Table of Contents
First off, what are gold-backed cryptocurrencies?
How did cryptocurrencies backed by gold come about?
How do gold-backed cryptocurrencies work?
What is the difference between cryptocurrencies based on gold and other cryptocurrencies?
A shortlist of some popular gold-backed cryptocurrencies
- 1. Digix Gold Tokens (DGX) — Singapore
- 2. OneGram (OGC) — UAE
- 3. Gold Bits Coin (GBT) — Australia
- 4. Goldmint (MNTP) — Russia
- 5. Zengold (ZGC) — China
- 6. Puregold Token(PGT) — Singapore
- 7. Xaurum (XAUR) — Slovenia
- 8. Darico(DEC) — Switzerland
- 9. The Midas touch Gold (TMTMG) — South Korea
Be careful with cryptocurrencies having gold only on their names
How does one buy gold-backed cryptocurrencies?
Conventional cryptocurrencies such as Bitcoin have had a fair share of criticism. Their main drawbacks include a lack of physical support and the reliance on peer-to-peer device transfers. Since no one can see and touch them, their validity has long been doubted by critics. However, the notion of asset-backed cryptocurrencies is emerging as a solution.
For those who are unversed in the matter, asset-backed cryptocurrencies are digital currencies linked to the value of physical assets, such as real estate, oil, energy, minerals, and even precious metals, including gold. We’ll discuss one asset-backed group of cryptocurrencies in this guide: gold-backed cryptocurrencies.
1. First off, what are gold-backed cryptocurrencies?
Gold-backed cryptocurrencies are digital currencies tied to gold. Which means that, while the stablecoins run on a distributed ledger and are therefore easy to exchange, they also have intrinsic value (something that is missing in conventional cryptocurrencies).
2. How did cryptocurrencies backed by gold come about?
The idea of linking a digital coin’s value to tangible gold isn’t new. The first digital currency backed by gold (E-Gold) was launched in 1999. Doung Jackson, Founder of E-Gold, thought that because E-Gold could withstand economic highs and lows (unlike fiat currency), it would be the ideal solution to the ills that the monetary system was facing at the time.
E-Gold has gained massive popularity and has been used by millions around the world. Privacy-conscious organizations like Netizens were satisfied with its degree of privacy, and they used the coin to open anonymous accounts. The coin even gained popularity among overseas sellers, who were using it to make transactions across borders.
Unfortunately, E-Gold later faced several problems, which led to its shutdown. Some of the factors that led to this decline were: increased competition, massive traffic growth that led to lagging transactions, and the rise of cybercrime, which threatened the security of the stablecoin.
Several other attempts were made to create a digital currency backed by gold, but the craze was short-lived. For example, a new gold-backed cryptocurrency called Xaurum was launched in 2015 but didn’t go far. It was only after Bitcoin and Blockchain became popular that the craze of digital currency backed by gold has returned.
Several gold-backed cryptocurrencies have been introduced or relaunched within the last few months. Even government mints, such as the UK mint, have introduced their own stablecoins backed by gold. With so many companies joining the gold-backed cryptocurrency bandwagon, the question on everyone’s mind is: How do gold-backed cryptos work? We are going to cover that in the next chapter.
3. How do gold-backed cryptocurrencies work?
The basic concept of gold-backed cryptocurrencies is certainly convincing. A digital token, which represents a certain value of gold, is released. A token, for example, may reflect the worth of one gram of gold. A trusted third party stores the gold, which the token represents. Certain token-holders will exchange the gold with other currencies.
The value of the gold-backed token shall be equal to the prevalent rate of the gold represented by it at any given time. This means it will still be priced at the current gold price, should the token fail to take off. When the token gains popularity, on the other hand, its value can rise above that of gold. So, what makes digital coins backed with gold different from the classic cryptocurrencies?
4. What is the difference between cryptocurrencies based on gold and other cryptocurrencies?
Besides their intrinsic value, the entry-level costs of gold-backed cryptos and traditional cryptocurrencies are different. In the early days, most of the investors who were quick to buy mainstream cryptocurrencies had to spend only pennies. However, for a cryptocurrency backed by gold, the minimum investment must be equal to the current gold price.
