In general, a cryptocurrency (or crypto for short) is a medium of exchange and can be used to send and receive payment in a completely digital way. Each transaction using cryptocurrency is stored on a publicly distributed ledger that has been secured with cryptography. The coins themselves are stored on an exchange or in a digital wallet.
However, with concerns over Bitcoin and other altcoins’ volatility, a solution was needed to stabilize the price. With that, gold-backed cryptocurrencies were born.
Definition of gold-backed cryptocurrency
Gold-backed cryptocurrencies are a new class of digital currencies designed to offer price stability based on a stable asset, gold. The concept itself is simple. Each token or coin is the equivalent of a certain amount of gold (in many cases, this is 1 gram of gold per coin). A purchaser buys the token representing the asset without ever buying the asset (in this case gold) itself. The gold remains locked up in a secure location until the trader decides they would like to make an exchange.
The blockchain accounts for each of the tokens issued, while the company is responsible for actually storing the asset that backs it. Cryptocurrency traders will need to do the necessary research on the token and purchase location to validate these claims before making an investment. Tokens can typically be purchased from the cryptocurrency creator website or from a precious-metal cryptocurrency exchange like Gold Exchange.
Examples of gold-backed cryptocurrencies
With this knowledge in mind, you might be wondering what these stablecoins look like in action. Here are some examples of gold-backed cryptocurrencies that are currently available for public purchases.
Cache Gold was created by a Singapore-based company that released tokens that were each equivalent to one gram of gold. All gold is audited and insured for added buyer security and can be purchased on the website cache.gold.
GoldCoin is an ERC-20 gold-backed cryptocurrency that can be purchased in any amount, at any time. Each GoldCoin is the equivalent of 1/1000 of an oz of 99.9% pure gold stored in GoldCoin’s vaults, which are regularly audited. Transparency is ensured, as audit updates are provided directly on the website. Tokens can be purchased on GoldCoin.com or on GoldExchange.com using a debit or credit card.
Based out of Brisbane, Australia is the Gold Standard AUS token. Each token is the equivalent of a single gram of gold bullion, which is stored in a reserve vault. For security purposes, this has been insured and verified by BDO. Gold Standard tokens can be purchased on goldsilverstandard.com.
Investing in gold-backed cryptocurrencies
The demand for blockchain-based digital assets backed by scarce precious metals continues to gain appeal for investors who are looking for safe long term investments. At the same time, gold-backed cryptocurrencies continue to be refined and new coins continue to be developed. To avoid investing in a project that might not have a future, traders are wise to take note of the following considerations:
- Determine the ratio of gold-backed cryptocurrencies you are investing in compared to the rest of your portfolio. Traders should look to increase diversity if possible.
- Conduct your own research looking for the coin’s stability and other historical figures that suggest continuous growth opportunities.
- Read online forums and reviews. A trader having a bad experience can signify issues with the company or platform in question.
- Look into the background of the coin, including their published whitepaper and the team that is behind the token. Are they reputable? Experienced?
- Continue to remain vigilant and manage your portfolio to keep the risk at a manageable level.
Although you may not experience Bitcoin-level growth right away, gold-backed cryptocurrencies continue to offer great potential to both amateur and experienced traders.
Interesting related article: “What is Blockchain?“