Best Gold-Backed Cryptocurrency
It’s too early to determine what the best gold-backed cryptocurrency might be, but it will probably be the one that can achieve the more “safe asset” characteristics than its rivals. Cryptocurrencies have been showing their Achilles’ heel, but unlike the hero from Greek mythology, cryptocurrencies are far more vulnerable than just the heel.
Ray Dalio, Warren Buffett, and even George Soros, who is not one to shy away from a good deal for himself, have not expressed favor for cryptocurrencies. They see it as the very worst kind of speculation at worst and an ineffective long-term investment at best. Cryptocurrencies cannot store value since they are bought and sold quickly (at least for now) because of the volatility.
Crypto or digital currencies are purely virtual products. They do not exist physically. As such, they require something akin to religious faith in order to invest in them. Until recently, most cryptocurrencies have nothing tangible to serve as a counterweight. More obvious still is the fact that they don’t produce anything of value.
We cannot understand them to act as a kind of replacement for gold; that’s silver, platinum, or aluminum. Even potash is a replacement for gold. These are commodities which serve a purpose beyond their mere speculative value. They have a demand. Cryptocurrencies don’t create value. The only thing that a bitcoin has in common with gold is that a central government bank or treasury cannot manipulate them. The similarities stop there.
Cryptocurrencies are not sold easily. In contrast, gold is infinitely liquid as an asset. You can convert gold ingots or gold bracelets just as easily into gold, anywhere or anytime. Anyone who’s ever needed cash fast knows that in an average-sized town, there’s always a pawn shop that can buy your jewelry, gold coins, or other metals.
Should you find yourself amid some of the lost primitive tribes of the Brazilian Amazon forest, gold can still help you. The same does not apply to cryptocurrencies. Gold will keep its value even after a nuclear explosion. Goldfinger of James Bond 007 fame taught us that. Bitcoin, not so much.
New Cryptocurrency Backed by Gold
The largest Australian gold refiner (or so it claims), Perth Mint, wants to issue a new physical gold-backed cryptocurrency. If it succeeds, it could make commodity-backed cryptocurrencies a reality. Among the first to try this route was OneGram. It launched its initial offering on May 27, 2017, issuing 12,400,786 coins, which were all sold the following September. (Source: “Cryptocurrency backed by gold being developed by Perth Mint to entice investors back to precious metals,” Australian Broadcasting Corporation, January 23, 2018.)
OneGram was issued in the United Arab Emirates. Each token represents an ounce of gold that can be redeemed at any time. The issuer receives a small commission and administrative costs.
The OneGram cryptocurrency price is its special ingredient. Even if its creators used the same blockchain technology principles behind other cryptocurrencies, the difference is that OneGram has a guaranteed floor price. No matter what happens, you will always be able to recover your holdings based on the price of one gram of gold. Thus, today the minimum price for a OneGram would be $42.99, because gold is worth $42.99/gram.
The idea behind OneGram might be the only way to ensure cryptocurrencies become established investment vehicles for the mainstream. The “normal” variety, like bitcoins, are subject to extreme volatility because nobody, save a handful of people involved from the start, understands what cryptocurrencies are worth. After all, the very concept of money has evolved over thousands of years. Cryptocurrencies are not even a decade old and they only really started to gain traction in 2017.
Certainly, when something is worth $18,000 one day and $10,000 the next, questions are raised. Yet no answers have come. One solution to get around the big mystery of cryptocurrency, however, might be to link it—or back it—to a known commodity or asset. Russia and Venezuela have considered launching cryptocurrencies linked to crude oil. However, gold might offer a more interesting and secure solution.
Perhaps the solution that could make cryptocurrencies more appealing and their value more stable would be to tie them to gold. Gold-backed digital currencies combine the latest technology and the latest hot trend with the world’s oldest refuge asset. It’s difficult to determine which the best of these gold-backed cryptocurrencies might be, but at least when the best does emerge, it will be able to offer the kind of security that computer mining-backed cryptocurrencies cannot.
It used to be that the biggest problem experts and amateurs brought up about Bitcoin and other cryptocurrencies was their propensity to be favored by criminals. Yes, there was a sense that tech geeks were big fans as well. However, the idea of a hidden payment system (after all, “crypto” means hidden) meant that once the digital currency phenomenon exploded on the scene, it quickly fell prey to massive speculation.
The fact that most of those who invested in this mysterious and futuristic “currency” had no idea what it was didn’t help matters. The only thing the newly minted crypto-fanatics understood was that their bitcoins would have earned them bags of money.
Therein the Gold and Crypto Paradox
Bitcoin and its crypto-rivals are supposed to be money, after all. But when you want to use them and convert your gains, it was always in dollars or euros—currencies with a value you understand. Hopefully, you weren’t one of those who bought Bitcoin at above $12,000; it’s trading at about $10,500 now.
Ultimately, gold-backed cryptocurrencies may have a curious effect. Rather than boosting the popularity of the cryptocurrency concept as expressed through the more “traditional” ones, such as Bitcoin or Ethereum, they will make it easier for people to buy, hold, and trade gold. In other words, the more popular gold-backed cryptocurrencies become, the more gold will be sold and the higher the gold price will go. This process could be already underway in 2018, but the true measure of this hypothesis will come in 2019 or later. The concept could spread to include other raw materials and become a whole new way to trade commodities.
List of Gold-Backed Cryptocurrencies
It is a paradox that the best (and perhaps the only) way to make cryptocurrencies more realistic and less volatile is to link them to what is, in fact, the world’s most traditional and oldest value measuring or payment method: gold. Indeed, Bitcoin’s biggest competition will soon be gold, and there’s no contest, because gold is adapting. Gold-based cryptocurrencies will benefit gold investors directly and indirectly. The value of gold will increase because cryptocurrency buyers will demand more of the gold-backed ones, even in periods when equities are more appealing. In turn, traditional gold investors will also demand more gold.
Apart from OneGram and the Australian concept from the Perth Mint described above, the list of gold-backed cryptocurrencies is destined to expand. Singapore-based Digix issued digital coins on the market, backed by the gold held in the island nation. The Digix cryptocurrency runs on the new generation Ethereum blockchain. Conversely, new platforms such as Republic Protocol are working with Digix to allow owners of various cryptocurrencies to convert them back to gold. (Source: “Republic Protocol and Digix partner to allow cryptocurrency to gold trading in a dark pool,” Bankless Times, January 22, 2018.)
The first gold-backed cryptocurrency was possibly Texas-based OZcoinGold, which started issuing tokens in March 2017. Unlike, OneGram, it backs its cryptocurrency in bulk, using 100,000 ounces of 24-karat gold, based on the holdings of its Australian mining partner. (Source: “What Is OZcoinGold?,” OZcoinGold, February 24, 2017.)
This is by no means a comprehensive list. No doubt, there will be many more, and the idea of marrying the technology and appeal of cryptocurrencies with gold will probably be the only way to save this new digital class of investment. Conventional cryptocurrencies, whether Bitcoin or Ethereum, suffer the changes in volatility since there’s nothing backing them up. Adding gold to the algorithm makes them tangible and protected. It’s better than a compromise; it’s the only way to go, and it will drive gold prices higher.