Digix Labour Day Special —Unbiased Crypto Gold Comparison for An Early Adopter
By Lucia Ziyuan
In case you aren’t yet aware, digital tokens are a big deal lately. In a recent ICO (initial coin offering) crowd sale, ethereum-based browser Brave raised 35 million in just 30 seconds.
Some say it’s the digital gold rush, but it is also an indicator that the finance industry is ripe for an overhaul from the ground up. As more early adopters of the decentralised economy pave a way for wider adoption, this gold rush could soon become the new reality.
Even if you don’t have half a million to buy up a huge share in ICOs or consider investing cryptocurrencies too risky, there is a way to participate as a risk-averse investor. Enter gold backed cryptocurrencies, a form of digital asset that tokenize physical gold on the blockchain.
Gold has long been considered a safe haven assets with relatively stable value. Backed by gold, crypto gold tokens holds the promise that your investment carries tangible value when the volatile crypto market goes wild.
Using blockchain technology to tokenize gold also allows for ownership of smaller amount of the expensive metal. With digital gold tokens, you can have a fraction of a gold bullion fully allocated to you and securely transfer that ownership. Plus, blockchain technology makes acquiring, storing, transferring of gold more efficient.
Here we look at a few crypto gold solution providers by key considerations such as integrity of gold and technological stack, so that you will be in a better position to choose whichever solution suits you. Solutions we are looking at:
Digix — platform solution offering ethereum-based tokens (DGX) backed by LBMA approved gold
HelloGold — mobile app empowering micro-savings in tokenized gold offered in small fractions
GoldMint — tokenizing gold on the blockchain using custody bot as gold vending machine
ZenGold — offering digital gold tokens developed on metaverse blockchain
1 — Integrity of investable gold
For gold to be investable has to pass a certain standard. once they leave the vaults of recognised dealers, the integrity of the gold bullion can be vulnerable for tampering. As a retail investor in gold,, you would want to make sure that your invested gold has certifying status in order to hold long term value.
Digix Digix upholds the highest level of gold standard by only using London Bullion Market Association (LBMA) Approved Gold. LBMA pretty much sets the international “gold standard” for gold investment grade.
HelloGold uses 99.99% investment grade 1kg gold bars sourced from Produits Artistiques Métaux Précieux (PAMP). PAMP is a refinery listed in the LBMA’s “Good Delivery” list, so their gold quality is trustworthy.
GoldMint claims that their gold is of “999 quality on the stock exchange” but there is no verifiable source for the company’s gold reserve. The company also uses ETFs to back gold, which is essentially a security and not physical gold. It is unclear which authority will verify the reserve amount and investment grade of the gold in GoldMint’s reserve.
ZenGold uses gold from the Shanghai Gold Exchange (SGE). Established in late 2014, SGE is a late comer to the international gold market. With purity of 99.99% or higher, gold bars auctioned at SGE, the price is quoted in the Chinese currency RMB.
2 — Ownership & Redemption of physical gold
There are two types of solutions for gold storage in the market: allocated vs unallocated. With fully allocated accounts one pays for the gold to be securely stored in a legal custodian while maintaining ownership of it.
Unallocated gold however doesn’t store your gold for you. They cost less but there is always the risk of paying for gold that you do not actually own. 95% of the gold traded in the market is unallocated gold, such as the gold banks try to sell you.
It is advised that you always check whether you are the actual owner of the gold you bought, or your are just a creditor to the gold owned by the provider that has the gold as liquid reserve.
Digix offers fully allocated solution rather than fractional reserve. The supply of DGX can be tracked on the Ethereum distributed ledger that reflects the inventory held in custody 24/7. The physical gold can be redeemed anytime at The Safe House, Digix’s official custodian vault.
HelloGold offers allocated account even for owning a fraction of a gram. Redemption of physical gold can be requested in HelloGold mobile app and delivered to the customer’s’ address by courier service.
GoldMint states on their website that they have “a gold reserve locked up in storage”. If a customer desires to redeem gold bars, the company states that “in case it comes up to some big volumes our cooperation with Brinks.com may be a possible solution.” No clear process on how the redemption works.
ZenGold states that gold is “securely stored in Shanghai Gold Exchange”. At the time of writing the redemption of gold bullion can only be done by request of insured delivery to a physical address provided by the requster.
3 — Technological Stack
Needless to say, as platform solutions the technological architecture will mostly likely impact data security, speed of transaction as well as ease of use.
Digix runs on the Ethereum blockchain and uses Proof of Asset protocol for asset management.
HelloGold is now based on a centralised server but plans on migrate to a decentralised private chain by 2018 (quote in white paper).
ZenGold is developed on ‘Metaverse Blockchain’ which is said to be “unalterable”.
GoldMint is built on graphene instead of ethereum-based smart contracts. The company’s reasoning for using Graphene is that it’s “safe” and more productive for being the only blockchain for GOLD ICO. It also supports PoS which some of the other contenders don’t offer. It’s also cheaper than ethereum because there is no ether commissions.
4 — Tokens & Fees
Each platform offers their own crypto gold tokens that has market value, making the ROI of these tokens an important point of consideration. Here we focus on the gold-backed tokens instead of the tokens offered at ICOs during crowdsale.
HelloGold offers HGT and GBT, with the latter being the gold backed token. 1 GBT is tied to 1 gram of gold. Lifetime total allocation of GBT is capped at 3,800,000 GBT or 3.8 tonnes of gold.
Digix’s gold backed token is DGX, created under Ethereum ERC 20. It’s open source and available on token exchanges such as Bittrex, GateCoin and Yunbi. Digix wants to grow DGX as the stable coin of cryptos and maintain stable value. Currently 1 DGX = 1 gram of gold.
GoldMint’s own crypto asset is GOLD, and one GOLD equals one ounce (31,1035 grams) of gold. The price of GOLD is set according to gold price at LBMA market.
ZenGold offers ZNG which represents one gram of gold stored in the Shanghai Gold Exchange and will be used for acquire, trade and transact on the ZenGold platform. As mentioned earlier, gold price traded at SGE are benchmarked in RMB (Chinese currency).
In terms of platform fees, below is the most current information:
Digix: DGX tokens have a demurrage fee calculated ACT / 360 daily at 0.60% per annum, and 0.13% transaction fee.
HelloGold: 2% transaction fee and 2% annual management fee.
GoldMint: LBMA + 5% for buying, and LBMA + 3% for selling GOLD, plus 0.2–0.8% commission per annum for management fee.
ZenGold fee is 0.1% of the total value of each transaction capped at 1 ZNG.
Other companies like Copernicus Gold leverages the blockchain technology to securely acquire and store gold, but does not issue cryptocurrencies.
The digital gold rush is young and exciting, and hopefully, one or a few of the many crypto-gold assets will stabilized in value and reinstall confidence in believers of the circular economy.