Bitcoin has oftentimes been called digital gold due to its limited supply and ability to retain its value (for the most part). With that in mind, gold-backed cryptocurrencies may be viewed as a natural subset of the blockchain space.
Gold is generally accepted as the world reserve currency. After all, it has been used as a medium of exchange for almost three thousand years.
To this day, many people hedge their funds in gold when faced with extreme economic circumstances, such as financial crises or hyperinflation.
Gold also happens to retain most of its value over time. Just look at its 100-year price chart. By the way, this is inflation-adjusted.
Some might say it looks volatile. No it’s not. That’s a 100-year chart my friend. You should see the 100-year dollar price chart. You’d be surprised how much it lost its original purchasing power.
Therefore, most of us can agree that gold is better than most national currencies as a store of value.
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When merged with cryptocurrencies, gold becomes portable, easier to transact with, more divisible, and less likely to be stolen. One might say they are a perfect match.
5. Kinesis (KAU)
Kinesis is a crypto ecosystem that issues both silver and gold backed tokens. These tokens are pegged to the price of precious metals and functions as stablecoins.
Basically, the aim of the Kinesis team is to drive adoption of cryptocurrencies through transaction velocity.
Kinesis means “movement”, which means they are all for using the currency for transactions and not simply hoarding, or what we in the crypto space like to call, HODLing.
Besides cryptocurrencies, Kinesis has a suite of products including a debit card that provides cashback and other rewards.
Fundamentally, the whole monetary network is designed to incentivize users to utilize the currency in everyday life. If you do so, you will receive monetary rewards.
And they want to do this with the level of security that blockchain provides while leveraging qualities of gold as a store of value and as a stable currency.
Three Tokens of Kinesis
- KAU — a stablecoin backed by physical gold; 1 KAU = 1g gold
- KAG — a stablecoin backed by physical silver; 1 KAG = 1oz silver
- KVT — the Kinesis Velocity Token is a utility token of the Kinesis ecosystem. Holders of KVT will receive 20% of the network’s transaction fees proportional to how much KVT they have.
Both KAU and KAG can be used to redeem physical gold. Furthermore, the gold are stored in secure vaults across the world.
4. Goldmint (GOLD)
Unlike other gold-backed cryptocurrencies, Goldmint has its own network called the MINT—a distributed database based on blockchain technology that uses a Proof of Stake algorithm, similar to the Ethereum network.
There are two assets in the Goldmint ecosystem:
MNT — the utility token of the ecosystem, which is utilized in confirming GOLD transactions.
For Goldmint stakers, their earnings are proportional to how much MNTs they hold, similar to Kinesis’ KVT.
Don’t confuse MNTP for MNT. They are almost the same thing. MNTP stands for MNT Pre-launch, which was sold to investors in their ICO. You can convert your MNTP to MNT anytime.
GOLD — a cryptocurreny asset backed by golds from pawn shops all over the globe. This is the lifeblood of the the Goldmint ecosystem. It can also be used as collateral for a loan.
1 GOLD = 1 troy ounce (t oz) of 24K gold bar; 1 (t oz) = 31.1 grams
GOLD can be used to redeem physical gold and vice versa, while retaining 100 percent of its original value through a subtle and sophisticated distribution process.
According to their website, you can make money with GoldMint in two ways, through the Ethereum Pool and MINT Blockchain.
Ethereum Pool
- Buy MNTP on exchanges
- Stake them in the pool and receive MNTP rewards
MINT Blockchain
- Swap MNTP to MNT if you bought more than 10k of MNTP tokens
- Launch a masternode and receive rewards in GOLD
3. Perth Mint Gold Token (PMGT)
The Perth Mint Gold Token (PMGT) is the first gold backed digital token that is also backed by a state government. In addition, the physical gold are under the custody of The Perth Mint, which is Western Australia’s largest exporter.
They distribute $18 billion worth of precious metals to more than 100 countries per year.
By coordinating with InfiniGold, a precious metals digitization company, Perth Mint is able to issue digital tokens backed by physical gold.
PMGT also happens to be fungible. You can convert or redeem a range of Perth Mint products like LBMA London Good Delivery gold bars. Furthermore, you can trade it against traditional gold products or convert it back to fiat.
Being backed by the Government of Western Australia, PMGT is considered a government guaranteed investment.
2. Digix Gold (DGX)
Digix Gold Token (DGX) is a product of DigixGlobal. They have two tokens in their system:
- DGX — gold backed cryptocurrency
- DGD (Digix DAO token) — governance cryptocurrency
As DigixGlobal wants to decentralize its token governance, it created DigixDAO, a self-governing association that collectively controls the decision-making and direction of the Digix ecosystem.
In order to be part of DigixDAO, you have to be a holder of DGD.
DGD enables you to participate in the decision-making process. You can basically vote on proposals you are interested in or oppose them. Furthermore, you can submit your own proposals and apply for grants to spearhead a project that could help the Digix ecosystem.
DGX is a cryptocurrency backed by gold bars from the London Bullion Market Association. It runs on the Ethereum blockchain.
As one DGX represents one gram of 99.99% premium gold, it can be used to redeem its physical counterpart. You also have the option to sell DGX for cash.
1. PAX Gold (PAXG)
PAX Gold is the most prominent gold backed cryptocurrency in this list. It was created by Paxos, a New York-based financial institution and stablecoin issuer.
PAXG is also an Ethereum-based token, and is a digital representation of an LBMA-accredited London Good Delivery gold bar. Owning PAXG means owning its underlying asset, which is held by Paxos Trust Company.
1 PAXG = 1 troy ounce (t oz) of a gold bar; 1 (t oz) = 31.1 grams
Paxos allows you to purchase fractions of a gold bar, which lowers investment minimums that open up doors for less opulent investors to participate.
This is ultimately what separates PAXG from every most gold-backed tokens. With it, you can actually buy 0.01 t oz of gold for roughly $15 only.
The Paxos platform also allows users to seamlessly convert their PAXG to fiat or physical gold, and vice versa.
Risks of Gold-backed crypto
One of cryptocurrency’s vital attributes is decentralization.
The fact that no central authority can maliciously manipulate the system or be sabotaged, means it has no central point of failure.
And gold backed cryptocurrencies sort of lose that attribute despite their decentralized network.
Why? Because the value of the digital gold is inseparably linked to a physical gold. And whoever secures that gold is a point of failure.
Even if we disregard the possibility of heists that we see in the movies, there’s still the possibility of governments seizing the vaults. This could happen in extreme cases when cryptocurrency is officially banned.
What would the token holders do then?
I get that this is an extreme scenario and might likely never happen. But it also could.
The Takeaway
Gold-backed cryptocurrency is indeed an intriguing concept. Combining two of the most robust forms of money—cryptocurrency and gold—we are likely to get the best of both worlds.
Security, portability, ease of use, and decentralization through cryptocurrency plus the stability and store of value for gold, make a phenomenal currency.
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