Early this morning as I drove to the dentist, I was thinking about what to blog about today. It didn't really work to come up with an idea, but it was a perfect distraction for my thoughts. Because no matter how much I enjoy driving, I thought my destination was so terrible. Unfortunately, the ride didn't last long enough to calm my nerves, but there wasn't much that could be done about that. Once I was in the waiting room at the dentist's office, I looked around. Sometimes the ideas to write about come at the illogical moments, And you can be totally inspired by an object. Long story short, a woman sitting across from me caught my eye, and she was quite adorned with jewelry. Now, I have to admit that I also like jewelry myself, but the exaggerated way in which this woman was hung jewelry, was so extremely flashy that I didn't like it anymore. She looked pretty much dressed in gold with a bit of cloth to cover the bits of body that had no jewelry. It was pretty glittery in the waiting room. I'm sure it was all fake gold that glittered, but still... it gave me an idea to write about.
Investing in gold is not bad at all
Because investing in gold is of course not a bad idea at all. That has been done for centuries. But why? Many investors have gold and other precious metals in their portfolios, either directly or indirectly, to diversify their assets. The motive behind this may differ per investor.
For example, the price of gold fluctuates, so you can also make a return on your investment in gold. In specific economic situations this can be very profitable, but often this is not the main reason to invest in gold. Gold gives people the ability to protect their wealth. This can be the case against various events, such as, for example, against inflation and thus the preservation of purchasing power.
Gold is the only means of payment trusted by people throughout the ages. Currencies come and go, but gold persists and retains its value. For example, it is sometimes said that 1 troy ounce of gold always equals a good suit or a load of good wine, which was the case during the Roman Empire and still today. Due to this stable value, paying with gold coins becomes a lot more common in financial situations like the Great Depression.
Previously, we had the gold standard, which gave the cash an actual intrinsic value. Today, since 1971, we have not had a world currency that has a gold standard, but fiat currencies that operate on the basis of trust. And since the rise of the blockchain and cryptocurrencies, there have also been tokens that represent a certain value due to the gold backing.
What is a Gold Backed Cryptocurrency?
And then we come to the next bit. Because a gold-backed cryptocurrency, like other cryptocurrencies, is a digital currency on the blockchain. The difference with other cryptocurrencies is the underlying value. Most cryptocurrencies operate entirely on a supply and demand basis, while gold-backed cryptocurrencies look at the value of gold. The value of the respective coin may differ, because not every coin represents a value of 1 kg of gold. There are also crypto coins that represent, for example, 1 troy ounce or 1 gram of gold.
The value of the gold-backed cryptocurrency must also be physically present with the relevant company or a trusted manager of the physical precious metal. Because of this collateral, the coin actually represents the value in gold, where most cryptocurrencies only have speculative values. Most of the cryptocurrencies backed by gold are ERC-20 tokens, but there are some exceptions to this, which will be discussed in this article.
Every asset has its pros and cons, with gold being no exception to the rule. Thanks to the gold tokens, which are backed by physical gold, a nice solution has been found for this. Because these tokens are stored on the blockchain, you can say that this investment is just as flexible as Bitcoin and altcoins. It is of great importance that the digital gold coin remains well covered with actual physical gold.
Which cryptocurrencies are based on gold?
The idea of a digital gold coin as an alternative payment system is almost as old as the internet. Not long after the internet went mainstream, in 1995 E-Gold emerged as the first digital currency based entirely on gold. At its peak, millions of people around the world used this coin until it was discontinued. After the introduction of Bitcoin, several initiatives quickly emerged to develop a digital gold coin on the blockchain.
Ultimately, dozens of cryptocurrencies emerged, which we will go through in this piece. The two most famous examples are PAX Gold (PAXG) and Tether Gold (XAUT). The names of these two coins may ring a bell, as the companies behind these gold coins are known from other activities in the crypto market. For example, Tether is the company with the most widely used stablecoin, called USDT. PAX also has its own stablecoin, but is a lot less known as Tether. You may recognize the company by the name Paxos Standard.
PAX Gold (PAXG)
The Paxos Trust Company has released several Paxos Standard Tokens, including the PAX Gold (PAXG). This token is a regulated token, which has the approval of the New York Department of Financial Services (NYDFS). The regulator of the US stock exchange, the Securities and Exchange Commission (SEC), which is, among other things, known for the lawsuit against Ripple, has given the company behind PAXG the legal approval.
PAXG is an ERC-20 token on the Ethereum blockchain, representing one troy ounce of gold. You can easily exchange this gold coin for fiat currencies, but also for physical gold. You can do this via the Paxos platform. PAX Gold can be seen as the most famous gold coin, which can be found on many crypto platforms.
Tether Gold (XAUT)
Like PAX Gold, Tether Gold (XAUT) also represents one troy ounce of gold. The remarkable thing about XAUT is the fractionalization of gold. You can buy a piece of gold far behind the decimal point via the crypto coin of Tether. XAUT is also an ERC-20 token, which is located on the Ethereum blockchain. The collateral is safely stored in Switzerland.
