The inception of the first cryptocurrency, Bitcoin, in 2009, was faced with a lot of criticism. Many connoisseurs of economics deemed it as neither a commodity nor currency. Since most global bankers and investors did not comprehend what crypto entails, they viewed it as a mere bubble that would soon burst; thus warning investors against staking their cash into the cryptocurrency venture.
Two decades down the line and there is a shift in opinions by most archetypal economics, banking, and investing mavens regarding virtual currencies. Cryptocurrencies, engineered through blockchain technology, have presented a new financial world full of transformative possibilities. One such sea change is the tokenization of commodities which we will explore in detail in the unfolding paragraphs.
What are commodity-linked tokens?
For such a long time, the lack of stability in the value of cryptocurrencies presented a significant hindrance to the wide adoption of virtual currencies. Over time, developers and investors turned the instability to opportunity through the introduction of commodity-linked tokens into the crypto space.
If you are one of those investors who do not enjoy the adrenaline rush associated with the volatile value of mainstream cryptos such as Bitcoin, the commodity-linked tokens are your go-to option. These are cryptocurrencies whose values are anchored on traditional products or items such as gold, oil, silver, natural gas, and much more.
There is no limitation as to which commodity a token can be based on save for its advantage or disadvantage. Virtual currencies backed by products are less volatile and enjoy more liquidity in the exchange market.
The minimum investment has to equal the current market price of a commodity
A quick glimpse at any Crypto / Commodities Trading platform and you will notice that the value of any given commodity-backed cryptocurrencies equals the prevailing rate of the traditional product or item. This means that the value of the digital coin cannot rise above or fall below that of the item which it is based on.
For instance, suppose you have invested in DigixDAO token whose value is backed by bars of gold. If the costs of other cryptocurrencies are surging through the roof, but gold bars are doing poorly, DGX will sell at the prevailing rate of gold bars.
Commodity-linked tokens have a built-in stop loss
The sole purpose of venturing into any investment opportunity is accruing as many profits as possible while mitigating or avoiding losses. At the same time, as an investor, it is humanly impossible to proactively monitor how the commodity market is performing at all times and daily. You could be tired hence unwinding from fatigue on vacation, or committed to other personal engagements.
Consequently, you can leverage on stop-loss orders to cater to short or long-term fluctuations in the prices of commodity-linked tokens. A stop-loss order is an order that you place to buy or sell your commodity-based tokens when the price hits a specific target.
Commodity-linked tokens aim to address trust issues, inefficiencies, and complexity of transactions in commodity markets
Since time immemorial, the commodity market has been marred with various challenges with the chief of them being trust issues, inefficiencies, and difficulties in transactions. Commodity-based cryptos are powered by blockchain technology which addresses most of the existing challenges in the commodity marketplaces.
For example, the decentralized nature of the blockchain that involves multiple parties in the verification of transactions solves trusts issues since no party can hold another at ransom. On a different note, the blockchain not only digitizes information but also automatically executes contracts through standardized procedures. This streamlines transactions, providing a systematic process where settlements can be achieved in realtime.
What you need to trade commodity-linked tokens
By now, you are probably wondering how you can lay your hands on commodity-linked tokens. The basic requirements that you need to trade commodity-based cryptos include:
- A wallet: Just like the fiat currencies, you need a secure wallet to store your commodity-based cryptos. This could either be a hardware or software wallet. Hardware wallets are more reliable compared to the latter.
- A mode of purchasing the tokens: If you do not have some mainstream cryptocurrency in your wallet such as Bitcoin or Ethereum in your wallet which you can trade for product-linked crypto, then you need a means through which you can purchase the tokens. These include credit or debit card platforms, bank transfers, PayPal, Skrill, among several other popular transaction platforms.
- A reputable exchange platform: Finally, consider a good exchange platform that will give maximum value for investment.
