cannabis industry?
“I think at the beginning it was just a dark market conversation … and I don’t think it's gotten past that so far,” THC Magazine’s Bright says.
What the bitcoin and cannabis industries really need is marketing and loyalty cards, he argues. If you got one free ounce every tenth time you bought weed with bitcoin, in his eyes, that would up adoption.
Derose remains skeptical.
“When we go to people and say they should accept bitcoin, there has to be a lot of friction there for them to see an incentive,” he says. “So for above-board marijuana dispensaries, I think there's a long way to go. But in the black markets, there are people that are using bitcoin to sell drugs now.”
Another break. After every talk or panel.
Outside Devon Konopa, a self-employed Wisconsinan strikes up a conversation. He’s got an idea to put bitcoin ATMs inside dispensaries, “that way you can just bring cash in and exchange it for bitcoin right there.”
Not that it won’t work, “but why wouldn’t you just use the cash then, so you don’t have to pay the ATM fees?”
“Well dispensaries could offer discounts to those people that use bitcoin.”
“They could. But would they? Or would they just keep the extra profit?”
As businesses do.
“I think they could offer a discount that would keep customers loyal and that’s what these merchants are looking for.”
“And what about the risk of holding?”
He’s thinking about setting up a mechanism for locking-in certain prices for the dispensary. And then he can day trade on the backend.
Another participant walks up, smoking a blunt. Devin, who’s been smoking while we’re talking, tries to pass it.
“Is this Indica?”
She takes it.
“Yeah. Well it’s a hybrid, Sativa heavy.”
She hands it back. “No, thank you.”
There’s so much talk about bitcoin ATMs. More experiential examples are flying through the clouds of smoke.
Zane Tackett, director of community and product development at Bitfinex, says in the Philippines and Vietnam there are bitcoin ATMs everywhere. When you get off the plane, there’s a bitcoin ATM in the airport to cash in or out immediately.
Well, isn’t that nice. That’s not going to work here. Honestly no one fucking cares here in the US. As exhibited by my ability to exact count the attendance here.
It’s Derose’s turn to speak. I gotta hear this.
When we get inside, his first slide is a background of small circles representing altcoins with the word "SCAMS!!" in big letters over top. This should be good.
“I got into bitcoin early. I saw it as interesting but something that would never amount to anything,” he said. “Then I found Silk Road, then I bought drugs on Silk Road and then I realized what it was all about.”
Gray areas. Illicit markets. It’s the one area bitcoin has been outrageously successful in, not without victims (see Ross Ulbricht doing life in prison for developing Silk Road). But the one area the bitcoin industry would rather not acknowledge.
“People are here for a variety of reasons. There are people who are here for ideological reasons. They want to end the Fed ... and reboot the system. There are people here to get rich, the altcoin speculators, all here to gamble.”
I move to a one-off chair by an outlet so I don’t end up sitting by the young douche again.
“And then the last class of people are those that don’t have any other choice,” Derose says. “And those are the most relevant in the space. Those who need to use this to put food on the table.”
For all his (and my) harping on bitcoin as a tool only for drug use, neither one of us thinks it’s a bad thing. Some people, disenfranchised from the traditional system, have to sell drugs to survive. It’s not a condemnation. It’s solidarity.
For these underserved people, there’s an efficiency in using bitcoin. But in working with underserved populations, companies get hit with regulations because generally underserved people are that way because they’re risky customers.
“Blockchains perform regulatory arbitrage, which in this sense means regulatory compliance, which basically just means passing the liability,” Derose continues.
If you have a company that’s working with the blockchain but also the traditional financial system, the system will make you follow the rules so as not to exploit this handing down of liability, and then you’re going to lose the blockchain’s efficiencies.
Although the cryptocurrency space, still young and small hasn't seen a clamp down yet.
This arbitrage has led to the numerous shitcoins we’ve seen over the past several years since bitcoin’s inception. Because the risk falls on the consumer, a founder of an altcoin and his buddies can pre-mine or buy up a whole bunch, tout the cryptocurrency’s benefits, get more people to buy in raising the price of the coin and then run away with the money they just made, leaving the rest of its users at a disadvantage.
Although, Derose contends, scamming isn’t most of the time intent-based. Most people have the best intentions but because of ignorance end up scamming people out of money.
“This is why you have a regulatory environment like you do, all these rules to protect us from our own ignorance, not our maliciousness,” he says.
And this is the vicious cycle in the bitcoin/cryptocurrency/blockchain/smart contract (whatever the hell you want to call it) industry.
It creates products and services without all the bases covered, markets them to people that don’t have all the information to make a good choices, labels them idiots and then bitches about the regulations that want to protect them.
On the way out, someone else offers me a smoke, but I decline. At that point, I'm all but burned out.
Conference images via Bailey Reutzel for CoinDesk. Cannabis image via Shutterstock
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.