Press Release

Can blockchain disrupt energy and commodity trading?

iCrowdNewswire   Feb 4, 2021  11:54 AM ET

When it comes to the technology revolution, blockchain technology is one of the key innovations that actually changed how today’s world looks. Blockchain is considered one of the most innovative technologies that are accompanied by plenty of advantages. Not having to be dependent on third parties, secured data, and quick transactions are just a few reasons why more and more people start to use blockchain.

However, creating such kind of unprecedented technology isn’t without risks and downsides. In fact, blockchain is believed to be disrupting a lot of energy and even more, it may cause some problems in commodity trading. So, is it really worth it to continue the growth of blockchain for the price of disrupting the energy sector and commodity trading?

Blockchain for Commodities

Nowadays digital revolution is actually happening, making our society transform mostly and adapt to new, digital challenges. Whether you like it or not, if you are reading this on a computer or phone, you are a part of this revolution. This big shift to digital documents takes a great part in the economic development of the world and brings new ideas and opportunities. Digitalization has affected almost every sector of the world and trading is no exception. While commodity trading was originally conducted via some traditional ways but now this distributed ledger technology may replace vast paper trails and create completely new ways for trading commodities.

Blockchain has already come to the center of attention of commodity trading giants. In fact, according to Martin Fraenkel, a Vice-Chairman of S&P Global Platts, this technology has interested big commodity companies such as Gunvor and Mercuria. However, these multinational commodity trading firms are not the only interesting names in this field, and British petroleum giant BP and Shell, as well, as leading banks such as Societe Generale and ING have already expressed interest in using blockchain.

Can blockchain advance commodity trading?

Considering the fact that blockchain also helps smaller firms to reduce the cost of trading, get involved in the trading market at a lower cost, and benefit more, it’s hard to certainly say that blockchain is really disrupting commodity trading. On the contrary, it could be even helping the entire trading market to become more transparent and more effective.

This is exactly what traders involved in Contract for Difference (CFD) prove. CFD trading is just one method of trading where two parties trade by engaging in a contract. These two parties are traders themselves and a broker. This gives traders opportunities to conduct a direct trade operation without opening a position on a certain market. There are many instruments for it but experienced traders usually know which one is the best platform for CFD trading. This mechanism has become so popular because it allows traders to hypothesize about rising and falling prices of global commodities. Considering the fact that these traders are conducting their trading operations directly, blockchain may make things easier for them because this ledger technology excludes the involvement of any third party. Therefore, the mechanism of blockchain coincides perfectly with the instruments of CFD traders and this is why they are aiming for getting blockchain technology involved in commodity trading.

Blockchain had a huge effect on the energy sector

While the effects of blockchain on commodity trading may not be as frightening, the same doesn’t apply to the energy sector. As American scientist, Roy Amara said, people tend to overestimate the effect of blockchain technology in the short run and underestimate the effect in the long run. This means nothing more than blockchain may cause serious problems in the long term. We can clearly see the effects of blockchain on the energy sector and commodity trading in this research. Scientists are trying hard to make people convinced that they can’t completely rely on this innovation.

Nowadays the entire energy and commodity sector try hard to switch completely to this digital technology and the main purpose for them is to reduce operational risks and costs. However, sometimes they forget to pay attention that using this technology may itself cost a lot. You won’t be surprised if we tell you that blockchain requires a lot of energy. Powering blockchain requires a great amount of energy with high energy costs. Therefore, creating cryptocurrencies is related to lots of energy costs. Making just one single Bitcoin transaction requires about 470 Kilowatt-hours. To make it more clear, this amount of energy is used to power an average American household for two weeks. Even more, this energy is energy generated from fossil fuels which promote global warming.

As you can see mining bitcoins and using blockchain technology in general, is very expensive. However, trading companies don’t seem to be paying enough attention to this fact, using blockchain technology as much, as they want. But needless to say that these companies will have to keep an eye on energy consumption and focus on carbon emissions in order to reduce the costs of blockchain.

To sum it all up, blockchain technology can contribute a lot to commodity trading. At a first glance, this digital technology helps trading firms reduce risks and gain more benefits but all these benefits can be just for the short term. However, there will definitely come a time when problems of energy consumption arise and this may be in the near future. This means that in the long term blockchain may disrupt the entire market and cause serious problems. This is why trading firms need to think twice before switching completely to digital technologies.