The Shiny Sh*t Token: 4 Reasons Against Gold Backed Tokens
By Henry Fudge on ALTCOIN MAGAZINE
Between the elements of the daily grind, I often find myself with some spare minutes to browse ICOBench to check out what is coming up in the ICO / STO sphere. I like to see what new potential market leaders might be hitting the space, what projects might take on world beating funding, what markets and issues they are tackling, It is often inspiring to see the creativity of Blockchain founders. Sometimes, I am disappointed in what I see and this is one of those days.
Today I came across another 3…another 3 Gold backed projects, and I just remembered how many I have seen over the last few months, and thought, no one seems to have spoken much about this yet, just how many there are out there.
This is an incomplete list of projects that operate with a gold backed coin:
Kuknos, Onegram, AgAu, Airgead, Anthem gold, Asset base, Aurum Coin, Aurusgold, Bullioncoin, Currensee, Cyronium, Darcio, Digixglobal, Dinardirham, Doradocoin, Egold, Flashmoni, Goldbitscoin, G coin, Goldcrypto, Goldmine, Goldmint, GoldUSA, HelloGold, IC3 gold, Karatcoin, Onegram, orocrypt, OzcoinGold, Pecunio, Puregold, Reales, Royal Mint Gold, Sudan Gold Coin, The Midas touch gold, USDVault, X8Currency, Xaurum, Xgoldcoin, Zengold, Gigzi, Goldmint.
41… 41 projects doing more or less the same thing.
17 of these projects are doing the exact same thing, with the exact same words on their almost clone like websites.“Backed by one gram of 99% LBMA gold.” This isn’t even all of the Gold Backed projects, that list was taken from one website, who gave up counting because it was too much effort, here are some others found from a brief google and a look through my Linkedin messages:
Kinesis, incoin, Eidoo, Jinbi, Golden Currency, Novem, Ekon, Bitgold, Hellogold, Canamex.
It’s not big, It’s not clever. Just stop it.
There are an estimated 60 companies offering exactly the same thing or releasing it over the next 6 months, it is frankly ridiculous. We have a situation in which the differences between them are non-existent.
“Those who do not learn the lessons of history are doomed to repeat it.” — Winston Churchill
While there is a solid Economic argument for a gold-backed cryptocurrency to maintain values compared to say, Tether, there is a simple reason why the world moved away from metal backed currencies. Here I will dig up some …golden oldies… to tell you why gold backed crypto will not be the future.
While the gold standard has a longer track record than fiat systems, with it only ending in the mid Seventies after centuries, it is not free of issues. During World War One, there was a brief interlude where the majority of western nations suspended gold convertibility, revoked the gold standard for a fiat system, simply to facilitate governments balance of payments deficits required to fund the war effort. After the war, the gold standard was irreparably damaged simply due to the knowledge that the government has no commitment to the gold standard, It may change its mind at any time, which during the 30s great depression they did frequently, starting with the British in 1931, suspending it until the Bretton-Woods Conference in 1944. The monetary system became speculative on the basis of the lack of public trust in the commitment of their governments to the gold standard, which increased the redemptions of gold for currency by careful citizens, which led directly to a lack of gold reserves which drove governments away from the gold standard.
The idea that these start ups will guarantee the convertibility of their coins on a gold standard better than sovereign nations is just daft. If the Empire on which the sun never sets cannot be trusted to maintain the gold standard, why the hell would you trust any of these 60 poxy projects to do so?
If we look now to the Great Mali empire and Planet Earths richest man in history, Mansa Musa, King of the Mali, a region of the world with extensive gold mines. During his pilgrimage to Mecca between 1324 and 1325, his personal procession contained 60,000 people all covered in the finest silks, including 12,000 slaves who each carried 1.8kg in Gold Bars, with 80 camels carrying up to 130kg of gold dust each. He built a mosque every friday, he gave handfuls of gold to every single poor person he met, along with buying an absurd amount of souvenirs on his colossal journey. He gave out so much gold it was literally worthless, It devestated every economy he passed through creating colossal inflation. On his return journey, he had to take all the gold he could carry from the lenders in Cairo just to reduce the glut of gold there.
