While cryptocurrency is currently the center of the hype in the finance sector, most big industry players are gravitating towards its underlying technology: blockchain. Several top-tier executives like Warren Buffett have been pushing the “Blockchain not Bitcoin” mantra which other’s have adopted.
Such executives believe that cryptocurrencies like Bitcoin are a bubble which will burst, leaving their underpinning technology behind. The technology, which has been applied in problem-solving processes within several industries including agriculture and real estate is quickly gaining traction in the finance industry as well. It has recently been used to solve several complex payment problems, including bartering.
WHAT IS BARTERING?
Bartering involves the exchange of goods and services for other goods and services of perceived equal value. Today, money is a generally acceptable means of exchange, but before the creation of money, bartering was the primary means. People could barter exchange things like clothes for food, and services like a shoe repair in exchange for a cleaning service and so on.
This method was one of mankind’s most significant inventions, but like any other invention, it became obsolete with the arrival of a better option. However, several individuals and businesses still practice bartering to date.
WHAT ARE THE ADVANTAGES OF A BARTER SYSTEM?Although the barter system is no longer commonplace, it worked efficiently when it was. During the Great Depression of the 1930s, it was a popular means of exchange due to the lack of money. It worked great for many reasons:
- The system is easy to use. While the modern day monetary system may seem simple to a person who has used it for a long time, it is still leagues ahead of a barter system in complexity. A lot of the problems associated with today’s financial system were avoided during the bartering period.
- Since bartering caters to the specific needs of society, there is no point in producing more or less than needed. As a result, there is never an issue of overproduction, underproduction or artificial scarcity in a barter system. It has a moderation that is difficult to recreate with the current financial industry standards.
- A barter system focuses on the exchange between people within the same vicinity, so there is no international trade. This means that bartering helps people avoid the issues typically linked with international trade.
- Another major advantage is that due to the nature of goods and services exchanged within the system, economic power is shared evenly. Since they cannot be stored, there is no accumulation of excess wealth. Unlike today’s system, there is no concentration of economic power among a small group.
- The system minimizes the occurrence of waste and maximizes the use of natural resources. This is because things cannot be bought, only exchanged for items of equivalent value.
- The barter system also promotes division of labor which leads to better results than in a system where people practice several trades without mastering any.
WHAT ARE THE DISADVANTAGES OF A BARTER SYSTEM?Like any system, the barter system also has its drawbacks, seen below:
- People who want to exchange one item or service for another must find other people who are in need of what they are offering. This situation is known as a double coincidence of wants and leads to a waste of time and effort. It is also inconvenient especially when a person can’t immediately find someone whose wants coincide and may have to make several third-party exchanges in the process.
- Although barters take place between items of equivalent value, there is no unit to determine what is equal and what is not. This creates a huge problem because irrespective of perceived worth, one unit of an item is equal to what the receiver of that item determines it to be. For example, in a typical barter exchange, one unit of strawberries can be equal to one unit of wheat depending on the receiver of the strawberries.
- Another disadvantage of the barter system is that due to the absence of a conventional means of exchange (money), there is no divisibility. For example, a cow may be equal to the cost of 12 pairs of shoes. A person who wants to exchange a cow for just 2 pairs cannot divide it into smaller cows. In a modern financial system, dealing with such an issue would only require payment and the receiving of change.
- Under a barter system, it is difficult for individuals and businesses to accumulate wealth because there is no system of storage. Since the items exchanged are not predetermined, the transactions within the system are random. This leads to the absence of real purchasing power and extra bartered expenses to store specific goods like food for long periods.
- Since each item being exchanged is different, it is difficult to draft contracts concerning deferred and installment payments. It is also difficult to take loans as well as transfer wealth to someone else. This is because the quality and value of goods and services being swapped may change in the future.
- In a barter system, it is difficult to transport goods from one place to another, as opposed to the cost of transporting money in a modern system.
HOW DOES BLOCKCHAIN SOLVE THESE ISSUES?
A blockchain is a distributed digital ledger on a peer-to-peer network, which records every transaction carried out on it. To effectively use the technology, most blockchain platforms have their own cryptocurrencies which serve as means of exchange.
By allowing traders to barter using a consensus mechanism that allocates values to specific goods and use, the network digital asset as a means of exchange, many of the issues associated with bartering can be solved. Several companies are already working on such solutions, and one prominent example is MYTC.
WHAT IS MYTC?MYTC is a blockchain startup that is creating a decentralized platform to support trade and bartering activities. Small and medium enterprises on the platform can easily carry out barter without worrying about any of the issues associated with a typical barter system. The MYTC blockchain platform aims to give merchants the chance to automate their exchanges so that more time can be spent focusing on their businesses and sales. It will also serve as an upgrade for the outdated financial technology used by vendors.
HOW CAN MYTC BLOCKCHAIN HELP SOLVE BARTERING ISSUES?
The MYTC blockchain uses its own form of digital currency that solves the problem of double coincidence. Since all trade will be done using the company’s tokens, there is no need to conduct a manual search for an exchange partner. The tokens also serve as a common measure of value for any barters that take place.
The platform allows its users to store divisible tokens in a wallet and retains a balance which is debited. As a result, there are no divisibility restrictions. The tokens can also be transferred, and wealth can be accumulated.
MYTC tokens are also easily transported on the network and contracts can be arranged for deferred payments as participants see fit. Another advantage of the MYTC platform is that its digital currency can be used from anywhere in the world. This eliminates location barriers and promotes international trade.
Like any other system, barter systems are not close to perfect. However, with digital enhancements such as blockchain technology, they can work well. MYTC is one of the companies ensuring that businesses are free to choose whether to deal with money or goods and services. This freedom to choose is part of the core principle behind decentralized systems and currencies. Hopefully, with a more efficient and cost-effective system, bartering will become widely accepted again.
This article was originally published at MinDice.com.