The volatile nature of cryptocurrencies like Bitcoin has left many online investors polarized. While some investors became millionaires overnight, many lost their life savings. As a result many investors are now turning to stablecoins to hedge their risk when buying cryptocurrencies.
$GSX leverages the #Apollo #Blockchain for ultra-fast transaction speeds (under 2 seconds) for daily use in real marketplaces. pic.twitter.com/MDQ4yvp85L
— Gold Secured Currency (@GsxCurrency) September 29, 2022
Global uncertainty caused by events like the COVID-19 pandemic, political instability, and military conflict has further increased the desire to invest in stablecoins that are pegged to a reliable asset like Fiat currency or precious metals like gold and silver.
Even though investing in gold sounds intuitive, only 10.8% of Americans own gold according to a recent survey. An estimate of global gold holdings shows that less than 20% of the total share is represented as investments.
There is a growing interest in investing in gold-backed cryptocurrency. If you are looking for some gold-backed cryptocurrency, you’ve come to the right place. Our ultimate guide to gold-backed cryptocurrencies will give you an idea about what it is and maybe even help you choose some tokens to start investing in. Read onwards to learn more.
Gold-Backed Cryptocurrency
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What Is Gold-Backed Cryptocurrency?
A gold-backed cryptocurrency is a digital asset derivative whose value is supposed to be underwritten by the equivalent price in gold. Each gold-backed cryptocurrency defines one of its tokens as having an equal worth of a specific size of gold, be it grams or Troy ounces.
As the term suggests, gold-backed cryptocurrencies are crypto coins that have a value paired with gold. Each coin represents a fixed value of gold, and ownership of the coins translates to ownership of the corresponding amount of gold. It’s like the gold standard USD before 1971 but replacing the fiat currency with cryptocurrency. The company keeps a store against the coins issued in a physical vault. Customers can redeem physical gold by trading the required amount of tokens.
A single gold crypto token can be pegged to 1 gram of gold like DigixGlobal’s DGX coin. Others like AurumCoin are pegged to one ounce. Blockben offers 1 Blocknote (BNO) coin for every 0.1 gram of gold.
The way assets are backed may differ for each company, but the standard process is to keep a fixed supply of gold deposits in the form of bars and coins. The physical gold is purchased from LBMA suppliers. Some companies like Blockben purchase equivalent amounts of gold against the purchased cryptocurrency asset of an account holder.
A Brief History
An interesting fact is that Gold-backed digital currency is not a new thing. 13 years before the launch of the original Bitcoin network, E-gold was launched in 1996, allowing people to buy a digital currency that was backed by real gold assets.
By the early 2000s, E-gold had already figured out how to work on contracts with customers. However, this company folded well before the Bitcoin era. It would take several years for gold-backed cryptocurrency to make a resurgence.
The first blockchain-based gold coin offering was AurumCoin, launched in 2014. AurumCoin was based on the SHA256 Bitcoin algorithm, with each coin being backed by 1 oz of pure gold after all the coins have been distributed. This was the first case of a gold-backed cryptocurrency being pitted against Bitcoin, and the backers made sure to pitch its comparative strengths to potential buyers.
Motivations behind the Gold-Backed Digital Currency
There are many other reasons why gold is used as a tangible asset of choice to tie to a derivative asset like crypto.
Easy to Market
First, gold is a precious metal, and has been used as a currency standard for millennia. This precedent makes it easy to understand for customers like the average joe. From a marketing and PR perspective, that’s an easy position to establish.
That’s what the UK’s Royal Mint was also betting on when it decided to launch its gold cryptocurrency project. That was promptly stopped due to uncertainties that are part of crypto. It still sells DigiGold, though.
Superiority from Stability
Gold has a stable value. It is a rock solid (no pun intended) choice against inflation. Its value does not swing too much like Bitcoins. Investors can keep their funds safe in the form of gold. As Theirry Arys Ruiz, CEO of AgAu, puts it, gold-backed cryptocurrency is superior money over standard cryptocurrency.
Liquidity and Access with Fractional Ownership
Gold-backed cryptocurrencies create more opportunities to use gold as a medium of exchange. It is an acceptable store of value for many financial institutions. Buyers can access the tokens from anywhere around the world, reducing the barriers to entering the gold market. For anyone low in funds, cryptocurrency offers them a chance of investing in a fraction of a coin to stake their finances in an equivalent amount of gold in the company’s holdings. Therefore, the tokens offer an alternative option for liquid assets.
