Gold-Backed Cryptocurrencies: Everything You Need To Know
Conventional cryptocurrencies such as Bitcoin have had a fair share of backlash. Their major pitfalls include lack of physical backing and reliance on peer-to-peer computer transfers. Since no one can see the money, critiques have long questioned the credibility of cryptocurrencies. As a solution, the concept of asset-backed cryptocurrencies emerged.
If this is your first time to hear about asset-backed cryptocurrencies, these are digital currencies that are attached to the value of physical assets such as real estate, oil, commodities, minerals and even precious metals such as gold.
In this guide, we will explore one category of asset-backed cryptocurrencies: gold-backed cryptocurrencies.
First, what are gold-backed cryptocurrencies?
Gold-backed cryptocurrencies are digital currencies that are tied to the value of gold. This means that although the crypto coins are on a distributed ledger and therefore easy to trade, they also have intrinsic value (something that traditional cryptocurrencies lack).
So, how did gold-backed cryptocurrencies come about?
The concept of tying the value of a digital coin to that real, tangible gold is not new. The first gold-backed digital currency, E-gold, was launched in 1999. The founder of E-gold, Doung Jackson, figured that because (unlike fiat currency) E-Gold was able to withstand the highs and lows, it would be the ideal solution to the ills that faced the monetary system.
E-Gold gained massive popularity and was used by millions of people around the world. Privacy-conscious institutions such as Netizens were impressed by its privacy levels and used the coin to open anonymous accounts. The coin also gained popularity among overseas sellers who used it to make cross border transactions.
Unfortunately, E-Gold later faced by several issues that led to its shutdown. Some of the factors that led to this downfall were increased competition, a massive growth of traffic that led to lagging transactions, and the rise of cybercrime that threatened the coin’s security.
Several other attempts were made at launching a gold-backed digital currency, but the craze was short-lived. For instance, in 2015, a new gold-backed cryptocurrency named Xaurum was launched, but it did not go far. It is only after Bitcoin and Blockchain became popular that the gold-backed digital currency craze returned.
In the past couple of months, numerous gold-backed cryptocurrencies have been launched or relaunched. Even government mints such as the UK mint have launched their own gold-backed cryptocurrencies.
With so many companies getting on the gold-backed cryptocurrency bandwagon, the question on everyone’s mind is: How do gold-backed cryptos work? We shall cover this in the next section.
How do gold-backed cryptocurrencies work?
The basic concept of gold-backed cryptocurrencies is compelling for sure. A digital token is launched that represents a certain value of gold. For example, one coin of token X represents the value of one gram of gold.
The gold that the token is hinged to is stored by a trusted third party. The gold can be traded by other token holders.
The value of the gold-backed token will, at any given time, be equal to the prevailing rate of gold. This means that should the token fail to take off, it will still be valued at the current price of gold. On the other hand, if the token gains popularity, its value can rise above that of gold.
So, what makes gold-backed digital coins different from their predecessors?
Difference between gold-backed cryptos and other cryptocurrencies
Besides intrinsic value, the other difference between gold-backed cryptos and mainstream cryptocurrencies is their entry-level costs. Most of the investors who were quick to buy mainstream cryptocurrencies in their early days only had to invest pennies. However, for a gold-backed cryptocurrency, the minimum investment has to be equal to the current price of gold.
Another difference between these two cryptocurrency groups is their price swings. While the price of mainstream digital coins such as Bitcoin and Ethereum can rise and fall to any level, gold-backed cryptocurrencies have a built-in stop loss.
Like we have mentioned before, the value of a gold-backed cryptocurrency cannot fall below the value of gold. Should such a coin gain massive popularity, its price can rise way above that of gold. But if the gold-backed crypto doesn’t do well, its value will remain at the rate of gold.
Let us now look at some of the gold-backed cryptocurrencies that have been launched in the recent past.
Popular gold-backed cryptocurrencies
- Digix Gold Tokens (DGX) — Singapore
DigixDAO is a Singapore based organization that was formed by Digix Global Company to develop a crypto coin that is backed by actual physical gold.
According to their whitepaper, Digix global’s asset-backed token is created using a proof of asset or proof of providence protocol. The first token they have tokenized is gold. They plan to extend to other precious metals, but they will currently focus on the tokenization of gold.
Digix global has already created two Ethereum tokens DGX and DGD.
The company’s aim is to use decentralized consensus among the token holders and DigixDAO to grow the Digix ecosystem. Token holders are granted permission to access the platform, and they can contribute to managerial decisions or take part in any proposal submitted to DigixDAO. As compensation for their involvement in decision making, token holders will receive DGX tokens.
This move will allow investors to reap the benefits of being in the crypto sphere while still benefiting from the low volatility of gold. The move will also increase the liquidity of gold.
Digix gold token
Digix gold token is Digix global’s gold-backed token. One DGX token is equal to one gram of gold. The gold used to back the crypto coins is stored in a vault in Singapore. Token holders withdraw their tokens for the equivalent amount of gold. The minimum withdrawal amount is 100 grams.
The Digix tokens are only created when someone wants to use the Digix marketplace to purchase gold. When you make a purchase, you receive DGX that is equivalent to the gold you purchased through the Digix exchange. You are free to redeem the tokens for actual gold whenever you want to. You can either choose to have the gold sent to you or you can travel to Singapore and pick it up yourself.
Digix has been doing well. By January 2019, they had doubled their gold holdings from 50kg to 100 kg. This is not surprising since most investors have only been shying away from cryptocurrencies because of their volatility. A gold-backed cryptocurrency such as Digix gold token solves this problem, and it is therefore highly welcome.
For now, Digix has only one vault in Singapore. According to the company’s co-founder, Shaun Djie, they plan on expanding to new jurisdictions. They are currently considering places that have been showing increasing demand, such as Europe and emerging economies such as Vietnam.
