Navigant Research Blog

Cannabis and Cryptocurrency: The American (Green) Dream

— March 6, 2018

Legal ambiguity surrounding the cannabis industry has slowed the marijuana business in the US. Stakeholders are uncertain of the potential legal ramifications that currently threaten the business environment. Despite ongoing setbacks, the legalized marijuana industry remains valued at over $7 billion in the US, which means high value transactions are occurring. Yet, for profits to continue, the industry must find a way to overcome hurdles at the federal level. Possible solutions for navigating the shifting legal landscape involve methods that provide greater transparency and assured accountability. With the explosion of millennial-led investments in cannabis stocks and cryptocurrencies, it comes as no surprise why stakeholders are looking to blockchain technology to help settle these legal debates.

The Latest

In November 2017, IBM proposed a blockchain solution to Canada as a way to regulate and authenticate transactions of legalized marijuana. Further fueling this movement toward a blockchain-backed cannabis industry, California-based analytics company, Budbo, recently made headlines after selling out its token presale 10 days before its official release date. The sale represents a common fundraising strategy in the world of blockchain, where companies sell virtual coins that represent hard currency. Selling a whopping 20 million tokens at presale is a big deal, especially for a startup involved in such a nascent industry. This instance shows that regulators are not the only ones calling for greater transparency for the cannabis industry, consumers want it too.

From Seed to Sale

Coined the Tinder of weed, Budbo’s software utilizes a GPS-enabled tracking system. The app provides real-time data by tracking the total lifecycle of the product from seed to sale. Yet the real value lies in the technology’s cooperative-like design, which requires inputs from stakeholders along the entire value chain. In this way, users can stay up to date with the latest information concerning the marijuana marketplace, an important feature that would prove useful for cannabis traceability.

Insert Blockchain

My colleague, Johnathon de Villier, explains that blockchain technology does not operate under a central authority, which makes transactions arguably more secure and easier to validate. In addition to its decentralized architecture, blockchain provides full and permanent disclosure of all data entries, meaning market participants are equally informed. This would allow for government officials to track the supply and demand side of things, creating an appropriate regulatory space for a market plagued with inconsistencies. Cannabis businesses and consumers both stand to gain from a more defined policy space. Setting standards would push for higher value products and encourage companies to compete on a quality basis rather than quantity alone. However, the worth of any information system lies in the quality of its data. Cryptocurrency for the cannabis industry is particularly susceptible to the pitfalls of poor data as the network effect relies heavily on input from the cannabis community—blockchain in and of itself does not ensure reliability. While blockchain’s immutable ledger could provide some much-needed clarity for the businesses’ grayer areas, the novelty of blockchain continues to represent significant barriers to technological and institutional change.


US State Legislatures Are Pivoting to Blockchain—Will Energy Follow?

— March 1, 2018

Blockchain’s high profile in the news, particularly the billions of dollars pouring into Initial Coin Offering fundraisers (ICOs) and yet more cryptocurrency heists, is pressuring governments and policymakers globally to develop new laws and standards to guide the developing technology.

Policy changes are happening at all levels of government. China has banned ICOs and cryptocurrency exchanges but remains interested in commercializing the underlying technology. South Korea wants to ban cryptocurrency trading altogether. Even in regions where no new laws have passed, existing legislation designed to regulate centralized systems of energy supply or data privacy are barriers to blockchain development and scalability in many parts of the world.

Stakeholder consortia and other groups in the energy sector that see value in the architectures that support cryptocurrencies are working hard to convince utility commissions and local governments to adopt more blockchain-friendly policies. Some worry that too much regulation too soon could scare away developer talent and potentially lucrative new blockchain-based businesses.

In the US, States Are Moving First on Blockchain Regulations

While the US lags behind Europe and Asia Pacific in the number of energy-related blockchain projects, it is making some promising progress in the regulatory space. At least eight states are already tackling issues surrounding legal treatment of blockchain signatures and blockchain data. A few examples:

  • In California, Assembly Bill 2658 would formally recognize blockchain signatures and records as legal electronic records, paving the way for smart contracts
  • In Florida, House Bill 1357 ensures that blockchain smart contracts are treated with the same legal weight afforded to traditional contracts
  • In Arizona, House Bill 2417 adds blockchain databases to the list of electronic records with recognized legal status and enforceability
  • In Wyoming, the House approved two bills in 2018 that set standards for when digital currencies can be exempted from securities regulations (House Bill 70) and modifies regulations on financial transactions that would exempt digital currencies and allow exchanges to operate legally in the state (House Bill 19).

Progress Is Being Made in Unusual Places

What’s particularly interesting about the above list is the range (geographical and political) of states jostling for position in the market. The next question for the energy sector is how, or if, state-level regulations will translate into real change in these states’ energy markets. Utilities have been understandably bearish on blockchain so far, even in traditionally experimental states like New York and California.

Some of the states experimenting with blockchain regulations are usual suspects when it comes to energy market experimentation, but others are not. Will public utility commissions and regulatory authorities in the latter group take cues from their state governments, or will real progress require more pressure from the bottom up? Either way, the pressure will come.

States are often called laboratories of democracy, and they have the potential to become laboratories for blockchain as well. A range of approaches and experiments is the best way to develop best practices and determine a path forward for a rapidly evolving technology. Check out Navigant Research’s upcoming Utility Blockchain Applications report for more insight into blockchain’s growing role in the energy sector.


