Q&A with Mike & Gabe
Can you tell us about Tokes and how it was created?
Tokes is the result of years of experience in blockchain, a desire to be involved in the legal cannabis industry, and the identification of blockchain as an excellent solution to the regulatory issues facing these businesses.
We genuinely believe that the cannabis space presents one of the best use-cases for blockchain in the developed world. While cryptocurrency has numerous merits beyond simply making payments, the reality is that people in the U.S. do not need another payment method. Between cash, cheque, credit card, Apple Pay, Android Pay, Venmo, Paypal, etc., there are plenty of options to choose from for the standard business. None of these are accessible to the cannabis industry.
While we’re advocates for many of the underlying principles of digital currencies, from it’s cypherpunk roots to the libertarian movements embodiment of it, the bottom line for tokes is that it provides a solution to a very real and present problem.
Why does cannabis need it’s own currency?
This largely comes down to the education and advocacy requirements in distributing this technology. Blockchain and cryptocurrency is still in its infancy, and is not entirely intuitive for a new user. It takes significant time to learn the features, uses, and security measures of digital currency. And in a system with no customer service hotline, the burden of making a catastrophic mistake would fall entirely on the user, which could mean a significant loss of assets.
As experienced users of this technology for many years, we have the knowledge necessary to incorporate cryptocurrency into businesses. One effective method to fund that activity is to launch an industry specific currency. Also, important to note, each currency is backed by code. As the creator of a digital currency, we have the ability to alter that code as needed to suit the requirements of our customers and supporters. Without that flexibility, we would be subject to the whims of whomever is in charge of managing a particular currency’s codebase.
In our case, there are also several advantages to using tokes versus something like Bitcoin. While we work to integrate both Bitcoin and tokes into the businesses we work with, tokes happens to be significantly faster and cheaper. There are all sorts of debates going on within bitcoin right now, so this is all subject to change, but at present fees on a bitcoin transaction are upwards of $3, opposed to $0.005 with tokes. Bitcoin transactions also take 10 minutes to settle on average, or 30 seconds on tokes.
First and foremost, the storage and transportation of physical cash is a huge security risk. It turns these businesses into targets for theft and violence, which has been well documented on numerous occasions. Additionally, from a legislative perspective, cash has low traceability and is relatively easy to subvert from the system.
Alternatively, cryptocurrencies are stored securely via complex cryptographic functions on a local digital currency ‘wallet’. To the extent that a user follows standard security measures: uses strong unique passwords, backs up wallet files, keeps wallets offline unless sending transactions, and ensures they don’t have viruses or malware on their computer, a cryptocurrency wallet is virtually impossible to break into. One particularly beneficial feature of cryptocurrency is a sort-of built in escrow without the need for a third party. Through what is called a multi-signature wallet, it’s possible to require more than one party to sign off on any individual transaction. This is great for businesses with more than one owner who want to prevent any individual partner from absconding with the totality of the funds in a digital currency wallet, as they can’t move them without all parties signing off. And finally, cryptocurrencies are not subject to asset seizure like bank accounts and custodial accounts, as there is no centralized service holding those assets.
There are several benefits from a transaction perspective as well. In the case of tokes, our transactions settle on the network in 30 seconds on average, and cost less than 1 cent per transaction regardless of the dollar value of the transaction. The business can completely avoid paying the standard 2–3% fee for processing that is typical on credit card networks. Additionally, transactions cannot be charged back to the merchant after the sale.
On the legislative and tax front, blockchain and cryptocurrency provides significantly higher transparency than a cash transaction. Every single transaction is recorded on a public ledger, reviewable and auditable by anyone with the desire to do so. The pseudo-anonymity is a result of the fact that wallet addresses are not directly associated with an individual or business. However, we foresee an environment where each dispensary or business has a registered wallet address, and all transactions that flow through that account will be directly reportable to the appropriate agencies.
What is blockchain technology and how does it work?
Blockchain describes a system with several unique components:
1. Decentralized — managed by the users based on consensus
2. Peer to peer — users that use the network also make the network run
3. Distributed — all users running a node store all of the history of the database
4. Trustless — a result of being decentralized, there is no need to put trust into a central authority to keep accurate records of balances. All records are held by all users, and therefore can be reconciled as the network communicates with other nodes
The term blockchain is derived from the way in which transactions are grouped together in batches (called blocks), and processed at specific intervals. As each block is processed, a piece of the code links, or chains, together a new set of transactions with the prior set of transactions, so that it can’t be altered at a later date. By ‘chaining’ these ‘blocks’ of data together, it makes it significantly more difficult to change any one block in the history without changing ALL subsequent block data as well.