Stablecoins have accrued quite a reputation in the cryptocurrency world. Popular offerings like Tether have come under fire for questions about reserve assets, but the overall concept of stablecoins remains popular.
Many are interested in diving into the cryptocurrency world without having to subject their portfolios to massive price swings, general volatility, and the speculative nature of some assets. Stablecoins emerged on the scene to try and address these considerations.
The reserve asset backing a stablecoin keeps volatility away and presents the coin as a stable tool for investment that can also be used as a medium of exchange.
The vast majority of stablecoins are fiat-backed, meaning the projects behind the coin maintain reserve assets of traditional fiat currency or other valuable assets like precious metals or diamonds. GoldCoin is one pertinent example of a stablecoin backed by gold.
But some wonder if gold-backed cryptocurrencies are legitimate. They question how a coin can be backed by enough precious metal reserves to make the coin valuable. Others worry that if they invest in a gold-backed cryptocurrency, it will not be possible to redeem for physical gold.
What is the answer? Are gold-backed cryptocurrencies legitimate? Read on to understand why they are legit and how they are a rapidly growing force in the stablecoin world.
Digital Gold is Nothing New
The concept of digital money backed by gold is nothing new. While gold-backed stablecoins seem to be a modern invention, gold-backed money has its roots in the 1990s with E-Gold.
Co-founded by Douglas Jackson, e-gold is a privately issued digital currency backed by gold and silver. Launched in 1996, the currency had nearly 1,000 new accounts opened daily, as people took advantage of the currency to buy, sell, and trade.
U.S. authorities eventually came down on Jackon and e-gold, reducing the project to a shell of its former self amid requirements to adhere various standards and regulations. Jackson was eventually indicted by authorities in 2007.
The concept of gold-backed cryptocurrencies has been around for decades. The idea has proven to be viable (with E-Gold), long before concepts like Bitcoin were invented and publicly introduced.
Security and Accountability with Gold-Backed Crypto
A wide variety of gold-backed cryptocurrency projects are out on the market. Many are regularly traded and are seen as legitimate due to security and transparency safeguards.
Legitimate gold-backed crypto projects will conduct regular audits of reserves with a verified third-party. Results give coin holders the ability to clearly see physical reserves back their digital coins.
Some projects even take security further. The creators behind Universal Gold token take advantage of GoldPass, a program from the Australian government that issues certificates guaranteeing physical gold delivery.
The coin’s gold is held in the government-owned Perth Mint, the largest new gold refiner across the globe. These steps prove extra levels of assurance to coin holders that their cryptocurrency has legitimate gold reserves issued by one of the world’s most prominent refiners.
Some gold-backed crypto projects even share specific serial numbers with coin holders so they can explicitly look up the gold bullion tied to their coins.
In a cryptocurrency world filled with scams, false promises, and shady backgrounds, many well-known and respected gold-backed cryptocurrencies foster a culture of transparency and accountability.
Surging Demand in 2020
Skeptics of gold-backed cryptocurrencies should note their rising demand across 2020. Reports from May said Paxos Gold (PAXG) purchases were nearly doubling day-over-day across several days in the month.
Amid financial turbulence in 2020, cryptocurrencies have become a popular landing ground for investors eager for alternative assets.
In particular, gold-backed coins have seen growth due to rising demand in gold and supply chain issues that have led to market volatility.
Investors are interested in purchasing cryptocurrencies backed by gold. They offer the best of both worlds, the ability to invest in the rapid-changing cryptocurrency market, and the opportunity to redeem for physical gold (a stable asset), whenever needed.
Yes, Gold-Backed Cryptocurrencies are Legitimate
From E-Gold to modern-day offerings, the idea of digital currency backed by gold is a legitimate concept proven to be successful. Investors continue to flock to the asset due to its price floor (the spot price of gold) and its potential to rise if the coin proves to be popular. Gold-backed cryptos look to grow in prominence and secure a larger piece of the stablecoin market.
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