RenewableCOIN: A Cleaner, Useful Global Cryptocurrency

— February 20, 2018

Cryptocurrencies are reported to be contributing significantly to electric demand, accounting for approximately 48 TWh of demand globally according to a study by This is equivalent to the electric consumption of approximately 4.5 million US households. The unfortunate part of this is that this electric usage is being wasted in the pursuit of solving arbitrarily complex cryptographic puzzles, known as mining, for the sole purpose of artificially managing the increase of a cryptocurrency’s supply.

For example, Bitcoin and Ethereum, the two most popular cryptocurrencies, engage a proof of work process in which a growing chain of hashed content is further hashed at an increasing level of complexity. To solve the puzzle, a miner must apply a series of random numbers against a hashed blockchain. If the miner is successful in finding the right number sequence, the solution enters into the growing transaction log, which can then be quickly and efficiently verified by the bitcoin network as proof. The successful miner receives a set block award of coins. However, the mining process is energy intensive, requiring high powered mining equipment that runs round-the-clock at a significant energy cost.

The Pros and Cons of Blockchain

Blockchain technology is a sophisticated and secure digital transaction register that can store and confirm transactions. It was originally intended to solve real-world problems, not contribute to them. At the moment, energy is being used (wasted) for the purpose of mining cryptocurrencies of phantom value. Accordingly, an alternative, more appropriate use for blockchain technology is proposed—RenewableCOIN—a global, blockchain-based virtual currency and compliance mechanism that is intended to further enhance the transactability of what are currently known as renewable energy credits or RECs.

Incentivizing Renewable Energy Generation

RECs are issued in compliance jurisdictions for the purposes of tracking compliance against renewable energy procurement targets. Load serving entities (typically, your local utility) buy a set number of RECs that is equivalent to the target percentage of renewable energy set by a state mandate. Similarly, RECs are minted for every 1 MWh of renewable electric generation. The key difference is that it incentivizes the production of clean energy, not wasteful use. Accordingly, one Renewable Energy Coin (RenewableCOIN) could be awarded for each megawatt-hour of renewable generation.

State Standards Vary

Every state in the US has varying requirements with respect to which technologies comply with its own renewable portfolio standards (RPSs). For example, while wind and solar are widely accepted as a renewable resource, others also accept biofuels-based generation facilities which emit CO2 gases.

To keep track of whether a coin is jurisdictionally acceptable, coin denominations which specify where the coin was generated and under which RPS rules it qualifies are established for these ends. If a local market becomes oversaturated with renewable generation, which we certainly hope it does, then further generated coin may be converted into a global RenewableCOIN of global value.

Companies, individuals, and others who wish to meet their own renewable energy targets can purchase and retire coins in the global market through transfers into a special digital wallet which, once entered, will not permit further transfers and sales of the coin. Should the demand for the global coin increase, developers would be incentivized to mine the currency by installing more renewables anywhere in the world, contributing to the global reduction of greenhouse gases.

RenewableCOIN could serve as the global network for jurisdictional, compliance-based REC markets and a global market for RECs used to meet the needs of corporations and countries seeking to match energy consumption with renewable energy.


Cashing In on Blockchain

— January 23, 2018

The 325 initial coin offering (ICO) events in 2017, as tracked by, raised a combined $3.7 billion that the Securities and Exchange Commission is still working out how to define and regulate. Surging cryptocurrency market capital is drawing huge numbers of new players into the market—some are pioneers, some are sheep, and some are going to jail for using ICOs to make a quick buck.

It is not just ICOs and greenhorn startups that dangle blockchain as a shiny object in front of investors. The combination of uncertainty, novelty, and potential for wealth has created an environment where a finance firm’s stock price can grow by 2,000% just by acquiring a blockchain company that has yet to post revenue. put together a graphic showing how non-alcoholic beverage company, Long Island Ice Tea, boosted its stock value 183% in one day just by changing its name to Long Blockchain and by making vague promises about experimenting with the technology. Similarly, Kodak’s share prices doubled after it announced a blockchain-based photo licensing platform.

Something Is Rotten in the State of Blockchain

It is tempting to look at the explosion of blockchain projects in 2016 and 2017 as an encouraging sign that blockchain has earned its way into the mainstream as a powerful and innovative technology. Surely the diversity of companies announcing pilot currencies and proofs of concept can only be good for R&D, right?

The answer is that a yawning gap exists between announcing a project and treating the underlying technology seriously, just as there is a gap between announcing an ICO and having a real and sustainable product. Projects like this only help blockchain progress if the companies behind the announcements have a legitimate purpose beyond capitalizing on the world’s blockchain fever.

Where We Are Headed

It is possible—maybe even likely—that fraud, exploitation, and publicity stunts are a natural part of blockchain’s growing pains. And it is true that for the strong applications and business models to rise to the top, the weaker applications must drop out, one way or another.

We should not be afraid of projects and experiments failing. But is a cause for concern that blockchain has become a talisman, drawing in everyone from first-time investors to established companies, few of whom seem aware that most will fail. When the hype dies down, share values will drop with it—blockchain’s status as a magic word simply cannot last.

It is not just the opportunists that benefit from all the hype. Developers of serious blockchain solutions need to work doubly hard to separate themselves from the chaff, and they have an obligation not to let the investment flowing their way go to waste. The question is not whether the crash will come, but, as the creator of the joke turned billion dollar reality, Dogecoin, asks, “will there be enough magic left to build something real once it does?”


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