Another difference between these two groups of cryptocurrency is their price fluctuations. While the price of digital mainstream coins, like Bitcoin and Ethereum, can rise or fall to any level, cryptocurrencies backed by gold have a built-in stop-loss.
As we have already mentioned, the value of a cryptocurrency backed by gold cannot fall below the value of gold itself. When such a coin reaches huge popularity, its price may well rise above that of gold. So, if the gold-backed crypto isn’t doing well, then its value will remain at the gold rate.
Now, let’s take a look at some of the gold-backed cryptocurrencies that have been introduced in the recent past.
5. A shortlist of some popular gold-backed cryptocurrencies
1. Digix Gold Tokens (DGX) — Singapore
DigixDAO is a Singapore-based organization founded by the Digix Global Company to develop a physical gold-backed crypto coin. According to their whitepaper, the asset-backed coin from Digix global is generated using asset proof, or proof-of-providence protocol. Gold is the first product they’ve tokenised. They are planning to expand into other precious metals but are currently focusing on gold tokenisation only. Two Ethereum tokens (DGX and DGD) have already been created by Digix global.
The aim of the business is to use a decentralized consensus between token holders and DigixDAO to develop the Digix ecosystem. Coin-holders are allowed access to the network and may contribute to managerial decisions or participate in any proposal submitted to DigixDAO. Product-holders may earn DGX tokens as a reward for their participation in the decision-making process. This move will allow investors to reap the benefits of being in the sphere of crypto, while still enjoying the low volatility of gold. The move also increases gold liquidity.
Gold-token Digix is the gold-backed token of Digix internationally. One DGX token represents one gram of gold. In Singapore, the gold used to back up the crypto coins is stored in a vault. Token-holders can exchange their tokens for the corresponding amount of gold, withdrawing it from the vault and letting it to get delivered to them. The minimum amount of withdrawal is 100 grams. The Digix tokens are only created when someone wants to purchase gold using the Digix marketplace. You receive DGX when you make a purchase in an amount that is equivalent to the gold you purchased through the Digix trade. Whenever you like, you are free to exchange the tokens for actual gold. You can either choose to ship yourself the gold or fly to Singapore and pick it up yourself.
Digix did just fine. By January 2019, they doubled their gold holdings from 50 kg to 100 kg. This is no surprise, since most investors shied away from cryptocurrencies, due to their volatility. This problem is solved by a gold-backed cryptocurrency, such as the Digix gold token, and is therefore very welcome. Digix has a single vault in Singapore for now. According to the company’s co-founder, Shaun Djie, they plan to expand to new jurisdictions. They are currently considering areas such as Europe, and emerging economies such as Vietnam, which have shown an increasing demand. The company hopes their DGX coin will continue to gain momentum and eventually draw conventional industry attention.
2. OneGram (OGC) — UAE
OneGram is a cryptocurrency based in the United Arab Emirates that complies with sharia laws. The crypto coin is backed by gold, which is one of the six ribawi commodities. In Islamic finance, Ribawi Commodities are the six substances (items) that are sold by weight and measure, literally: gold, silver, dates, wheat, salt and barley. One coin of OneGram is equal to one gram of gold. The transaction scheme for cryptocurrencies is built accumulatively; 70% of the transaction fee is used to add to the gold reserves. Not only is OneGram the first sharia-compliant cryptocurrency; it is also the first digital gold-backed coin built on the DPoS blockchain. The coin also represents the most valuable digital asset made specifically for Muslims. This is demonstrated by the amount that the coin accumulated through its ICO.
3. Gold Bits Coin (GBT) — Australia
Gold Bits Coin is a gold-backed cryptocurrency based on Ethereum. Unlike the other gold-backed digital coins we’ve been talking about, Gold Bits were backed by only 15% gold. However, the coin’s white paper notes that the coin has various utility features, including serving merchants and online stores for goods and services. The company behind Gold Bits Coin claims that the secret to cryptocurrency‘s mass adoption is to build a coin that people can use to make their everyday payments, and GBS boasts potential versatility as one of its features as a legal tender.
