Tokenizing Commodities: Why do it?

Emirex Group | Dec 12, 2019 12:43:50 PM


Why tokenize commodities?

For thousands of years, commodities, such as precious metals, food, and energy, were serving humanity as instruments of preservation of wealth.

However, commodity trading has always been paper-heavy and required complicated logistics. Due to the involvement of numerous parties in the trading process, trust issues are inevitable. The process of storage and shipping of commodities involves a risk of loss of a significant percentage of the product due to theft or bad storage.  The immutable system of blockchain provides an opportunity to change the way how commodities are registered, tracked, and traded.


What kinds of commodities can be tokenised?

Most commodities qualify as fungible assets, which means that each unit can be replaced or interchanged by an identical unit of the same kind.

For example, it is possible to replace a 1kg gold bar with another gold bar of the same purity or replace one grain of Basmati rice with another grain of the same type. It is very easy to divide these assets into units, and precisely due to that, they, are considered one of the easiest assets to tokenise.

Precious stones, however, are non-fungible commodities, as each unit is unique. In reality, the stones are not normally broken into pieces (although, sometimes this happens, too). Their value depends on carat weight, purity and so on, and most traders prefer to keep the high value of larger stones.


Tokenisation of non-fungible goods, such as precious stones, allows selling the unique stones in digitals portions, i.e. tokens. Moreover, one unique diamond worth $10 million can be owned by a group of people in a very easy and secure way, as their own will be cryptographically recorded and stored on the blockchain.  With the capabilities of blockchain, buying and selling bits and pieces of unique diamonds is very easy and accessible by anyone, in any part of the world.

This also means that the sellers of tokenised commodities are able to reach a wider number of potential buyers and perform all transactions in a swift & verifiable manner. Trust issues, heavy paperwork, and intermediaries (together with their fees) are eliminated once and for all.


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