Does Cannabis Insurance on the Blockchain make sense?

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This blog post is me thinking out loud about the potential of a cannabis insurance product on the blockchain. There are many challenges to offering an insurance product that pays claims in cryptocurrency. One of the most common concerns seems to be rooted in the fact that cryptocurrencies don’t have any fundamental value unlike US dollars or other government backed currencies. I’d like to tackle that misconception head on and then I’d like to explain the unique utility that cryptocurrencies have with regards to offering cannabis insurance. In closing I will make my case why I think certain technical features of cryptocurrencies matches the financial culture of cannabis.

The primary source of material that gave me this unique insight is an article authored by Perkins and Coie entitled Treatment of Bitcoin Under U.S. Property Law. This is a must read article for anyone who is serious about understanding the value of cryptocurrencies from the POV of our legal system. If you want to read my synopsis of the key elements it is located here.

Internet 101 — Why do internet domain names have value:

  1. Ownership of the most popular domain names is a rare commodity.
  2. The value of a domain name exists within the context of a technology people use everyday — the internet.
  3. If the internet was a brand, then domain names would be ownership shares of that brand.
  4. Desire for unique domain names pushes prices upward.
  5. Domain names only have value if market demand determines their value.
  6. As the value of the internet has grown over time so also the value of domain names.

Blockchain 101 — How is the value of cryptocurrency similar to the value of domain names:

  1. Ownership stake in the most popular cryptocurrencies is limited.
  2. Purchase of cryptocurrency by the public is largely speculation. This is similar to how in the dot.com era many domain names were purchased by speculators.
  3. Each cryptocurrency is its own unique brand and tokens are shares of ownership of that brand.
  4. Similar to how early internet culture in the mid 1990’s perceived the internet to have a future value, the public perceives blockchain technology as being useful in the future.
  5. Cryptocurrencies only have value if market demand determines their value.
  6. As the usefulness of apps which run on blockchain platforms grows over time, so also will the fundamental value of cryptocurrencies. This increase in fundamental value will look very similar to how domain names gained fundamental value over time as the internet became more relevant.

Why most blockchain projects do not make sense:

  1. Blockchain technologies are difficult for the general public to use.
  2. Existing payment technologies are convenient and familiar.
  3. Blockchain technologies are inconvenient and unfamiliar to people.
  4. In most cases they do not offer substantial advantages over existing financial services.

What utility does cryptocurrency have beyond traditional payment networks:

  1. Traditional payment systems are subject to centralized authority.
  2. Cryptocurrencies are free from an authority censoring transactions.
  3. Cryptocurrencies are free from an authority seizing funds.
  4. Transactions for goods or services are exempt from unfavorable regulations.

Why it makes sense to use the blockchain for cannabis insurance:

  1. Cannabis insurance for growers and dispensaries is not widely available.
  2. Federal regulations are a barrier to offering this type of insurance product.
  3. Funds within a traditional insurance product may be subject to federal seizure.
  4. Blockchains can hold funds such that they cannot be seized by federal regulators.
  5. In this case blockchain technology has utility beyond existing financial systems.

Conclusion:

  1. Cryptocurrency is a useful tool for avoiding unfavorable regulations.
  2. Unfavorable regulations are the primary reason why cannabis insurance is not a widely offered product.
  3. Blockchain technology’s decentralized nature is uniquely suited to offering cannabis insurance.
  4. The current value of cryptocurrencies is largely speculative which is a detractor for using them to pay claims.
  5. The benefits of having insurance backed by a speculative asset outweigh the detriments of not having insurance at all.
  6. The difficulties people face when attempting to use a blockchain application are substantial relative more familiar payment systems.
  7. Although technical difficulty is a detractor, the technology’s operation outside of traditional banking systems matches well with the culture of the cannabis community.

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