The global adoption of blockchain technology is rapidly impacting a number of important industries including the market for commodities. As blockchain systems are implemented across the mining and commodities sector they promise to deliver efficiencies and liquidity that has been previously unattainable. Not only will blockchain technology add value to the industry but through a symbiotic relationship, commodities will bring value to the market for blockchain technology.
“The circulation of commodities is the original precondition of the circulation of money” — Karl Marx
In previous articles, we have discussed how blockchain technology will improve efficiencies in mine logistics across the commodity supply chain. The valuable contributions that it will bring to commodities mining will improve efficiencies, reduce risk and minimise losses for operators. These enhancements will allow commodities to reach the market with less friction and should ultimately reduce the cost of commodities mining. If these cost savings are passed down the supply chain the impact will be felt in numerous industries and ultimately by the consumer.
Improving the efficiency of mining operations will be a driving force for the adoption of blockchain technology but there are also benefits to be derived from trading using blockchain-based systems. As commodities begin to be listed on blockchains for trading purposes they will bring value to the market capitalisation of the blockchain industry as a whole. This in turn will drive greater adoption of the technology and increase development budgets.
There are more than 100 commodity exchanges globally which trade in over 70 types of commodities. These exchanges make it possible to trade in futures contracts that use commodities as their underlying asset. There are two types of commodities traded around the world. Hard commodities are natural resources extracted from the planet such as precious metals, base metals and energy products. Soft commodities represent livestock and agricultural products such as soybeans and sugar. Blockchain technology is optimising the production and delivery of these commodities to the market but will also improve how these commodities are traded.
The global market capitalisation of cryptocurrencies is currently over $555 billion with the three largest coins being Bitcoin ($342 billion), Ethereum ($66 billion) and Ripple ($28 billion). It is expected that the values of these coins will grow but the introduction of commodities trading onto blockchains will drive significant liquidity and resources into the marketplace. This trend is mirrored by the growth of securities on blockchains. A recent HSBC bank report estimates that the value of the global market for securities is currently worth $178 trillion and the bank believes that by 2027 the market for digital securities will be worth $24 trillion. It is evident that the market for digital securities is potentially far larger than the market for cryptocurrencies, the same will be true for commodities.
Like cryptocurrencies commodities which are listed on digital exchanges can be continuously and globally traded. This opens the market to a greater volume of participants which increases liquidity. It will soon be possible for people with a smart device and internet connection to trade in global commodities as they become listed on blockchain-based exchanges. One of the biggest markets for these digital products is expected to be Asia and the Enegra Group is ideally positioned to capitalise on this growth. The benefits that blockchain technology will bring to the process of trading commodities are significant and we will cover them in our next article.
It is evident that the global market for commodities dwarfs the market for cryptocurrencies. Some estimates have put the market size for commodities above $20 trillion but it is hard to ascertain its true value. The largest coal miner in the world is currently BHP which has a market capitalisation of over $146 billion. If BHP were to list their equity on a blockchain they would be catapulted into the second-largest asset by market capitalisation on any blockchain. Listing commodities and corporate entities on blockchains vastly increase the size of the market for digital assets and as adoption increases, the budgets for technology development will grow.
A fascinating process is unfolding to reveal the symbiotic relationship that exists between the implementation of blockchain technology in commodities mining and mining’s potential to grow the market for blockchain-based products. This relationship will be optimised through the introduction of commodities trading on digital exchanges. Mining supply chains, commodities trading and the growth of the blockchain industry are interconnected. These synergies are powerful and bring strength to a burgeoning industry.
Enegra Group Ltd (LL15959) is a commodity trading company focused on resources in Southeast Asia. Equity in Enegra has been tokenised via the EGX security token. For enquiries related to the purchase of EGX please contact email@example.com.