One of the criticisms against cryptocurrencies is they’re not backed by any stable asset. Skeptics say they have no value, which has time and again expressed their doubt in digital currencies. The fact that cryptocurrencies, specifically Bitcoin, have increased their value exponentially since they first came out more than a dozen years ago doesn’t affect these financiers’ opinion about them.
Risk-averse financers believe the cryptos’ volatility and their lack of regulation from any authority like central banks are enough reasons not to invest in them. Uncertainty about their long-term viability has proven to be the main reason why many investors avoid digital money.
But what if cryptocurrencies are backed by something as stable and valuable as gold?
Gold-Backed Cryptocurrencies
Gold has always been regarded as a stable and safe commodity to invest in. It’s a haven asset, a store of value that has continually proven its worth throughout history. Its purchasing power has remained constant through the years, and inflation doesn’t affect it much compared to hard currencies.
Gold is steady, unchanging, and solid. It’s the asset people invest in if they want to preserve their wealth by buying shares in mutual funds, gold Exchange Traded Funds (ETFs—a stock certificate that can be traded), or physical gold like gold coins and gold bullions, which they can get from traders like Oxford and others.
Cryptocurrencies, on the other hand, are the epitome of volatile assets. Bitcoin’s prices, in particular, had swung by as much as 20% almost 50 times since 2010. To be fair, Bitcoin’s prices had also appreciated by more than 800,000% in almost the same period. Still, most finance managers see investing in cryptos as betting on something extremely risky.
However, a new type of cryptocurrency has emerged, one that’s backed by gold. Stablecoins are a new batch of cryptos ‘pegged’ to a commodity with a real, stable value—one that’s not prone to violent price swings
Overview Of Gold-Backed Cryptocurrencies
Cryptos backed by gold have inherent value, something which Bitcoin and the rest don’t have. Their value is connected to the price of gold on the stock market; so when gold’s market price moves, the price of these cryptos follows as well.
These gold-backed digital coins are released with a value equal to gold. A gram of gold, for example, is equivalent to one coin. The gold that’s used to back stablecoins is kept by a trusted third party, and this independent party is authorized to trade with other holders of stablecoins.
With stablecoin’s price tied to the price of gold, it’s virtually assured that its value won’t go below gold’s market price, making it stable. Also, the gold-backed cryptos can surpass gold’s value. This feature makes stablecoins attractive to conservative investors who wouldn’t consider investing in cryptocurrencies.
Evaluating Gold-Backed Cryptocurrency
When it comes to gold-backed digital money, you’d want to be certain it’s indeed backed by gold and it’s in a secure place. Additionally, you should be able to trade it whenever you want or have it redeemed for actual gold you can hold, and not just gold ETFs.
To validate, have it verified by an independent, third-party auditor. If the trader provides an audit report or other documentation, you could check its authenticity by contacting the auditor to confirm every detail. You can also accept in good faith that the coin is genuinely backed by gold based on the issuer’s reputation, which could mean you’d previously dealt with the issuer and they’ve earned your trust.
When you’ve established that the gold is there, you can verify the gold tallies with the number of stablecoins in circulation. You can check the transaction on the blockchain for information regarding the number of coins and the amount of gold held.
Converting Gold-Backed Stablecoins To Physical Gold
Gold-backed digital coins can be redeemed for physical gold if it’s what you want. The process may vary, but typically, you have to get past the Anti-Money Laundering (AML) and Know Your Customer (KYC) procedures first. The bullion or gold coins would then be shipped to your specified mailing address.
You can also redeem your stablecoins for gold derivatives instead of physical gold. Gold derivatives are financial contracts whose prices follow gold market prices. These can also be exchanged for physical gold.
Some Pros And Cons Of Digital Gold Coins
These digital gold coins aren’t without risks, however. While cryptos have blockchain technology as a public ledger where anyone can verify each transaction, gold-backed stablecoins aren’t as transparent when it comes to the actual gold. Verifying the gold in stablecoins isn’t as cut and dried. So, selecting which coin to buy would require a bit of investigating to ensure the gold is indeed yours.
They also aren’t immune to volatility, although not as dizzying as Bitcoin’s level. They’re subject to their market forces, so there may be times when these cryptos aren’t as stable as gold. However, they’re much easier to store than the actual metal. And if you want to liquidate a few assets, these digital gold coins are easier to sell than actual gold.
Keep in mind also that unscrupulous people could just be flat-out lying about some gold-backed cryptocurrency project they’re offering. Scammers are everywhere in the world of finance. But with some traders, you’d have to ultimately rely on trust, so tread carefully.
There are also some fees you’d incur. Additional fees regarding custody for the actual gold are usually passed on to investors. Moreover, while tokens are easier to sell than gold, both the liquidity and availability of these digital gold coins could sometimes be limited.
Digital gold coins or tokens may be the next stage for gold investments. And if you’re interested in dipping your toes into the world of gold and cryptocurrencies, read on to know your options.