The Bells and Whistles of Blockchain Apps
Since they are cryptocurrencies on a blockchain, customers can have 24/7 access to their assets through their mobile or computer devices. Developers can also implement tight cybersecurity safeguards for customers, to keep their accounts safe. Since many gold-backed cryptocurrencies are based on the Ethereum blockchain as ERC-20 tokens, they offer DeFI capabilities, opening new investment opportunities for token owners.
All That Glitters, Isn’t Always Gold
The concept of gold-backed cryptocurrency sounds simple in theory but is a bit complex in practice. We mentioned E-gold earlier, but that’s not the only case of a company folding. In 2018, Digix Global was one of the first companies to issue a gold-backed cryptocurrency, with CEO Kai C Chng wanting to democratize access to gold. The company received a lot of publicity and had its assets backed in secure vaults in Singapore and Canada. (As of writing this article, the company has folded from the market.)
Trust Issues
At the end of the day, the issuing company must be able to provide gold deposits for redemption. Since gold is expensive, companies need to carefully manage their assets. After all, it’s not easy for everyone to go check the company’s vaults. You have to rely on a transparent audit record. Then there is the issue of physical security. Gold heists are rare, though.
Then there’s the issue of trusting cryptocurrencies, which already have a reputation for being associated with scams and criminal organizations. Gold-backed cryptocurrencies are still a relatively new concept, and it will take some time for them to gain mainstream acceptance.
Cybersecurity Concerns
Even though blockchains have cryptographic safeguards, they are still prone to cyberattacks. Hackers can gain unauthorized access to an account and make the currency worthless. If we are looking at 2022 alone, hackers have been very busy trying to get a hold of coins from all kinds of blockchains.
Low Investor Bases
Gold-backed cryptocurrencies are still a relatively new concept, and it will take some time for them to gain mainstream acceptance. Most of the people who do invest in gold-back cryptos are those familiar with buying bullion with fiat currency.
Sometimes gold crypto coins may not be listed on popular crypto exchanges, making it difficult to trade them for fiat currency or other cryptos.
The Antithesis of Decentralization
Many gold-backed cryptocurrencies require customers to fill in KYC/AML forms to comply with legal regulations for storing gold. For many hardcore cryptocurrency enthusiasts, a centralized record for your account goes counter to the narrative of decentralized currencies. Users who lie on this side of the spectrum would rather keep their identity private and trade assets on a standard public blockchain.
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Top Gold-backed Cryptocurrencies
Of course, our guide would be incomplete without mentioning actual examples of gold-backed cryptocurrencies.
Here’s a list of some of the most popular:
The live Tether Gold price today is $1,647.06 USD with a 24-hour trading volume of $216,454 USD. We update our XAUT to USD price in real-time. Tether Gold is up 0.39% in the last 24 hours. The current CoinMarketCap ranking is #213, with a live market cap of $406,038,932 USD.
Aurum Coin (AU) is a distributed ledger technology, open source SHA256 cryptocurrency, has its own separate blockchain since 2014 and only 300,000 coins can be mined, so gold-backed cryptocurrency is possible. We are not related to any new ico based on ethereum.
Pax Gold is a stablecoin created by Paxos Standard that is backed by physical gold. Each PAXG token is backed by one fine troy ounce of a 400 oz London Good Delivery gold bar, which are stored in Brink’s vaults.
GoldCoin is the first fractionalized gold-backed asset available for purchase directly in national currencies or cryptocurrency. Due to its fractionalized nature, you can buy any amount of GoldCoin at any time.
PMGT allows blockchain users to conveniently trade and hold gold stored at The Perth Mint.
Digitally manage your entitlements over the physical gold, convert and pick up gold bullion of your choice or get it delivered globally.
Meld delivers secure, seamless access to the acquisition of gold, allowing investors to transact in real time, reducing the volatility traditionally associated with the procurement of gold.
Meld has removed inefficiencies, increased accessibility and stabilised the acquisition and ownership of the world’s oldest currency.
