Gold is probably the longest-standing cryptocurrency in the world. Why is that? Creating gold out of anything other than gold is just as impossible as creating a copy of a bitcoin today. The physico-chemical nature of gold guarantees the inviolability of its innermost nature. But not only does gold have a unique molecular nature: over the ages, it has also become a currency accepted by all, that no public or private institution has managed to control or direct the supply and demand of (and therefore the value) on a lasting basis. Just about everyone has appropriated gold to a certain extent, but no one has ever truly managed to control it on their own. Even the US, which had attempted to control gold by using it to back the dollar from 1944 to 1971, were unsuccessful. In fact, that effort actually backfired on the country.
So, yes, gold is regulated, and its pricing rules are guaranteed by major actors. But this is also true of the main cryptocurrencies. And, in the end, the rules associated with global supply and demand, and with the extraction and use of gold, are what control the precious metal. They themselves and no one else. In other words, gold is an asset whose creation is inviolable, with governance rules which are universal and clearly not centralized. These are the key features of the biggest cryptocurrencies, making the yellow metal the best candidate to become the most effective asset underlying a robust stablecoin.
Gold preserves buying power
Gold and Silver have consistently had a special place in people’s hearts. As symbols of both financial power and security, these two precious metals have always been universally recognized as indisputable economic assets, and even currencies in their own right, and this for at least the last six millennia. They have come through each civilization, supported the development of every empire around the world, and enabled the transmission of wealth with incredible stability, all the way to the present day.
Gold is a reassuring asset and THE safe investment par excellence over the course of millennia.
Gold and silver are the only tangible assets likely to preserve the value of capital over time and through crises, particularly in a constantly changing world like the one we live in today. Private banks and central banks today are the first to consider it to be a AAA asset while, on the contrary, they are unable to manipulate its price, unlike other assets.
Because not only do states own gold, major private banks, various companies and private individuals do too, all round the world, each country has at least one law legalizing its sale and purchase. As a result, it is recognized and organized by both the highly advanced financial industry and tribal users in places employing only the barter system.
Even more surprising nowadays is the fact that large banks use physical gold on a daily basis to reduce their own expenses when executing transactions between them. Therefore, the underlying mechanisms which they utilize need to be simplified so that anyone and everyone can take advantage of them. That is the role of people like us, who have made this our day-to-day business for years, and VeraOne is an ideal solution in this respect.
Buying power preserved for millennia
Just compare the buying power of gold over the centuries, and you will realize how much its safety as an investment instrument has remained intact. For example, it took two ounces of gold to buy a cow in Ancient Egypt, and it still costs the same amount today. Closer to home, a 20 franc coin could be used to buy a new bicycle in 1912, and this is still the case in 2018.
This constancy cannot be found anywhere else, and no currency can claim this same ability to preserve the value of capital. This is particularly true since currencies are based on debt and lose their value day after day. For example, the dollar — today’s currency of reference around the world — lost 98% of its value compared to gold over the last 100 years, especially since 1971 when its link to gold was definitively severed.
A safe asset to pad your portfolio in uncertain times
You can’t build an empire on snow in the sun. Likewise, you shouldn’t build up capital based solely on intangible assets which could melt away — like snow under the heat of the sun — overnight.
And yet, that is precisely what we do when we prioritize investments in shares and currencies. The former can quickly lose their value after a stock market crash, as seems to be happening more and more frequently, while the latter nowadays are based on debt in a world which is already living well beyond its means. Between bankruptcies and business failures, the prospects for our economic future seem bleak.
Nonetheless, all human society has experienced major economic upheaval, but each time, those who managed to stay afloat were the ones who had thought to protect their capital through safe investments. In other words, by investing in immutable, constant and unquestionable assets which retain their intrinsic value in any circumstances. Gold is precisely that type of asset and, in the face of an uncertain future, it remains the best insurance policy for your capital today. This precious metal is indeed the only “reservoir of wealth” to have never failed in its primary function, despite the fact that it generates no income.
The reality is that central banks have never bolstered their gold reserves as much as they have in the last decade. This is undoubtedly the most conclusive sign of the importance of gold in uncertain times.
A safe asset in high financial demand
Despite official discourse seeking to discredit investment gold and to keep it away from savers, institutions are displaying an obviously growing appetite for gold as a safe investment, which they have been stockpiling for several years now.
Worldwide demand for gold for industrial purposes has risen by 2% to 3% annually in recent years in response to new technological needs but jumped by a whopping 20% in terms of central bank investments.
In other words, most of the world’s central banks have considerably ramped up their physical gold holdings, particularly in emerging economies seeking to consolidate their foreign exchange reserves while splitting away from the increasingly struggling US dollar. This includes India, Mexico and Turkey, but also and above all China and Russia, which aim to create a real monetary counterweight to the dollar in the years to come.
