If Bitcoin was the word of the year for 2017, then blockchain is certainly on track to take the prize in 2018. One thing that both the cannabis industry and the blockchain industry have in common is that they are both changing rapidly while becoming more mainstream.

It’s important to understand how blockchain works to grasp why the technology is being utilized within various industries and why it makes a great fit for the cannabis industry.

Blockchain is the underlying technology powering Bitcoin — that’s how it all started. In fact, blockchain is nothing more than a digital ledger of transactions stored in "blocks." Miners use high-end computational chips to process transactions and add them to new blocks, though some chains don’t use miners. Nodes verify all transactions and ensure that all blockchain rules are met. For example, if somebody tries to send the same funds twice, the transaction will be voided and ignored.

So, at its core, blockchain represents a digital database and ledger of information which is decentralized and transparent. The Ethereum blockchain takes things a step further, allowing developers to create smart contracts on the platform. These smart contracts can be used to store data or self-execute if preset conditions are met. The possible applications for smart contracts are extensive, from notarization and healthcare to real estate purchases. The common elements of such smart contracts are that costs can be reduced, can function autonomously, are trustless and can execute 100 percent as programmed to.

Why the Cannabis Industry Needs a Blockchain-Based Solution

Cannabis is still struggling to find its legitimate place within society in many countries and regions, and the U.S. is no exception. While the substance may be legal for consumption in many states, the federal government still classifies cannabis as an illegal substance.

As a result of current legislation, the industry faces numerous problems on a day-to-day basis. It’s difficult for companies and contractors within the industry to rent a desk or office, as many landlords are reluctant to take on tenant working within an industry that is still federally illegal. Moreover, opening a bank account for your business is impossible if you work with cannabis, creating more problems as a result. If one cannot bank, they must function on a cash basis, which many dispensaries and growers do. Having to do so creates a magnitude of bookkeeping, documentation and auditing issues.

And to top this all off, there are very limited guidelines provided by the government for the cultivation and sale of cannabis. This makes it extremely difficult for companies within the industry to find vendors and partners they can trust. If you are buying a batch of cannabis from a harvest, you may end up paying for one thing and getting something entirely different. The consequences that arise from this can be harmful — a CBD patient could potentially end up taking THC, for example. Though more commonly, there is a general lack of trust in the industry as well as questionable data surrounding quality and compliance.

Interlinking the Supply Chain With Blockchain

A company selling any product should be able to track their purchase all the back to its first point of origin. There are practices in place for this, such as GMP (Good Manufacturing Practice) for the pharmaceutical industry. However, the cannabis industry still has a way to go. The fact that this industry is new to regulation and acceptance is also a blessing, in the sense that it should be easier to adopt new best practices and technology.

Blockchain-based data solutions work much the same as a traditional database in the sense that you can store all data, strings and variables. The differentiating factor is that anything stored there is trustless and immutable. Once a smart contract is released to the blockchain, the information it holds cannot ever be altered at a later stage.

Blockchain also furthers the opportunity of quality control, as people are able to know what they are really buying. Laboratories can act as a controlling factor within the chain, and dispensaries can send samples of their purchased product to a lab. The lab will test the product and compare the results to the farmer’s input on raw materials, seeds, PH levels and other parameters. If it is the case that the farmer input false data or lied about mold on the harvest, the lab outcome would be linked to the smart contract of the entire batch.

Ultimately, blockchain provides the industry with the tech and the means of reaching a higher standard of transparency, validity, trust and innovation. Even the government should have nothing with which to find fault, as it would have full access to such a system and black-market sales would be blocked.

The cannabis industry is a prime candidate to pioneer this revolutionized supply chain tracking method — and I’m confident that plenty of industries will follow suit.

Jessica VerSteeg is the CEO of blockchain platform PARAGON.