The company hopes that their DGX coin will continue to gain traction and finally attract the attention of traditional sectors.
2. OneGram (OGC) — UAE
OneGram is a sharia-compliant cryptocurrency based in the United Arab Emirates. The crypto coin is backed by gold which is one of the six rabawi commodities that Muslims are free to trade in their world. The other five commodities include wheat, silver, barley, dates, salt, and silver.
One OneGram coin is equal to the rate of one gram of gold. The cryptocurrencies transaction scheme is developed in an accumulative way; 70% of the transaction fee is used to add to the gold reserves.
The fact that OneGram is the first sharia-compliant cryptocurrency is not its only “the first.” The coin is also the first gold-backed digital coin that is built on the DPoS Blockchain. The coin is also the most successful digital asset specifically made for Muslims. This is evidenced by the volume that the coin accumulated through its ICO.
3. Gold Bits Coin (GBT) — Australia
Gold Bits coin is an Ethereum based gold-backed cryptocurrency. Unlike other gold-backed digital coins we have talked about, Gold Bits is only 15% backed by gold. However, the coin’s white paper states that the coin has numerous utility features including, paying for goods and services from merchants and online shopping stores.
The company behind Gold Bits Coin believes that the key to mass adoption of cryptocurrencies is in creating a coin that people can use to make their day to day payments. GBS therefore boasts of potential usability as legal tender as one of its characteristics.
4. Goldmint (MNTP) — Russia
Goldmint was founded by a group of people who have vast experience in processing gold from scrap gold, refining it, the accounting involved, and also creation of the needed software among other services. The founders own an established pawnshop in Russia that has traded over 5000 kg of scrap gold in less than two years. Goldmint is built on a private blockchain that is based on the Graphene technology.
5. Zengold (ZGC) — China
Zengold is a gold-backed cryptocurrency based on the POA protocol. One Zengold coin represents a gram of physical gold that is stored in the Shanghai Gold Exchange Vault. Zengold token holders are free to transfer their token through their Metaverse blockchain wallets. They do not require any special network conditions to do this.
Zengold, like other digital currencies, is a crypto-tech secured token. This means that it is capable of being used to make payments any time. It also means that it generates lower transaction fees. Each token, representing a gram of gold is divisible into 0.001 grams. Users pay 0.1% of the total value of each transaction.
6. Puregold Token(PGT) — Singapore
Puregold’s website terms the cryptocurrency as the first payment gateway that uses gold-backed tokens.
The company offers two digital tokens PGG and PDT. Each of the tokens runs on a different ledger.
PGG is a gold-backed cryptographic token while PGT is used to pay for transactions. The gold used to back the crypto coin is of 999.9 quality.
7. Xaurum (XAUR) — Slovenia
Xaurum is often referred to as the blue-chip of crypto because of its regular gain, high reliability, and minimal risk.
The company’s business model was developed in such a way that their digital coin will gather 5 tons of gold in just three years. This is more than a 4000% increase in their gold reserves.
8. Darico(DEC) — Switzerland
Derico is an ERC 20 token that was created to help holders gain access to the Darico ecosystem.
Darico is backed by 10% ether, 35% solid gold, and 55% Bitcoin. The token therefore gains from the growth potential of two of the top value cryptocurrencies.
9. The Midas touch Gold (TMTMG) — South Korea
The Midas touch gold project is made up of three main elements:
The first element is the TMTD token as a utility token that can only be used to purchase virtual currency on the DGE platform.
The second element is the gold-backed MDG tokens that are pegged to one gram of gold and are purchased on the DGE platform.
The third element is an online exchange (Digital Gold Exchange) where gold and MDG tokens are purchased using TMTG coins.
Cryptocurrencies with gold on their names but are not backed by gold
We would also like to bring it to your attention that some cryptocurrencies out there have the word gold on their name, but they are not backed by gold or related to gold.
A good example is Bitcoin Gold, which is not attached to any physical gold but is only a hard fork of the Bitcoin blockchain. Another example is Ethereum Gold which is based on the Ethereum blockchain and has nothing to do with gold.
How to buy gold-backed cryptocurrency?
By now you are probably wondering how you can lay your hands on one of these gold-backed cryptocurrencies. Well, the method of buying will differ from one gold-backed token to another. However, the common factor is that you should have enough Bitcoin or Ethereum to enable you to purchase the gold-backed coins.
Once you have the required amount of Ethereum or Bitcoin, you can visit the website of the gold-backed token you want to purchase and follow the instructions.
If you are interested in purchasing GDX tokens you should know that it is not difficult at all since this is an Ethereum-based token. The DGX token can be purchased in the following exchanges: Ethfinex (supported pairs are DGX/ETH, DGX/USD) and Kyber Network (supported pairs are DGX/ETH).
Once you have purchased the coins. You can use any of the following wallets to store it:
- Mobile wallets such as Coinnomi and Jaxx
- Web browser wallets such as Jaxx
- Desktop wallets such as MyEtherWallet
- Hardware wallets such as Ledger Nano S and Trezor
Final word
When you think about the volatility and lack of intrinsic value of mainstream cryptocurrencies, it is obvious that asset-backed cryptocurrencies such as gold-backed digital tokens are the best crypto investment.
They allow you to benefit from the good qualities of cryptocurrencies such as scarcity, decentralization, divisibility, transferability, and fungibility while still enjoying the reliability of gold as a measure of value. That said, we anticipate that more investors will join the gold-backed cryptocurrency bandwagon in 2019 and beyond. Just like other crypto investment, always do due diligence before you purchase these coins.
What is your take on gold-backed digital currencies? Feel free to share your thoughts below.