The XAUT tokens represent a specific gold bar, which has a unique serial number. You can view further data yourself via the website, which is linked to the XAUT token and the gold bar itself. With the advent of the digital gold coin, Tether aims to bring together three different worlds: direct trading in physical gold, accessible trading in traditional assets and the benefits of blockchain technology.
Report Gold - Algorand
Meld Gold also makes investing in gold accessible to every investor. Using Algorand's protocol, the gold delivered is traceable, fungible, tradable, transferable and redeemable. Meld Gold ensures that the digital gold is tokenized, in the form of a Meld Digital Gold Certificate.
These tokens, which are equivalent in value to one gram of gold, are backed by the Algorand Wallet. This is very suitable for users of Algorand, who also want to have gold in their portfolio. You can quickly check the current value of your investment in your wallet and perform transactions.
Other gold coins
In addition to the above projects, there are countless more examples of cryptocurrencies that have gold as collateral. You can roughly divide these cryptocurrencies into three categories. The first and most accessible category consists of companies that focus on 1 gram of gold. There are various companies worldwide that manage physical gold themselves or have an administrator somewhere, so that they have one gram of gold as collateral per token. Because of this, there is a direct correlation between the gold price and the tokens below.
| Name | Abbreviation | Location | Information |
|---|---|---|---|
| BlockNote | BNO | Estonia | Physical gold is present as collateral. |
| AurusGold | AWG | United Kingdom | 50% of the fees go to the holders of AurusDeFi (AWX). |
| Gold Standard | AUS | Australia | Physical gold is present as collateral. |
| Novem | NNN | Liechtenstein | 100 tokens equal 1 gram of gold. |
| OneGram | OGC | Dubai (UAE) | Physical gold is present as collateral. |
Although most companies focus on 1 gram of gold, the category below is often the benchmark. However, gold is a relatively large investment, making grams of gold more accessible to the general public. When one generally looks at the price of gold, one looks at the price per troy ounce. This is exactly 31.103 grams of gold, which amounts to about 3.1% of one kilogram of gold.
| Name | Abbreviation | Location |
|---|---|---|
| ACU Gold | ACUG | Hong Kong |
| Perth Mint Gold Token | PMGT | Australia |
| DaVinci Token | DVT | Switzerland |
| GODcoin | GOD | United States |
There are also several gold coins that focus on gold mining. These mining tokens have no value that is directly related to the gold price. The examples below have varying prices, which are not related to the price of 1 gram, troy ounce or kilo of gold.
| Name | Abbreviation | Location | Information |
|---|---|---|---|
| Jinbi | JNB | London, UK | You also receive a dividend, which is paid in gold or JNB. |
| TrueGoldCoin | TGC | St Kitts & Nevis | More than 1,800 ha of mining land in Colombia. About 10% of the coins are backed by the TGC trust. |
| JP Gold Coin | JPGC | Nigeria | Gold of this token is extracted from African gold mines. |
| Gold Fund | GFUN | Australia | Finances gold mining and receives a portion of the proceeds for it. |
In addition to the above examples of gold-backed crypto tokens, there are several projects developing similar products. There are also numerous projects where some aspects are unclear, so they have not been added to the above lists. If you literally added all the gold coins here, you'd end up with a list that was probably more than 10x as long!
Staking - Gold cryptocurrencies
If you want to get more out of your investment, you can choose to discontinue your crypto tokens. In particular, PAXG is an ideal token to stake, as several platforms offer staking rewards for PAXG.
If you are interested in this, look for the best platform to use for this. In addition to the interest rates that are different, each platform also has different preconditions, and advantages and disadvantages.
And then you have the tokens that you think have to do with gold. But what turns out to be completely different when you look at them. Below are a number of tokens where this is the case.
Bitcoin Gold (BTG)?
Bitcoin Gold is linked to Bitcoin, but not to gold. BTG was founded in 2017 with the goal of developing a better version of Bitcoin. Among other things, the mining of the coins had to be more accessible to the general public.
Gold Bit Coin (GBC)
This project is no longer backed by gold. The cryptocurrency is used to make online payments while shopping, with the company itself describing their coin as the "modern gold" within the industry.
GoldCoin (GLD)
This has been around since 2013. It is a token that is not backed by physical gold. This decentralized cryptocurrency has been split off from Litecoin and in its own words 'digital gold'. You can purchase this through LATOKEN.
Two other coins that seem related to gold in name are Bullion (CBX) and GBC GoldCoin (GBC), which, like GLD, have been around for quite a few years. CBX was also founded in 2013 and GBC followed in 2015. Both coins have been in a downward trend for years.
Conclusion
With the advent of the blockchain, many new developments are underway. One of these are the various companies that issue digital gold tokens, with actual collateral. This collateral can vary per token, with almost every token being worth 1 gram or 1 troy ounce, but there are also tokens that focus on gold mining.
Blockchain technology makes it possible to handle gold more flexibly. However, the question remains whether each project actually has the physical gold as collateral. When people want to exchange their tokens for physical gold, when there is not enough in stock, this can have negative effects financially.
I am neither for nor against the principle. Investing in physical gold is never wrong in my humble, totally unexperienced opinion. However, do you want this via cryptocurrency? I do have my doubts about that myself.
