This blog is all about how barter networks work. But before that, what is really meant by the term, “bartering”? Is it some form of mere exchanging of simple goods or swapping commodities?
What is Bartering?
Bartering in simple terms means exchanging or swapping items without exchanging money or currency. In the barter system, there is a fair trade between both the parties where both of them get the items that they need in an even amount to as what they involve in the exchange process.
For example, a farmer has a few numbers of sacks of rice grain available but requires a milling machine. A vendor has a milling machine and requires a few sacks of rice. Here the farmer and vendor can take part in the barter system exchanging their commodities of equal value.
The world economy revolves around the trading system. Trading is the most basic economic concept involving the buying and selling of goods or services in exchange for money or exchange of goods or services. The concept of trade dates back to the Stone Age and was then conducted within a smaller scale of transactions and within a short radius of the region. Trade has a large significance in the journey of mankind to explore the world and not stay within geographical boundaries.
In the earlier days, the majority of traded goods were hunting tools and stones of greater value and used the bartering system for trading. Obsidian was among the most traded product in the earlier days in exchange with other commodities such as livestock, spices, metals, precious stones, etc. In the later stage, the invention of the wheel eased transportation hence brought in a lot of opportunity for traders.
Trading is hence considered to be a system that brought people together for mutual benefits apart from the conventional meetings or gatherings that were part of the customs and traditions of the regions. Trading is possible with an exchange of four different transactions.
- Coins or currency: It is the most commonly used transaction system in the present days which is not just restricted to physical currency but also as online cashless transactions with Debit or Credit cards and Internet banking.
- Barter transactions: Cashless trades in exchange for goods or services, or both.
- Virtual Currency: The newest medium of exchange such as Bitcoins, to avoid foreign exchange risks.
- Cryptocurrency: Another new exchange medium innovation using secure cryptography for secure digital transactions.
Let us discuss some common types of barter transactions.
Bartering with Consumer Merchandise
This is the basic barter system that works on the concept of, “double coincidence of wants”. Here, both parties involving in the transaction will equally benefit valued goods.
Bartering using Consumer Services
Here, a barter transaction occurs when one professional agrees to provide a service in exchange for another. For example, if Person A is an accountant and needs a legal representative whereas Person B is a legal officer and requires an accountant, they both can join hands with each of them benefiting from the mutual transaction.
Modern Advertising Services
This is the most common B2B bartering transactions involving the trading of advertising rights. In this reciprocal system, a company provides it available ads space for a second company for the right to advertise at the second company’s ad space.
Another easy example to understand the concept of bartering is a homeowner and a tenant. If you are a tenant and need a home to stay whereas you find a homeowner who would like a tenant to stay and maintain the home, there occurs a bartering deal between the two. Bartering is not restricted within a mutual transaction between two consumers but can extend to a bigger circle which can be broadly called a trade ( exchange process involving three parties), multilateral trade ( exchange process involves more than three parties) or simply, a barter network.
What is a Barter Network?
Let us look into an example to understand the concept of barter networks. A hotel owner has a few unoccupied rooms that do not bring in any income to the hotel. He can sell these unsold rooms to a barter exchange network member and hence earn income from these rooms. The member who bought the rooms need not be the person in need for the rooms, like in one-to-one barter exchange systems but might be a service provider who can give away the rooms to a single person or many persons. Trade dollars is the medium of transaction and also buy other products or services from the barter exchange network. Barter networks are hence no direct swapping or exchange transactions but are part of a cycle of buyers and sellers.
They were the same as traditional buying and selling with physical money and requires preparing and payment of reporting and taxes, respectively or as required depending on the rules and regulations of the region of website operation.
Barter Networks erases the impractical situation that arises due to the absence and difficulty to find people to gather with “double coincidence of wants”, and hence will improve the flexibility of the complete barter exchange system.
Bartering has been in the business for a long time with its roots extending from around 9000 BC. As for every system in the universe, even bartering has its pros and cons. Let us discuss them in detail next.
Advantages of Bartering
- You can exchange or swap goods easily without involving any form of cash.
- Both parties enjoy the exchange and get the goods they need.
- The flexibility in trade options.
Disadvantages of Bartering
- It can become impractical when you will need a certain good but in exchange, the opposite party will not need your available goods.
- It can also be inefficient when the exchange will not involve an equal swapping for the value of goods.
- Inflation and deflation in the market trends can affect the trade process.
- The lack of consumer protection as the seller identity need not be legitimate.
- One cannot avail any warranties.
Such cases finally resulted in the economy to use coins and currency in exchange for goods and services.
The trend of bartering is increasing nowadays when you exchange something in a good condition but is not of use to you with someone who needs it in exchange for an article that you need from the same person or another person. Swap.com, U-exchange.com and Craglist.com are some of the used barter trade platforms. If you would like to create a professional barter exchange network website like this you can use swap clone scripts like the iScripts eSwap. The software allows you to create websites that provide options for direct swapping, or regular barter network that will use virtual currency and credit points during transactions or a mixed model that provides both direct and barter network swapping and can even use online payment gateways for the transactions. A few steps away and you will have your own online bartering network website!