Closer to home, here in Europe, the Germans are also proving to be major buyers of gold, although interest in it is highest among private individuals. It should be noted that the country was hit hard by a terrible monetary crisis between the two World Wars, and memories endure of the consequences of the overuse of money printing presses, as the ECB seems to be doing today. Last year, more than €6 billion were put into gold investment products by German citizens looking to protect their savings.
The situation is the same in France, where gold’s reputation as a safe investment remains intact, with more than 70% of the population considering it to be the best asset for protection in times of crisis.
A brief anecdote: During a survey of a panel of people (in France) who believe that cryptocurrencies could be better currencies than the euro, nearly 80% of them stated that gold itself could be a better currency than the euro. When asked that same question, 38% of a standard population (2018 OpinionWay survey of 1,000 French adults over the age of 18, representative of the French populace) thought that gold could be a better currency than the euro. This is quite something, particularly given that just 35% of those same people believe that the dollar might itself be a better currency than the euro. It would appear that we do not have the currencies we want today…
Gold is both a savings tool and a currency
The core concern of large economies is to fight deflation. Their objective is to boost consumption in order to stimulate growth by offering very low rates and massive cash emissions. The problem is that the money injected into the monetary circuit does not benefit the real economy, global growth still struggles to take off, and private citizens see their savings shrinking away to nothing.
Rare are those investments today which combine returns and security, without putting money into dynamic investments on the one hand and gold for security on the other.
Gold is a safe investment for a variety of reasons:
Gold is the oldest currency in the world.
The precious metal is rare yet still available in sufficient quantities, non-oxidizing, malleable and durable, and has been used as an exchange currency for trade for the last 6,000 years. The first gold coins to be minted date back to around 600 BC. The yellow metal has inspired confidence for centuries. Unlike State-issued fiat currencies, gold cannot be printed ad infinitum. The mass of global gold reserves is well defined, amounting to roughly 190,000 tonnes, or a huge cube measuring nearly 22 meters on each side. In terms of inflation, the value of gold is very stable over time, unlike the US dollar, that lost 98% of its value in less than a century.
People invest in gold as protection against risks.
Gold should not be seen as a classic investment. It is an idle asset which generates no returns. And at the end of the day, that is not what is expected of it: people invest in gold to protect their wealth and hedge against financial losses from other, riskier assets.
Gold, which is moreover physical (coins and ingots), should be viewed as fire insurance for one’s assets, as a form of precautionary savings. In 2008, and again in 2011, physical gold perfectly fulfilled its role as a hedge. When all the market assets took a nosedive, including the price of “paper gold”, there was very high demand for investment gold coins, whose price skyrocketed with the bump in their premiums (30% for the Krugerrand for example and nearly 100% for the American Liberty). Those who had had the good idea of acquiring some at good pre-crisis prices were able to absorb the losses generated by their other assets. Physical gold is the best wealth insurance.
Gold is the best weapon against inflation and deflation.
According to the inverted pyramid defined by American economist John Exter, gold is the most reliable asset and the most liquid in periods of deflationary crises. At the top of the pyramid are the least liquid assets like real property and the riskiest assets like derivatives.
Conversely, in the event of high inflation levels, the price of gold rises much more quickly than other prices, such that it offers solid protection. During deflationary periods, at best it outperforms other assets, and at worst it preserves its owners’ buying power.
Gold possesses payment power.
Gold is one of the only assets, along with legal tender currencies, to be accepted for business transactions and debt repayments, referred to as its “payment power”.
Conclusion
Gold is, by its very nature, the valuable asset which meets all the necessary conditions for being the king of underlying assets for any token which aims to be a robust stablecoin. Can the same be said of the dollar or the euro? Those currencies are clearly not universal (or only to a limited extent), their issuing rules can fluctuate along with monetary policies, and their underlying asset is the trust we place in the States issuing them — essentially, our confidence in our ability to perform work in the future to cover the debt represented by those currencies. What is then surprising is that serious stablecoin projects could rely on those same currencies as their counterparts, despite the fact that they are contrary to the spirit driving any cryptocurrency. For example, the Fed could decide one day to legitimately bar Tether from using the dollar for its stablecoin. And that is precisely what it did with anyone that wanted to engage in trade with Iran, particularly banks. This is also what the Fed will likely implement against the Libra project if it wants to wipe it out before it even gets off the ground.
The US dollar is the property of the Fed, not yours, even if you have a wallet full of it and use it on a daily basis. The ECB would be perfectly within its rights to do the same with users of the euro. But none of this is possible with gold, because no State defines the rules by which others can use gold and above all because no State owns your gold, unless it steals it from you. This has become quite difficult today, with globalization and the ability of anyone and everyone to own something without keeping it hidden at home or deposited at the bank. On the contrary, assets can be stored thousands of kilometers away in structures known to be inviolable and neutral (even when dealing with States).
Individuals and companies today now have at their disposal what central banks have enjoyed for some 200 years: storage of their gold in secure locations where it cannot be confiscated. This is precisely what VeraOne offers for example, in addition to a robust blockchain which allows our customers to universally prove that they are the sole owners of their gold.
