Gold Backed Cryptos that Let You Hodl Gold on the Blockchain
It’s a decade now since Bitcoin ushered in the era of cryptocurrency. While Satoshi Nakamoto designed a sophisticated network architecture to digitally and economically simulate the properties of gold, there are now many gold backed cryptos that use the blockchain, maintained by a peer-to-peer network, to account for actual reserves of literal gold. In fact there are dozens of extant, mid-ICO, pre-ICO, and already defunct gold backed digital assets and stablecoins pegged to the price of gold.
One strange thing about this sub-sector within the cryptocurrency industry: A disconcertingly large number of gold backed cryptos all claim to be the very first ever gold backed crypto. Many of them make other sensational and dubious claims (like being the most regulated cryptocurrency in the world- odd thing to brag about). Most 100% gold backed tokens are simply ERC-20 tokens executing Ethereum smart contracts to record the purchase and ownership of gold on the Ethereum blockchain.
This naturally raises a question about these digital gold certificates. Are these digital records of ownership of gold, held in secure vaults, often redeemable for the gold itself, actually cryptocurrency? Given that the digital records are secured using cryptography to forge a blockchain from a decentralized network of computers, then yes. The value add to gold investing is the gold backed crypto industry is taking all the investment value of gold and making it more liquid: Faster to keep track of, buy, and sell.
Daniel Ameduri, a cryptocurrency investor, gold bug, self-made millionaire, and president of Future Money Trends LLC tells Darryn Pollock at Forbes:
“All the people who introduced me to Bitcoin in 2011 and 2012, they were all from the gold community – every single one of them. So there is a strong correlation in that. What people are looking for is money out of the banking system, or some way to transfer funds without the government or the banks interfering. Whether people know it or not, you can’t take more than $5,000 out of the bank without the bank scrutinizing you or the bank submitting your info to the US government. What attracts people to gold, over crypto, is that they are looking for that ultimate safety as it has that 5,000-year history and central banks are buying it, so it is still seen as money by the world elites.”
Below is a review with some information about a few gold backed cryptocurrencies, as well as some popular approaches to investing in gold.
e-Gold: The First Digital Currency Was Gold Backed
The first digital currency was established in 1996, about 13 years before Bitcoin’s debut. Instead of offering a secure, uncheatable, public, digital ledger that pays people to maintain it on a decentralized computer network, Douglas Jackson offered digital currency backed by actual gold reserves. He held them in safety deposit boxes in Florida, then moved to secured vaults in London and Dubai. The U.S. federal government forced Jackson to close his digital currency business in 2009.
GramGold Coin (GGC)
GramGold Coin holds one gram of gold in reserve for every GGC issued. The ERC-20 tokens are issued via smart contract using something GramGold calls its “proof of asset” (POA) mechanism. New tokens are only issued when the physical gold they represent digitally is secured by the GramGold Coin Collaboration (GGCC). Thus GramGold coin was admirably launched with no ICO, because it only issues tokens for gold it has in reserve. GGCC calls this process Initial Coin Circulation (ICC).
AgAu is currently pre-ICO. The gold-backed crypto startup will be issuing ERC-20 tokens that establish the coin holder’s ownership of one gram of gold or one gram of silver. The gold and silver reserves will be secured by the Swiss-based company and tokens will be redeemable for physical precious metal.
Anthem Gold has physical custody of gold bullion bars in a secure vault under 24/7 public webcam surveillance. You can watch the live stream of the gold sitting in the vault on Anthem’s website. Ownership of the gold is executed with an ERC-20. The tokens are redeemable for gold and Anthem Gold also directly sells and ships gold.
AurumCoin is an odd hybrid proof-of-work and gold-backed currency. The company claims to have .75 grams of 24K gold in reserve to back every 1 AU coin. Yet since 2014 AurumCoin has also maintained its own separate SHA256 proof of work blockchain with limited number of coins that can be mined. Last November the coin was hit with a 51% attack. $550,000 worth of it was lost on Cryptopia, an exchange where it was listed.
DigixGlobal houses 99.99% Swiss gold bars from London Bullion Market Association-approved refiners in the Safe House, Singapore. Digix issues ERC-20 tokens to track ownership of the gold it holds in custody. DGX currently has a market cap above $4 million and is traded on ProBit Exchange, Kyber Network, Ethfinex, Livecoin, and Kryptono.
One of Forbes’ Top 5 Cryptos to Watch in 2018, Xaurum is a gold backed cryptocurrency with a long term plan for growth in its gold reserve to outpace growth in the issuance of new Xaurum coin. This will ostensibly make Xaurum a deflationary currency with each coin appreciating in value as time goes on. Xaurum uses the ERC-20 Ethereum token and its market cap is currently $3 million.
5 Good Times to Buy Gold
1. During Equities Bubbles
When equities prices are sky high as they are today, there’s a bubble and an eventual market correction. That’s when a lot of investors seek shelter in hard assets like gold.
2. In Times of Political Volatility
During times of political uncertainty and volatility, much like today, the stability of hard specie like gold and silver makes it a highly sought after security.
3. When Gold’s Price Dips
When the price of gold takes a dip, as it has since its previous peak at $1340 on February 19th. The spot price of gold has been hovering in the $1270s – $1280s per oz. for the last month.
4. If Central Banks Are Buying Gold
It’s a good time to buy gold when central banks are. For the last decade starting in 2010, a major global trend has emerged: Central banks are net buyers rather than net sellers of gold. Demand from central banks in emerging economies like China and Russia is insatiable.
5. You Just Got Paid And You’ll Spend The Money On Something Stupid If You Don’t Save It
One of the best times to buy gold or any other security for savings is right after you get paid and before you waste another penny on frivolous purchases or unhealthy habits. This is a deviously easy way to start saving more money toward a substantial purchase in the future like a home, funds to start up a business, or to invest at a very high level in the future.
Disclaimer: The author owns precious metals and cryptocurrencies. He holds investment positions in these securities, but does not engage in short-term or day-trading.