In the relatively small $130Bn Crypto market, while the coins are asset backed, much like the Mansa, there is such a glut of these projects, that the coins themselves are not going to have significant backing, I can forsee the majority of these projects failing to raise, there is a supply glut of gold projects, 60 is just too many.
We are almost forgetting that age old beautiful word, Seigniorage, the process of reducing the precious metal component in the circulating coinage, effectively detatching the face value of currency away from the true value as a commodity. This is partially claimed as one of the downfalls of the roman empire, with the purity of the coins falling successively towards the third century crisis creating successive economic crises. Inflation was so severe with the failings of Roman currency that Diocletian issued his Edict on maximum prices in 301AD. With difficulties in the acquisition of gold with the majority of their mines Exhausted, to expand the money supply to decrease spiralling inflation and to finance their own military that had left them in a deficit, they had little other choice but to reduce the purity of the metals in their coinage.
Seigniorage in regards to the Gold Backed Cryptocurrencies can come from the transaction fees imposed, with the true value of the coins successively depreciating as they circulate, with their face value (the commonly touted 1:1 fungibility) differing from their real or transactional value (a 2% transaction fee, leaves the coin with 98% of FV as purchasing power) The companies in question to generate a return sufficient to cover their costs by definition must commit to Seigniorage. On top of this falacy in the “1:1 redemtion”, Who is proving the quality of the gold incoming? More importantly, who qualifies the gold outgoing? While many state the LBMA, who do you trust? Much like the Romans hoped their soldiers wouldn’t notice the Denarii were only 48% silver near the end of the empire, Which of these exchanges will hope their users don’t independently verify their gold after they redeem their coins? If I can access these investments for only 30 or so dollars for a gram, will I pay an independent appraiser significantly to check I have truly fine Gold not Iron Pyrite or some gold coated iron? Maybe I am simply not trusting enough, but being in business makes you skeptical, I don't trust these firms to actually provide me gold on redemption.
Outside of Gold in the monetary system, Gold as an asset isn’t something to write home about.
Here are my 4 Reasons why Gold isn’t all that:
- People laud Gold as an effective Hedge against downside risk in traditional markets…but it isn’t. Over a 20 year observation period, it only has a -0.03 correlation coefficient to the SP500, Gold is not a good equity risk hedge.
- Some people hold it in the case of some kind of ‘disaster.’ or Economic ruin, thinking no matter what, people may accept gold. But, If the recession is Severe enough, the US government may seize any citizens gold and compensate it at a value they determine in dollars, thats the reserve act of 1934 for you.
- Gold Underperforms equities in all interest rate environments despite its claim as a hedge against inflation. “From 1972 through 2013, common stocks returned 14.68 percent in falling rate environments while gold futures returned 7.85 percent. In rising rate environments, stocks returned 8.47 percent while gold only returned 4.86 percent. When rates were flat, stocks provided a gain of 10.61 percent and gold returned 8.61 percent”-Robert R. Johnson,’ Invest with the Fed’ . Gold doesn't’ pay dividends either, so on top of that think of the lost cashflow over these periods.
- Gold doesn’t do anything, apart from very expensive paperweights, its relative uses compared to nearly any other metal is negligible. Even compared to Silver or Platinum other Jewellers favourites, the industrial end uses are negligible.
Warren Buffett says with regards to gold investors:
“They are right to be afraid of paper money. Their basic premise that paper money around the world is going to be worth less and less over time is absolutely correct. They have the correct basic premise. They should run from paper money. But where they run to is the mistake,” Buffett adds.
Gold backed Projects to me always make me sigh, because they prove to me what many think of the market, that we have a litany of unqualified amateur investors amongst our ranks. People who think they can beat the government with the 61st project that releases a gold backed coin, that somehow this flat and frankly poor asset will redeem losses from riskier ventures last year, some rose tinted vision that they might be a Crypto based Mad-Max trading gold in a post-fiat post-apocalyptic world. It is sad that for all of the innovation in this industry that so many are caught up and starting daft copy cat projects in this field.
