Digital currencies backed with a reserving asset are usually named stablecoin. A cryptocurrency backed by the physical asset of oil and occasionally gas reserves is known as an oil-backed cryptocurrency. In essence, this entails tokenizing the reserve barrels of oil to increase the cryptocurrency’s credibility and price stability. Websites like bitqt-app provide a trading platform that allows you to begin digital currency trading in three steps. First, the oil used to back the currency is intended to combat the volatility that most cryptocurrencies share. The reserving asset in the case of stablecoins can be anything from a commodity to an actual currency.
The stablecoins backed by oil as their reserving asset are commonly referred to as commodity-collateralized assets. It’s a trillion-dollar market niche. The product that is exported the most globally is crude oil. Shipments of crude oil totaled $841.1 billion in 2017. (Just one year after the market collapse of 2016). Current market stability may make any oil-backed cryptocurrency a secure investment. Other commodities that can back a cryptocurrency or a stablecoin are gold, silver, and other precious elements.
These oil-backed stablecoins have made it easy for people to gain access to oil trading. A blockchain-based cryptocurrency platform is currently being developed by OPEC (Organization of the Petroleum Exporting Countries) member states and Russia. This goal is to upend the current oil trade and benefit exporters more. Oil trading with actual oil reserves is highly challenging, but with these coins, the accessibility of commodity trading has increased.
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The Petro and other oil-backed cryptocurrencies
Venezuela’s Petro is the most well-known oil-backed cryptocurrency, but for the wrong reasons. Oil-backed cryptocurrencies are little more than a clever way to get around international sanctions due to the myths and controversy surrounding this digital coin as well as the unsteady economy of the nation.
Venezuela’s asset management is entirely opaque, and neither the country’s oil reserves nor the existence of these tokenized barrels can be determined. Furthermore, it is challenging to determine the actual value of the Petro due to the ambiguous information provided by governmental sources.
Despite this, the Petro was unquestionably a game-changer, demonstrating the need for asset-backed cryptocurrencies in the market. More trustworthy oil-backed cryptocurrencies became possible due to Maduro’s desperate attempt to liberate Venezuela from US control. For instance, OilCoin complies with US laws and standards for digital currencies and is backed by barrels of oil. The PetroDollar (PDX) is another oil-backed cryptocurrency governed by US law.
An energy-backed cryptocurrency called Bilur Energy is available in the UK. Additionally, the cost of oil barrels is used to determine their value. State backing is absent for these three oil-backed cryptocurrencies. Some OPEC members are prepared to overcome this drawback by developing national cryptocurrencies backed by oil and gas reserves. Some top oil exporters are considering this choice because of Maduro’s vision.
Despite not being an OPEC member, Russia is still the second-largest oil exporter in the world. In addition, Russia is currently preparing to introduce Neft-Coin, a cryptocurrency backed by oil. Along with the obvious financial advantages, such a move might aid the nation in thwarting US market influence.
The Russian oil-backed cryptocurrency would aid traders in avoiding US sanctions and strengthen ties with importers who prefer doing business with countries other than the US dollar, like China and India.
The Neft-Coin could also be exchanged for crypto-rubles before becoming rubles. As a result, Russian businesses would face fewer obstacles as they wouldn’t need to trade oil in dollars.
Possible consequences on the global oil market
Crude oil has historically been valued in US dollars, creating a link between this asset and the greenback. In addition, it gave rise to the term “petrodollar,” which refers to any US dollar paid to nations that export oil in exchange for oil.
The petrodollar might be replaced by oil-backed cryptocurrencies, which would lessen the US’s influence in the oil market. Digital coins might offer a way around the current financial restrictions that the US uses to dominate the oil market and, in turn, the nations that disagree with their view of world politics.
Additionally, small oil and gas companies that find it difficult to compete in the global market may gain from a decentralized blockchain system. Additionally, it might result in the development of secondary markets for issuing corporate debt and equity. Oil reserves in smaller nations could help those nations become more financially independent from the US.
However, using physical reserves to back the currency exposes you to price sensitivity risks. In Venezuela and other nations that export oil, the amount of oil and gas reserves is difficult to estimate. The cultural differences between exporting nations pose another issue that could delay the adoption of cryptocurrencies in the oil trade. The nation’s credibility would ultimately determine whether each oil-backed cryptocurrency was successful.
Last but not least
The security of blockchains needs to be fixed. There is a higher risk of attacks on the crypto-based platforms that any of these countries set up as countries start beginning national currencies. And the effects could be just as disastrous as an oil spill.
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