Oil and gas are transported globally by sea, rail, pipeline, and truck. You can check
Yuan Pay Group – Official Trading Bot to get an automated trading experience by accessing the best-in-class trading bots and strategies. While exchanging spot physical crude oil is not new, it offers an exciting opportunity for many small- to medium-sized producers to better manage their production and logistics.
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How these entities implement, manage and utilize blockchain technology is still an important subject. There is no central authority to manage shipping contracts, payment and settlement resulting in a high level of volatility for oil traders on the international markets and oil consumers of these commodities.
Bitcoin and the oil industry
This oil derivatives exchange allows buyers who want to hedge crude oil price volatility or close the gap between fluctuations in spot market prices to buy various derivatives (futures contracts), allowing future prices at various terms more predictably. In addition, since oil production is a global business, oil producers have many alternative trading options.
Furthermore, since the current medium of exchange is not used to transfer the intended value from producer to consumer, it leads to high currency exchange rates between various oil-producing countries. Since most of the world’s oil is produced by independent entities, it does not benefit from these high international currency exchange rates.
The future of blockchain seems to be on the rise since Bitcoin’s inception in 2009 when Satoshi Nakamoto first introduced blockchain technology at a central bank meeting in France. Therefore, it will be enjoyable to see how this new tool for trading oil and gas will evolve, especially in the next few years as it has been recently introduced.
Blockchain- The future of the oil industry
Several companies are developing application-specific blockchain technology to fit the energy industry’s needs. Starting with the most well-known but also one with profound connections to the oil industry, Blockchain companies are focused on building applications, products and technologies for blockchain that enables companies and individuals to understand, validate and oversee transactions more efficiently than ever before. As a result, it could lead to a new global energy market with lower costs and carbon emissions.
The oil market is facing two-fold problems: the cost of trading is high, and the trust in trading partners is low, due to which transparency and efficiency are low due to numerous intermediaries. The blockchain-based solution offers a peer-to-peer platform for all stakeholders involved in the oil transaction, from extraction to sale, that can help reduce operational costs and regulatory burden and increase trust in this process.
What are the pros of trading oil with bitcoin?
No Middlemen:
As mentioned above, there are no middlemen due to the application of distributed ledger technology which allows for direct communication and eliminates the need for clearing houses and a central counterparty. In addition, it means that the process is faster compared to conventional transaction banking.
Blockchain distributed ledger technology provides an accurate, verifiable and permanent record of transactions that everyone on the network can see. It could be a game changer for traders and miners trying to gain more freedom from large institutions and make the transaction stronger in terms of transparency and efficiency.
Future of oil trading with bitcoin
The oil market is one of the largest commodities markets in the world (right behind gold), making it a beautiful area for companies looking to develop blockchain-based applications. While the options mentioned above are still purely conceptual (the use of cryptocurrency in oil trading being a young subject), the potential positive impact on financial markets and institutional players is evident. Furthermore, this oil derivatives exchange does not have to be limited to crude oil and could apply to any commodity and other forms of blockchain distributed ledger technologies.
A PWC report predicts that blockchain technology will drastically reduce costs for consumers and businesses, increase transparency, and transform products and services beyond recognition. As with any new technology, adoption comes with some difficulties until it becomes an integrated component of our daily lives. Nevertheless, blockchain integration in the financial markets looks very promising and is inevitably coming soon.
Value:
Due to price volatility, oil producers cannot lock in the value of their production with currency. Trading oil with bitcoin will allow producers to hedge their profits on commodity price swings while still allowing them the freedom to convert their earnings into fiat. All thanks to its relative stability in comparison to other global currencies.
Energy:
The blockchain solution will enable efficient energy trading by simplifying trade settlement and compliance monitoring and allow for better-informed investments in energy assets. The best example is the Ethylene gas market, where the transparency of transactions is increased thanks to the blockchain.
Supply:
Traders demand increasing levels of information when investing in commodities markets, a significant factor contributing to the complexity of global energy trading. The blockchain solution will provide more accurate price expectations and help traders mitigate risk by entering into long-term contracts with strategic buyers. In addition, it will help increase predictability in pricing and facilitate better allocation between producers.
Trading on blockchain technology can help increase efficiency in various areas, including regulatory compliance, risk control, and transparency of operations.