The AGLD token code has been audited by Hosho Smart Contract Security group and is best practices Solidity. As a fully compliant and auditable blockchian asset all token actions will be visible on Etherscan
The company AgAu AG was founded in 2018 and borrowed its name from the merger of the two atomic symbols “Ag” (for Silver) and “Au” (for Gold). As AgAu we plan to issue digital tokens corresponding to the direct ownership of allocated silver and gold bullions in Switzerland. We aim to be the easiest way to transact the direct ownership of allocated and redeemable physical LBMA quality gold and silver. The precious metals are audited and secured in regulated private vaults outside the banking system.
Aurus tokens are 1:1 backed by one gram of gold, silver and platinum respectively, produced by trusted bullion refineries and dealers. AurusX, our ecosystem token, earns rewards in tokenized gold, silver and platinum.
BlockBen was created by our globally educated management team with extensive experience and expertise in all relevant fields, including IT, project management, operations and financial technological (fintech) development. In addition to that carry out an innovative and complex project management service which allows us to be in an unrivalled position on the market.
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Do you have a Web3 project and need help with PR and marketing?
Crowdcreate is your partner for launching your Web3 PR and crypto marketing. Our team has a solid track record in Web3 PR and marketing for hundreds of projects, reaching more than 7 million users worldwide.
How Gold-Backed Cryptocurrency Companies Make Money
Companies offering gold-backed cryptocurrency have several ways to make money over the funds invested by customers. The main vehicle for this is the fee structure, as we explain below. If you’re a prospective buyer, then you need to look out for these items in the terms and conditions.
Storage Fees
Companies that tokenize their client’s gold holdings usually charge an annual storage fee. In fact, if you’re thinking of starting a similar project of your own, this is the gold standard. AnthemVault (one of the first gold stablecoins available in the USA) charges an annual storage fee of 0.36%. These charges are based on their gold trading business for regular clients off-chain. Similarly, AgAu charges their clients 0.2% per annum on gold storage.
Storage fees are not limited to physical gold in the case of gold cryptocurrency. Companies charge a fee for cold-wallet storage for cryptocurrency holdings.
Conversion Fees
Much like transaction fees in a mutual fund or ETF, companies charge token holders a redemption fee on gold withdrawals. AnthemVault, for instance, charges 3% of the transaction value when trading AGLD for gold. AgAu, on the other hand, has a much lower fee of around 0.2%.
Blockchain Fees and DeFI
With the rise of ERC-20 standards, several companies like AgAu, Aurus, and Blockben have initiated gold backed cryptocurrency projects on the Ethereum blockchain. Tokenization on Ethereum allows them to charge transaction fees for every blockchain transaction, and an annual fee of 2% for all coins stored on the blockchain.
Ethereum’s proof-of-stake technology also allows the issuer to implement DeFI protocols for smart contracts. Smart contracts incentivize customers to stake a portion of their coins for earning long-term investment rewards.
This multilayered fee-based strategy has allowed companies like AurusGold (AWG) to make gold-backed cryptocurrency extremely profitable over standard investments in precious metal commodities.
Indeed, if we want to believe AurusGold CEO Guido van Stijn’s motto of ‘Make gold cool again,’ the self-styled ‘adventure capitalist’ makes a strong case for trusting in blockchain technology.
Is Trustless Gold the Future?
The rise of gold-backed cryptocurrencies is part of a transition of the traditional business of precious commodity trading into the world of Web3. We’ve covered gold in this article, but companies have been making currencies for other metals, including silver and platinum. Van Stijn believes that companies need to invest in blockchain technology to transition to the next stage of global finance.
AgAu’s Ruiz contends that the concept of gold-backed cryptocurrencies is anti-fragile and that the more currency issuers move away from it, the more investors need to think about getting back to it.
Ruiz’s statement is backed by the Tether Gold Whitepaper. That considers gold-backed stable coins the next evolution of money. By cutting barriers to gold acquisition, and making it into a truly mobile and liquid asset, Tether asserts that it empowers people to define their own monetary principles. Some experts also think that Tether gold does not compete with Bitcoin, but with fiat currency.
The opinion is divided on the value of gold, though, as the Winklevoss Twins (who co-founded Gemini) think that Bitcoin is like Gold 2.0, or maybe even better than gold. In hindsight, those opinions may not have aged well.
Ultimately, the value of gold and associated cryptocurrencies depends on the trust in the scarcity of a precious metal. A trust that has made people, young and old, consider investing in cryptocurrency in the long term.
