Gold-backed cryptocurrencies are directly backed to the value of gold. Proponents of this commodity-pegged stablecoin point towards the immense benefit of digital gold being divisible. This allows investors to purchase and send fractional amounts of gold in any amount.
A Long History As The “Future Of Money”
Unsurprisingly, the concept of a digital gold currency is not new. E-Gold was launched by Douglas Jackson and Barry Downey in the 1990s. The virtual currency, backed by physical gold, was unique at the time due to its purely digital nature and irreversible transactions.
At its peak, millions took advantage of E-Gold to carry out cross-border transactions and protect privacy by conducting business with anonymous accounts.
E-Gold eventually ran afoul of the U.S. federal government. Allegations swirled the platform did not step in enough to prevent illegal transactions.
After a four-year investigation, authorities eventually indicted Jackson and colleagues on several charges. Jackson accepted a plea deal that mandated he revamp the website to comply with a range of regulations regarding money transmission.
Despite E-Gold’s colorful history, numerous gold-backed cryptocurrencies like Gold Coin have launched in the past few years. Many are working to make waves in a stablecoin market traditionally dominated by fiat-backed options.
Understanding The Mechanics Of Gold-Backed Cryptocurrencies
The concept of gold-backed virtual currencies sounds appealing. Coins issued are backed by a value of gold held by a reputable custodian. At a minimum, the price of a gold-backed cryptocurrency will be equal with the current gold rate.
Occasionally, a popular gold-backed virtual currency might eclipse the value of physical gold, which presents an enticing situation for an investor.
Prospective investors should do their due diligence before investing in gold-backed crypto. Some projects tout physical gold reserves that are actually nonexistent. Others make it difficult for users to digitally buy, sell, or redeem digital coins for physical bullion.
Reputable gold-backed cryptocurrency projects will have audits of gold reserves available for public viewing. Some might even live-stream bullion vaults for investors to view.
Popular Gold-Backed Cryptocurrencies On The Market
Perth Mint Gold Token (PGMT)
Evaluating gold-backed cryptocurrencies is similar to assessing physical gold. Bullion backed or minted by a government is always seen as reputable. The same in the digital world.
PGMT is a popular choice for gold-backed cryptocurrency enthusiasts because it is backed by reserves stored in the Western Australia government’s Perth Mint. The mint issues digital gold certificates via an app so holders can easily verify gold.
One advantage PGMT holders have over other gold-backed cryptocurrencies is the ability to verify gold amounts in real-time. Some projects only carry out monthly audits. Holders might have to wait for weeks to be reassured their digital cryptocurrency is backed by adequate gold reserves.
DGX coins are backed by one gram of gold stored in Singapore and Canada. The creators of the cryptocurrency desired to foster the democratization of gold by allowing holders to make gold bars digitally divisible and redeemable.
The company pays the cost of storing the physical gold and only charges a 1% fee for holders who desire to swap virtual currency for physical gold bullion.
Tether Gold (XAUT)
The popular USD-backed stablecoin issuer has a gold-backed cryptocurrency. A single XAUT is backed by a troy fine ounce of gold formally offered by TG Commodities Limited. Coin holders can visit Tether’s website to look up the serial numbers for the gold bars assigned to them.
The Future Of Gold-Backed Cryptocurrencies
Some express skepticism at gold-backed cryptocurrencies. They argue stablecoins, in general, are a risky venture with a long history of failed ‘fad’ projects.
Others argue it would be more advantageous to further develop fiat-backed stablecoins tied to the United States Dollar or Euro to offer more options for trading, payments, and transfers.
In the short term, gold-backed cryptocurrencies have gained steam amid financial turbulence associated with COVID-19, as investors flock to options that allow them to hedge against volatile markets.