Gold-Backed Cryptocurrencies Worth Considering
This concept of gold-backed investments was first launched in 1996. It was known then as E-gold years before Bitcoin was even a twinkle in the eye of its purported father, Satoshi Nakamoto. But it ran into legal issues and was beset by cybercrimes, and these problems proved to be too much to hurdle. It was eventually canceled in 2009.
However, some ideas won’t simply die; they just evolve. And now, technologies like blockchain made it possible for digital gold coins to rise again, albeit in a slightly different format. There are many digital gold tokens available today, but it’s a caveat emptor situation: ‘Let the buyer beware.’
However, a few coins could be worth watching. Here are a few gold-backed cryptocurrencies to consider in 2021:
- Meld Gold
Managed by the cryptocurrency platform Algorand, this digital gold token offers a streamlined type of gold trading through the use of blockchain. It has a solid team connected to its platform, ensuring a smooth and reliable transaction for traders. It allows you to trade in real-time, minimizing the risks for investors of volatilities that could happen during a slow transaction.
Meld Gold’s backing is also audited by independent third-party auditors to ensure authenticity, and its platform offers investors their wallets to store the coins. Meld Gold is equal to a gram of gold.
- Perth Mint Gold Token (PMGT)
Since this is backed by the Perth Mint in Western Australia, the gold’s purity and weight are guaranteed by the government. Additionally, the Perth Mint also issues digital gold certificates through an app called GoldPass. One PMGT is equal to an ounce GoldPass certificate, which is equal to an ounce of pure gold.
A GoldPass certificate backs each token, and they have a 1:1 ratio. You can also redeem the certificates and you can have your gold delivered right to your doorstep. What’s great is PMGT doesn’t have any fees. Neither storage nor transaction nor management fees is charged to investors. It’s one of the most economical gold assets as well as an excellent alternative to conventional gold products.
Investors of PMGT don’t have to wait for monthly audits to verify their token’s gold. Perth Mint publishes the balances of GoldPass accounts so they can be verified in real-time.
- PAX Gold
A PAX Gold token is equivalent to a fine troy ounce of one gold bar, which is secured in its platform’s storage. It offers not only low trading fees but also fast transactions. The token’s minimum investment is quite low, so investors of all shapes and sizes can take part in the project.
Regulated by the New York State Department of Financial Services, PAX Gold’s assets are stored in vaults that are the most secure in the world. The bullion is also checked by a team of third-party auditors to ensure everything’s legitimate. Investors could also redeem their PAX Gold tokens for the actual yellow metal.
- Digix
Digix is gold-backed crypto with a value of a gram of gold bar per coin. Like other legitimate stablecoins, Digix’s gold bars are all verifiable. Moreover, its platform is accredited by the Bullion Association, which means its assets are covered by insurance in case of theft.
Their gold assets are stored in Canada and Singapore, and you can check these at their website. Their certificates, which are also proofs of purchase, are viewable by anyone visiting their site. This makes it easy for anyone to check their gold assets.
You can also redeem your Digix coins for the actual gold if you want. A one-percent fee, called a recast fee, is levied. Signing up on their platform is relatively straightforward and only takes a few minutes, unlike some platforms that ask for a myriad of verification details.
- GSX
GSX is backed by precious metal, not just gold. If you’re an investor, you can have a choice of precious metal to back your stablecoins. Like other above-board stablecoins, GSX has third-party auditors, and they also offer physical gold redemption for your coins. What’s more, as an investor, you can receive annual bonuses to show appreciation for investing in them.
- Tether Gold (XAUt)
Tether is known as the largest issuer of US Dollar-backed stablecoin. Their gold-backed stablecoin called XAUt is equal to a fine troy ounce of gold contained in a London Good Delivery gold bar. Tether’s gold assets are held in a vault located in Switzerland.
Token holders can check the serial numbers of their token’s assigned gold bars through Tether’s site. They also let investors redeem their coins for cash or gold; and yes, they can also deliver your gold if your coins are worth a full bar. You can then redeem a number of coins equivalent to a full gold bar.
For example, their bars from the London Bullion Market Association (LBMA) can weigh up to 430 fine troy ounces of gold. You can redeem 430 tokens if they’re allocated to a full gold bar. If you’ve redeemed your tokens for a full gold bar, then either you can take possession of it or you can ask TG Commodities Limited, the issuer, to sell the gold for you.
Final Thoughts
Cryptocurrencies are viewed by many financers as having no inherent value. They also think investing in them is equivalent to gambling at long odds. They don’t think that Bitcoin and others are a wise long-term investment. But now that cryptocurrencies have emerged and backed by something as valuable, tangible, and stable as gold, investors are turning to this new type of cryptos that promise to be unwavering, especially in this age of uncertainty.
However, in buying gold-backed stablecoins, you should tread carefully as there are stablecoin projects out there that are outright scams. There are ways of determining the fake from the real. There are many genuine digital gold coins out there, and some are admittedly more exciting than others. As a rule of thumb, always be informed about your transactions.
The ones listed here are just a few of the coins worth considering. If you want to invest in cryptos without the head-spinning, stomach-churning price swings of Bitcoin, this form of cryptocurrency might be for you. But as always, do your research and don’t be led by your emotions when investing your money.
