The Role Of Blockchain In Commodity Trading
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The Role Of Blockchain In Commodity Trading

written by John Murphy | April 4, 2023

Commodity trading has a lot of scratches and bumps to get through from buyer to seller. Since global traffic has increased significantly over the past decades, so does the rules and regulations to transport these commodities among different geographies. One of the biggest hurdles is the transfer between those involved in global trade; cryptocurrency takes care of this tricky part. The role of blockchain in commodity trading has been increasing ever since its inception.

Key Takeaways

  • Blockchain technology significantly redefines commodity trading by offering unique features like transparency, quick payments, and automation.
  • Commodity trading has increased to untapped markets after the introduction of cryptocurrencies.
  • Small traders can drive big fish to accept blockchain technology by providing cost-effective commodities.

Since commodities are known as statutes, hence classification varies by jurisdiction. It includes physical goods like agriculture products, natural resources, or currencies and contracts for future delivery.

Since traditional banking systems mainly support global payments, blockchain technology redefines these transactions. Blockchain commodity trading is the future of international trade.

So let us study in detail the role of blockchain in commodity trading.

Present Frictions With Commodity Trading

Although the world developed means to fast trading options over the past centuries by adopting air, sea, and rail routes to fasten global trade, numerous frictions are causing business delays. 

Let us look at the significant shortcomings of the traditional commodity trading market.

  • Complicated Processes

Global commodity trade is not everybody’s cake, as the processes involve numerous authorities, intermediaries, and paperwork. Only a well-articulated trader can fulfill these requirements while leaving small but great potential out.

  • High Transaction Costs

Since global trade involves so many intermediaries, making up transactions costly.

  • Risk

One of the most considerable risks associated with global trade is the risk of payment on both buyer’s and seller’s part. Although the traditional banking system supports minimizing this risk, it persists.

In short, traditional commodity trading needs a revolution and new ways to reduce costs and risks simultaneously. Therefore, blockchain commodity trading is the best alternative to achieve this target.

Blockchain Commodity Trading

With all its other benefits, blockchain technology is greatly helping transform global commodity trading. Since it is decentralized, it is proving beneficial to reduce transaction costs. Likewise, it has diminished payment settlement time between parties located in different localities across the globe.

So, we must uphold the role of blockchain in commodity trading, as it is changing the trading spectrum. With many positives on offer by cryptocurrency and blockchain, many traders have already started accepting them to transfer value.

Benefits of Commodity Trading Blockchain

Blockchain technology is making global trade easy by offering solutions to problems the traditional financial system poses. The widespread adoption of cryptocurrencies is making traders’ lives more accessible, and by the look of it, it will stay here.

Here are a few benefits that blockchain is offering to smooth global trade.

  • Transparency

Blockchain has the potential to drive doubts away from the trading arena. Transparency is at the core of blockchain technology, thus wiping away doubts about mishappening. Since the information does not go to a single database, the decentralized nature of blockchain technology ensures a high level of transparency. 

  • Fast Transactions

Global payments are one of the dilemmas of the traditional payment system since banks require a lot of paperwork and time to transfer amounts between two countries. On the contrary, traders can send cryptocurrencies without involving any intermediaries. 

  • Sustainability

Post-pandemic organizations are more concerned about sustainability than ever, while blockchain technology offers sustainability. Since blockchain has a high level of authentication capabilities, thus boosting its adoption chances.

  • Wider Participation

Traditional global trade is limited to traders who can manage substantial credit lines. At the same time, cryptocurrency offers broader participation since anyone can use it to transact without worrying about involving a bank or other financial institute. In short, blockchain has democratized the market.

  • Increased Demand 

Since blockchain offers high transparency, low costs broader participation, thus commodity demand is bound to rise. Hence, global trade will increase as more users start adopting cryptocurrency. It will push the global economy further up and help broader populations to benefit from a more significant market full of opportunities.

 Path To Adoption

The path to adopting blockchain commodity trading comes from funders who want to reduce back-office costs. The market expects these traders and unbanked communities to take the lead and make penetration for adopting blockchain for international trade.

In addition, larger organizations worrying about ESG will contact these smaller suppliers, who will prove more cost-effective, which will further expand blockchain. 

So, the key to the broader acceptability of blockchain technology is mainly dependent on small businesses looking to cut trading costs.

Frequently Asked Questions

Is blockchain an attractive option for commodity trading?

Since traceability is easy with blockchain technology, thus it becomes an attractive option for commodity trading as it helps to avoid scamming.

What is a commodity in blockchain?

A commodity is a tradable or fungible asset representing a utility, commodity, or contract in the virtual or real-world through tokens over a blockchain network.

Why is blockchain important in commodity training?

Blockchain is vital in commodity training in numerous ways, for instance.

  • Automation
  • Secure
  • Fast payments
  • Decentralized 
  • Mutual recognition 

Parting Thoughts

The role of blockchain in commodity trading is so rich that it is making heads turn since traditional finance has its share of shortcoming; where cryptocurrency is filling the shoes and thus have become a go-to option for commodity trading.

As blockchain is offering transparency, fast, and secure international that too without any intermediary’s involvement, it is becoming a favorite option for global traders. Moreover, the back-office cost is significant hindsight for small traders as they look for more cost-effective ways of proceeding with their commodity trade. Blockchain technology is again there to help them out.

Furthermore, blockchain technology is equally helpful for unbanked regions since those traders can now explore global marketing and use cryptocurrencies as a means of settlement. 

We hope blockchain commodity trading keeps improving global trade as it is needed to fuel the global economy.