Multiple government entities, companies, and sectors contribute to the supply chain. You can check oilprofit.app to get an automated trading experience by accessing the best-in-class trading bots and trading strategies. The sheer scope of this industry is an almost overwhelming task for oil traders, who must make critical decisions in a rapid and complex environment.
Cryptocurrency has proven to be a valuable tool in this context because it offers traders an opportunity to work in the digital world with a new lens. However, cryptocurrency will need greater credibility as part of the supply chain process for blockchain-based technology like Bitcoin or Ethereum to become mainstream and widely adopted among corporations and governments.
This credibility will not just apply to financial institutions but also to oil traders due to their high level of influence on global oil markets. In a recent Reuters report, cryptocurrency is seriously considered a way to boost efficiency within the oil industry.
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How is it going so far?
So far, several companies have experimented with using blockchain technology in their supply chain. For example, the Commodity Customer Coalition (CCC), which includes Chevron, Shell and BP, conducted successful tests on blockchain technology. Let’s explore how using cryptocurrencies in oil trading can increase efficiency and productivity.
Using digital currency would also eliminate the risk of credit card fraud arising from erroneous or missing data entry by third parties within the payments process. On a larger scale, cryptocurrencies can be used to handle actual oil shipments, making it easier to track barrels and thus creating higher efficiencies within the supply chain, reduced shipping costs and faster turnaround times, all while reducing carbon emissions.
Visualization of a supply chain using blockchain technology:
By moving cryptocurrency headlong into the oil industry, supply chain participants can build a process that sits entirely on top of new blockchain technology and digital currencies. Using this model, oil traders would move into a fully digital world, with all decisions made by relying on a decentralized network of smart contracts.
Within this new digital ecosystem, supply chain participants would rely on a combination of many blockchain-based technologies. These include smart contracts that perform tasks within the supply chain under agreed-upon standards while making automatic payments to custodians. Blockchain represents considerable changes in how the oil industry operates and will thus require fundamental changes to be implemented if we wish to see crypto-funded trades operate optimally within it.
Technology is a significant factor in the adoption of blockchain, with many companies still deciding whether or not to invest large sums into their implementation. We need these sophisticated systems to optimize the entire business to be a viable option for oil traders that rely on efficiency and productivity.
On the supply side, a handful of mature Saudi Aramco suppliers have already implemented intelligent contracts and delivered positive results. These include Cervantes Energy and UTS Energy (two independent Saudi Aramco contractors). The use of smart contracts also enhances transparency within Saudi Aramco as every step of the process is recorded in the public Ethereum network.
Better contract management with cryptocurrencies:
Additionally, digital currency would eliminate the need for multiple payments between various parties within the supply chain. The current system requires dozens of payments from multiple suppliers and contracts with OPEC. It eats into profit margins and makes it hard for traders to monitor or even see exactly where their money is going. There is little reason to believe that these practices would change regardless of whether or not digital currency is used as a medium of exchange.
Transparency will be one of the key benefits of blockchain in oil trading. As more time and money are poured into researching and developing new forms of technology, this transparency will also increase. The market for oil trading has become more global and complex than ever before. Freezing the status quo will not bring anything positive. It could even backfire against traders, as demand to trade oil becomes more volatile with a decrease in transparency.
Using digital currency, traders can make more informed decisions within the supply chain process. So far, few have managed to streamline this process without relying on digital currency. Still, by doing so, traders can speed up their processes and significantly increase the efficiency of their business operations.
Negligible transaction fees for oil trades:
The use of cryptocurrencies will also allow oil traders to make payments with zero costs or nominal transaction fees. Currently, payments between various parties within the supply chain often carry significant transaction fees that can eat into profit margins. Total costs can reach as high as 10% of the value of a shipment.
Oil trader’s payment gateway with cryptocurrencies:
Traders could make free payments for goods and services without intermediaries (banks, credit card companies, etc.). It would be a massive boon for independent oil traders who rely on the spread between their buy and sell price to make money in such a volatile environment. Using cryptocurrency within this process would also mean that transactions will be secure from fraud or theft.