The traditional practices of including intermediaries, reaching out to different service providers and completing mountains of paperwork have been the status quo for commodity trading experts, commodity trading headhunters and professionals alike. However, with the advent of modern blockchain technology, there is no doubt that the industry can be enhanced by having greater transparency, security, and efficiency.
For UK Startups who want to shake things up in commodity trading, this presents a unique opportunity. But what is the practical difference and is it the perfect fit for new businesses in the market?
What is Blockchain?
A blockchain is a digital accounting book that keeps track of transactions in a safe yet clear manner. The most notable difference between a traditional database and a blockchain is that the latter relies on a widespread network, and every transaction must be approved by a number of people. This process validates each transaction, which greatly minimises the chances of fraud.
How Does Blockchain Actually Work?
To put it in basic terms, blockchain technology consists of cryptographic hashing and consensus mechanisms to validate transactions. Once a transaction has been made, it is then recorded onto the blockchain making it immutable, meaning no one can alter or delete it.
Being un-changeable by design allows commodities, provided to the market, along with the transactions done with them, to be verified with absolute trust and security.
What Challenges Do UK Startups In Commodity Trading?
Some of the fundamental issues present in the UK startups are fraudulent transactions, high transaction costs, or lack of transparency as well as dealing time. All these issues hamper not only operational efficiency but also market trust.
How Does Blockchain Enhance Transparency in Commodity Trading?
With blockchain, everyone involved in the transaction is able to see the dealings because all information is stored in a centralised location and is never deleted or altered. This builds a consistent view the of transaction history which leaves little to no room for disputes and gains a higher sense of trust among individuals.
Benefits of Blockchain Technology to UK Startup Businesses
Blockchain possesses multifunctional benefits for UK startups in the commodity trading sector, aiming for transparency, reduced operational costs, faster settlements, and improved supply chain processes. Through the use of smart contracts, which automate processes and eliminate intermediaries, trading becomes more efficient and reliable.
Increase Trust and Transparency
Fraud and counterfeit commodities in the trading industry pose a major challenge. Blockchain can aid startups in dealing with these challenges by lowering the risks involved. UK startups that deal with high valuables such as precious metals stand to benefit the most from blockchain technology, as it does not allow altering transaction records. This decentralised ledger technology significantly improves the chances of fraud prevention and reduces the overall concern.
Boosting Performance with Smart Contracts
Trade in commodities can be greatly advanced through the use of smart contracts. Having the ability to automate various aspects of trading, smart contracts can help boost overall performance in startups, all while mitigating issues such as delays, human error, and compliance checks. With no interactions needed, smart contracts directly self-execute contracts and operate as efficient tools for payments.
Compliance Issues
Blockchain technology has a range of benefits, however, it also has regulatory issues, especially in the UK where there are strict financial and trading laws. New ventures must adjust to the compliance hurdles including Anti-Money Laundering (AML) while making use of blockchain systems.
What Does The Future of Blockchain Look Like in Commodity Trading?
The use of blockchain in commodity trading is not widely accepted at the moment, but it has great potential. With the participation of further UK startups and established businesses, it is possible that the industry will head towards a decentralised, more secure, effective and efficient ecosystem of trading.