4. Goldmint (MNTP) — Russia
Goldmint was founded by a group of people with extensive experience in processing gold from scrap gold, refining it, providing accounting and other services, and creating the necessary software.
5. Zengold (ZGC) — China
Zengold is a cryptocurrency backed by gold and built on the POA protocol. One Zengold coin represents one gram of physical gold that is held in the Gold Exchange Vault of Shanghai. Zengold token holders are free to transfer their tokens through their Blockchain Metaverse wallets. They do not need any special conditions for the network to do so. Unlike other digital currencies, Zengold can be used to make payments at any time. It also features lower transaction fees than its competitors. A token - which represents one gram of gold - is divisible into 0.001 grams. Transactions fees amount to 0.1% of each transaction’s total value.
6. Puregold Token(PGT) — Singapore
Puregold’s website refers to cryptocurrency as the first gateway to pay using gold-backed tokens. The organization has two tokens for sale, PGG and PDT. Each of these tokens runs on its own ledger. PGG is a cryptographic token backed by gold that uses PGT to pay for transactions. The gold used to back the crypto coin has a 999.9 purity.
7. Xaurum (XAUR) — Slovenia
Xaurum is often referred to as the blue-chip of cryptocurrencies because of its regular gains, high reliability, and minimal risk. The business model of the company was developed so that in just three years, they gathered five tons of gold. This is an increase in their gold reserves of more than 4000%.
8. Darico(DEC) — Switzerland
Darico is an ERC 20 token created to help holders enter the Darico ecosystem. Darico is backed by 10% ether, 35% physical gold, and 55% Bitcoin. Besides from the value stability of gold, the Darico token thus benefits from the growth potential of two of the top-value cryptocurrencies.
9. The Midas touch Gold (TMTMG) — South Korea
The Midas touch gold project consists of three main elements. The first element is the TMTD token as a utility token, which can only be used on the DGE platform to buy virtual currency. The second element is the gold-backed MDG tokens, which are linked to one gram of gold and purchased on the DGE site. The third element is an online exchange (Digital Gold Exchange), where TMTG coins are used to buy gold and MDG tokens.
6. Be careful with cryptocurrencies having gold only on their names
We would also like to point out that some of the cryptocurrencies out there have the word gold in their name but are neither backed by gold nor are gold-related in any way. A good example of this is Bitcoin Gold, which has no link to any physical gold but is just a hard Bitcoin blockchain fork. Another example is Ethereum Gold, which is a blockchain-based cryptocurrency running the Ethereum Blockchain and has nothing to do with gold.
7. How does one buy gold-backed cryptocurrencies?
By now, you are probably wondering how you can lay your hands on one of these stablecoins. Well, the purchasing method will differ from one token to another. The common denominator is that you will need enough Bitcoin or Ethereum to buy the gold-backed coins. Once you have the required amount of Ethereum or Bitcoin, you can visit the gold-backed token website that you want to purchase from and follow the instructions.
If you’re interested in buying GDX tokens, you should know it’s not hard at all, as this is an Ethereum-based coin. The DGX token may be purchased on the following exchanges: Ethfinex (supported pairs are DGX/ETH, DGX/USD) and Kyber Network (supported pairs are DGX/ETH). Once you have bought the coins, you can store them using any of the following wallets:
- Mobile wallets such as Coinnomi and Jaxx
- Web browser wallets such as Jaxx
- Desktop wallets such as MyEtherWallet
- Hardware wallets such as Ledger Nano S and Trezor
8. Final word
When you think about the volatility and lack of intrinsic value of mainstream cryptocurrencies, it is obvious that the best crypto-investments are asset-backed cryptocurrencies, such as gold-backed digital tokens.
They allow you to benefit from the good qualities of cryptocurrencies, such as scarcity, decentralization, divisibility, transferability, and fungibility, while still enjoying gold’s reliability as a measure of value. That said, in 2019 and beyond, we foresee more investors entering the gold-backed cryptocurrency market. As for every investment in cryptography, always do your own due diligence before you buy these coins.