Canada is legalizing marijuana and leaving it up to provincial governments to regulate its sale and distribution. The government of British Columbia asked for comments on the best way to manage the province's marijuana market. In a regulatory filing, IBM argued that the province should use a blockchain to manage its legal marijuana market.

That is probably not a sentence that you ever expected to read. But it's not as crazy as it sounds.

IBM helped build a different kind of blockchain

The idea of a blockchain originated with Bitcoin. The Bitcoin blockchain is the public, shared ledger that keeps track of payments in the Bitcoin network. The volatility of Bitcoin's virtual currency has hampered its mainstream adoption as a payment network. But companies quickly realized that the core concept of the blockchain could be repurposed for other applications.

IBM was one of the leaders in the creation of Hyperledger, an open source blockchain project designed for use by enterprise customers. The Bitcoin network is designed to be fully public and decentralized, so it uses an elaborate (and energy-inefficient) consensus mechanism to ensure malicious network members can't tamper with the ledger or sabotage the network.

By contrast, IBM is interested in building private blockchains where network participants—like banks or supply chain partners—are known to one another and unlikely to launch outright attacks. So Hyperledger uses more lightweight mechanisms, like lotteries or majority voting, to achieve consensus on the network. These mechanisms consume fewer resources and allow faster and more predictable clearing of transactions.

The goal here is to build a distributed database that's maintained by a peer-to-peer network of companies involved in some kind of shared marketplace. Every company manages and maintains its own copy of the shared ledger, so there are no worries about the database becoming a single point of failure—or about after-the-fact tampering.

IBM argues that this kind of architecture leads to more open and transparent markets and supply chains. If everyone is using the same blockchain-based database to track their transactions, then more data is available more quickly to more market participants. In theory, that can eliminate inefficiencies that occur because different companies have incompatible databases and can't easily share information.

For example, Walmart is running a pilot program that would use an IBM-designed blockchain to manage its grocery supply chain. The idea is that everyone involved in supplying groceries to Walmart—overseas farmers, international shipping companies, American wholesalers, and so forth—will use the same blockchain-based system to record the sale of goods that are destined for Walmart's stores. They'll store metadata about things like safety inspections and expiration dates in the blockchain as well.

Then if Walmart has to investigate a potential safety problem, it can go to the blockchain and see the complete transaction history that brought a particular head of lettuce or package of sausages into a Walmart store. In theory, that will allow improved quality control and faster identification and removal of tainted groceries.

Of course, it's not obvious how much work the blockchain part of the system is doing here. Another option would be for Walmart to build a conventional database, expose APIs for suppliers to submit transaction information, and then grant suppliers access to relevant portions of the database. The hardest part seems to be getting thousands of upstream suppliers to adopt a standardized way of recording the information.

But a blockchain approach does have some important advantages. Blockchain transactions can be asynchronous—individual buyers and sellers can make transactions directly with each other without having to phone home to a centralized database. The Hyperledger stack also offers cryptographic features that can limit one vendor from snooping on another vendor's transactions—something that might be more difficult to get right with a centralized database.

Hyperledger can also be combined with Internet-of-things technology, attaching a tracking device to products in transit and automatically generating data about their progress as they move through the supply chain.

Beyond those technical advantages, the buzzy word "blockchain" could prove to have talismanic power. Building a conventional database to track items in your supply chain might not be sexy enough to make it to the top of a company's IT priority list. Building a blockchain to track items in your supply chain might have more juice. At least, that seems to be what IBM is betting on.

How a blockchain could help manage a marijuana supply chain

In a sense, Canadian provinces are facing the same kind of supply chain problem that Walmart is. Canada is legalizing marijuana, but provinces still want to keep a tight rein over where, when, and how marijuana is distributed. And IBM wants to help British Columbia do for pot what Walmart is trying to do for groceries.

"Blockchain is an ideal mechanism in which BC can transparently capture the history of cannabis through the entire supply chain, ultimately ensuring consumer safety while exerting regulatory control," IBM writes.

In IBM's vision, "each party in the business network"—presumably meaning pot growers, processors, distributors, and retail locations—"is provided its own ledger copy showing all transactions." The shared ledger of marijuana transactions would be available for anyone with the right credentials to see, allowing regulators to conduct spot audits of every marijuana transaction in the province. Marijuana retailers would be able to identify which farm a particular batch of marijuana came from and what safety inspections were conducted along the way.

One obvious question here is whether it makes sense for hundreds of marijuana businesses in BC to be running blockchain software. Presumably, this is where IBM would come in, either helping marijuana businesses to set up their own blockchain nodes or giving them access to blockchain software based in IBM's cloud.