With such a complex and unique traditional supply chain ecosystem, all companies must adopt blockchain systems to achieve the transparency and efficiency that this technology can only facilitate. The below-mentioned portion will examine the risks and rewards of blockchain in the oil industry. It will correspondingly explore how adopting blockchain can provide a competitive advantage in the industry, from infrastructure costs to visibility. If you want to trade oil, there are different reliable trading platforms such as WWW.ÖL-PROFIT.DE
Rewards Associated with the early adoption of blockchain in the oil industry
- The oil industry is one of the most complex industries for international trade because it has a high quantity of goods traded across many borders – including goods with different measurement standards, currencies, contracts, statutes and regulations. As a result, it introduces many opportunities for fraud at every stage, from fake certificates to adulterated supply chains.
- blockchain technology is designed to create an unalterable digital record of a transaction or event and cannot be altered, allowing the system to function as intended. It can eliminate intermediary parties, such as third-party traders who open and close contracts. With such exchanges reduced to one between two parties who trade directly via the blockchain ledger, transparency will transfer from the public sector to a whole level of trust in goods and services.
An example of this is a company trading goods with other companies via intermediaries worldwide would have fraudulent activities caught by authorities due to third-party involvement in their transactions.
- Both government and investors are focusing on how blockchain technology can be used in the energy industry, with oil and gas being a significant market. Blockchain can enhance trust between all parties of the chain, which will reduce risks and increase returns.
- Using intelligent contracts written in code in blockchains will ease many aspects of supply-chain management, such as auditing and reporting, financial hedging, error reduction, asset provenance and reconciliation timeframes.
- Liquidity will be increased due to decreased operations and increased blockchain security. In addition, blockchain will increase trust between parties, reducing the cost for traders and thus increasing the number of trades.
- Blockchain can increase transparency in terms of movement in commodity markets – with all transactions being visible on a blockchain, an investor would be able to see how much money has flowed into where the commodity is being traded from. It would allow for more efficient market development leading to more transparent supply chains and ultimately more profits for investors. In addition, this will reduce the chance for fraud, thereby increasing trust between all involved parties.
- Because the blockchain is an open-source technology, blockchain will provide a level playing field for all participants in business and reduce the risk of monopolies and centralization of powers. It will also lead to lower process costs by decreasing intermediation fees and enable new market entrants to avoid fees, which generally amount to up to 30% of revenue.
Risks associated with the early adoption of blockchain in the oil industry
- Moving to a new technology such as blockchain can be a long and expensive process, especially in the oil industry. The lack of a blockchain suitably built for such use cases in the oil industry could cause a company to miss opportunities for cost savings by reducing the number of intermediary parties involved in a trade contract. In addition, loss of opportunity for cost savings due to lack of understanding could result in greater exposure to fraud than relying on traditional systems.
- There is a possibility that due to increased transparency, regulators will be able to trace the supply chain back further than initially planned, thus opening users up to fraud accusations and possible legal action by authorities who may still not fully understand how blockchains work or what data is kept on them.
- Blockchain may not be as secure as claimed: if the hashing algorithm is broken, a hacker could change details of the ledger, and fraudsters may be able to claim stolen data from a compromised system. It can cause severe financial harm to all parties involved in the transaction or supply chain.
- If the technology is not implemented correctly, it can cause problems for regulators, who are still yet to understand this technology fully and will therefore have trouble assessing how blockchain will affect them; this will lead to potential added regulatory risk for both public and private sectors involved with blockchain tech.
- Regulatory uncertainty will cause hesitation when implementing new technology. Blockchain-based systems are especially susceptible to regulation due to the number of private entities involved in the chain and the fact that data is held in a private and not centralized database, which causes extra regulatory compliance duties. In addition, a lack of understanding of how regulations will apply to blockchain systems means companies may choose not to implement it, reducing efficiency.
The rewards of utilizing blockchain in the oil trading industry are more as compared to the risks; all the more, by improving technical aspects and increasing the adoption of blockchain technology, developers can efficiently mitigate these risks.