Blockchain will be the Next Big Thing. The technology behind the Bitcoin cryptocurrency is still in its infancy, like the start of the Internet in the early 1990s, but it has huge potential. Blockchain is also opening up new horizons for the Dutch cannabis industry.
If you see hundreds of young people sitting in a poorly lit industrial building, staring at their laptop screens until late at night, and living off coffee and noodles from paper cups, then it is difficult for an onlooker to evaluate how relevant this image really is. “Blockchaingers”, as these young designers, software developers and database experts call themselves, are not meeting up to enjoy themselves, they are meeting up in order to change the world.
700 of them came together in April 2018 for the second of the biggest blockchain hackathon in the world. For four days and four nights, the Dutch city of Groningen became the global epicentre of blockchain prototyping. Over 60 teams, together with their future customers, were developing prototype solutions to global challenges – and doing it with the official support of the government. What this yielded were unconventional but very practical ways to create solutions. The best of them were awarded prizes.
One of the winners was the team from the TNO Research Institute, which took first place in the “public security” category. The five person project team wants to use blockchain technology to create better transparency in the Dutch cannabis industry, where it could be used to solve problems that have caused friction for decades.
What is blockchain anyway?
No other technology is as talked about as blockchain technology at present. It was invented for the Bitcoin virtual currency, but its potential goes much further. Blockchain could revolutionise the music industry, replace notaries and fight corruption. Anywhere that transparency and traceability are required, this new technology can open up interesting avenues. Want an example? A company in London recently registered 1.6 million diamonds in a blockchain. Specific attributes were recorded, such as origin, colour and number of carats. If it were possible to record all diamonds in this blockchain in future, it would cut the lifeblood of sales of fakes and hot diamonds.
Blockchain literally means a chain made up of blocks. The blocks themselves are individual data records that are chained together to form the blockchain. The chronological sequence of the blocks is important, because each block contains a kind of checksum from the preceding block. You can visualise the blockchain as being a giant logbook. All the transactions between the participating parties are recorded meticulously. From a technical point of view, the blockchain is a decentralised database. Any party can download it and inspect the entire transaction history, viewing the complete logbook. The blockchain automatically updates itself on all computers. It is impossible in practice to change any entries retroactively. That is why this new technology is regarded as secure.
How the blockchain could transform the Dutch cannabis industry
The Netherlands is famous for being open-minded and pragmatic. These two fundamental values have been at the core of Dutch politics and society throughout history. By distinguishing between soft and hard drugs, the Netherlands made international headlines over 40 years ago. Since then, possession of and dealing in cannabis has been tolerated within legally defined guidelines. Coffeeshops can sell cannabis, but they still have to purchase their stocks on the black market. To date, the policy has not figured out a solution to this “backdoor problem”. Now, the government is making a new, daring attempt. It has given the go-ahead for a four-year experiment, which is supposed to shift the focus to the legal cultivation and sale of cannabis. The question that arises is: how can maximum transparency be created for all participants, in order to guarantee consumers’ health and safety? The answer: a cannabis blockchain.
All the cannabis that is sold in coffeeshops would become traceable, thanks to this new technology. Those who meet the official guidelines can register as growers in the blockchain. Registered growers are the first link in the chain. For every delivery of cannabis, certain values are recorded, such as the variety of cannabis, weight, date and batch code. An independent tester attaches a test report to the batch, which is sealed during transport. A transporter scans the load and delivers it to the coffeeshop. They record all incoming deliveries in the blockchain, before they are sold on to end users.
There is one obvious advantage to this solution: the blockchain makes every single step that the cannabis passes through visible – from production and processing, and testing and transport, to its sale. High transparency and traceability of goods benefits everyone involved in the market, after all.
Data protection and confidence are key factors for cannabis blockchain success
When developing the cannabis blockchain, the TNO team also thought about the privacy of consumers. Arnout de Vries, project manager, had the following to say on this subject:
“As a consumer, you need to be careful what information you surrender. In this digital age you should never supply third parties with more information than is absolutely necessary. The law states that visitors to coffee shops must be at least 18 years old. There are no other rules for visitors to coffee shops. By developing an identification app that only provides the information whether the customer is old enough to go into the shop, their privacy is protected to the maximum.”
The key phrase “data protection” could be a significant factor in the success or failure of the implementation of the cannabis blockchain. Let’s step back a few years. With the so called “Wietpas”, the Dutch provinces close to the borders wanted to stem the tidal wave of drug-based tourism. Only those who were registered as Dutch citizens were allowed to buy cannabis in a coffee shop. Something that sounds sensible in theory, turned out in practice to be a sad failure. After all, who exactly wants to officially inform the authorities that they consume drugs?
For any blockchain, you have to ask right up front what information will be held in the database, who can add to this information and who will effectively have access to this information. That is why all parties sign up to “smart contracts”. These intelligent contracts are intended to ensure that the jointly defined rules are adhered to for every single transaction. This illustrates one of the great benefits of blockchain technology. Many transactions can be processed more affordably, because the system takes over the costs of control that currently are incurred by parties such as governments, banks and notaries. To put it another way: the blockchain replaces the middleman.
Whether or not the cannabis blockchain works will depend on the trust of those involved. After all, it can only succeed when all parties, i.e. the growers, coffeeshops, consumers and authorities, believe in the new system and work closely together. This is where I have my doubts.
The Dutch cannabis industry has always worked in the grey area between legality and illegality. The industry has a habit of seeking out and exploiting loopholes in legislation. Working together is the exception here and not the rule. This does not mean that mutual trust is unimportant, however. Trust has always played an important part in the industry, but who trusts whom is something that has grown over many years and is often based on gut feelings. As such, we first need some proof that the time is ripe for a new digital technology, which can only work if everyone involved backs it wholeheartedly.
- Disclaimer:While every effort has been made to ensure the accuracy of this article, it is not intended to provide legal advice, as individual situations will differ and should be discussed with an expert and/or lawyer.