What is a gold-backed cryptocurrency?

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What is a gold-backed cryptocurrency?

Gold-backed cryptocurrency can be defined as a stablecoin that backs each token with physical gold. Because of the volatility of the cryptocurrency market, many people are uncomfortable with the market and so prefer to invest their money in different stocks and indices. But with a gold-backed cryptocurrency, the token is pegged to a current gold price and with that comes less price volatility in comparison to Bitcoin and other altcoins.

The gold is just acting like other stablecoins like BUSD and USDT. For example, one can buy USDT against coin like Cardano (ADA), Ripple (XRP), Ethereum (ETH) etc. The reason why people buy such pairs with Tether (USDT) or BUSD rather than Bitcoin is because if Bitcoin is rising or falling, the pairs associated with it become very volatile and so, for sake of stability, people rather buy stablecoins against cryptocurrency. This does not mean that we are suggesting that Bitcoin holders should sell their Bitcoin. You can click this link to know if you should sell your Bitcoin or not.

Apart from the decrease in price volatility, gold-backed cryptocurrency has become a means of buying gold. And so, the buyer is buying both gold and a token at the same time. Also, gold-backed cryptocurrency did not come to replace other stablecoins like USDC, USDT, or BUSD but it is one of the stablecoins that gives traders a variety of options in the cryptocurrency market. Just like other cryptocurrency, gold-backed cryptocurrencies have high cryptocurrency liquidity.

Reasons to consider coin that is backed by gold

The use of gold as a standard for managing currency is not new to the world. Gold was the main asset that was used to evaluate currencies of countries before the 20th century. Coins and currency papers were minted with respect to the amount of gold in a country’s reserve. This stopped in the US and across most European countries due to the economic upheaval that came with the first world war. Yet, Switzerland used gold as a standard for their currency till 1999. With the invention of Bitcoin and other cryptocurrencies, the idea of having a gold-backed cryptocurrency has become a welcome idea for many reasons. Some of the reasons are:

  1. The volatility of the market. It is due to the volatility of the market that asset-backed currencies such as Paxos’ (PAX) standard have their value assured by the reserve of the United States dollars. This in turn has given the cryptocurrency traders opportunity to convert their cryptocurrency holdings into a more stable form of investment.
  2. A gold-backed cryptocurrency will not only help to reduce the risk that comes with the volatility of the market, but it will also offer a more stable store of value in the long run, even more so than fiat currency or other stablecoin. This is because with asset-backed currency, the economic principles of demand and supply will come into play and so the value of the gold-backed cryptocurrency cannot be manipulated by any central authority like financial institutions or government.
  3. Another reason to consider cryptocurrencies that are backed by gold is that some of the tokens can be converted into actual gold. This is different from most cryptocurrencies which are made up of speculative value. The value of gold-backed cryptocurrency is tied to a tangible asset.
  4. With gold-backed cryptocurrency, one can now have a small unit of gold that can be easily transferred to another person.
  5. It has a good market cap. For example, XAUT has a market capitalization of approximately $50 million.

Who produces gold-backed coins?

The gold-back coin is not produced by one single individual or company; rather it is produced by different organizations. This allows potential investors to make a variety of choices. For example, the Perth Month Gold Token is backed by real gold from Western Australia’s Perth Mint; DigixGlobal backed by a Singapore-based company, and other gold-backed cryptocurrencies are backed by other organizations.

Things to consider before choosing gold-backed cryptocurrency

Gold-backed cryptocurrency is created differently and so there is a need to watch out for certain quality which would then allow us to be able to pick and invest in actual valuable ones. Some of the qualities to check are:

1. Transparency

Transparency of the token issuer should be the first thing any investor should watch out for. The trader needs to be sure that the token issuer provides a user-friendly system that will help monitor the circulating supply and compare the figure of the circulating supply with the amount of gold kept in storage. If the token issuer does not provide such information, it is something to worry about and further investigation should be done.

Cache Gold has one of the best platforms when it comes to transparency in their Gramchain asset tracking platform. To eliminate any concern that the supply might not be the same with the gold reserve, Cache Gold (GCT) holders can check the exact amount of gold Cache has in each of the vaults with information about its refiner, current valuation, serial number and more. This is unlike platforms like Tether Gold (XAUT) and Perth Mint Gold token (PMGT), which provide a periodic update website that shows the circulating supply of token and that of current gold holdings.

2. Minimum amount and redemption value

Before investing in a gold-backed cryptocurrency, the investor must check the minimum investment amount and also the minimum redemption value.

The minimum investment amount can be defined as the smallest transferable unit value. Many gold-backed cryptocurrencies allow the transfer of a tiny fraction of a single token if the holder wants to transfer to another person, while for some it is only possible to transfer a whole integer. This means that only one whole token can be transferred.

The minimum redemption value is the minimum amount that can be redeemed in real gold. If an investor’s holding is below the minimum redemption, he will need to opt for other options such as selling his token on a third-party platform.

3. Liquidity and order book

Another thing to watch out for when planning to invest in a gold-backed cryptocurrency is the liquidity and order book. Just like other forms of cryptocurrencies, gold-backed cryptocurrency can be traded on both decentralized and centralized exchange platforms. These platforms are one of the major ways traders can purchase cryptocurrencies without dealing directly with the issuer or minting them by depositing gold.

Furthermore, not all gold-backed cryptocurrencies offer the same liquidity and order book depth. This suggests that some gold-backed cryptocurrency maintain their price as close to that of gold as others do.

Top 5 gold-backed cryptocurrency

gold coins featured image for article

Gold-backed cryptocurrency is a recent innovation, and many people get confused on which one they should invest in since they are so many out there. Below are the top five gold-backed cryptocurrencies:

1. Perth Mint Gold Token (PMGT)

Perth Mint Gold token is one of the best gold-backed cryptocurrency tokens. It is backed by a real gold block from Western Australia’s Perth Mint. The PMGT is lucrative to invest in because the weight and purity of the gold are guaranteed by the Australian government. Through the GoldPass app, digital gold certificates are issued as proof by Perth Mint. It is this certificate that backs the PMGT token at a token to certificate ratio of 1:1. PMGT is cost-effective when compared to the traditional gold asset. For instance, there is no fee attached for insurance, custody, and storage for banked gold transfers and gold ETFs. One of the trading platforms where PMGT tokens can be exchanged is KuCoin.

2. DigixGlobal (DGX)

The DigixGlobal token has a value of 1g of gold per token. The DGX is provided by a Singapore-based company but the vault that backs the token is in Singapore and Canada. The vault that stores this vault is fully insured and accredited by the Bullion association as additional security.

With the DGX token, one is able to divide, redeem, and transfer real gold bars by buying and selling virtual gold in form of tokens. This digitalization process was created by the founders of DigixGlobal to help normalize access to gold.

To trade your token for actual gold, DigixGlobal charges a 1% fee. This is unlike GoldPass that is free. Also, DigixGlobal is responsible for the storage cost.

3. Gold Coin (GLC)

GLC is a fractional kind of gold-backed cryptocurrency. This means that one coin is equivalent to a fraction of one gram of gold. For GLC, there is a low barrier for entry, meaning that most people can afford to own gold through the purchasing of a gold coin, unlike many gold-backed cryptocurrencies and actual gold that can be expensive to purchase.

GLC uses the Ethereum blockchain and is one of the safest platforms.

4. Tether Gold (XAUT)

The issuer of the Tether Gold token is also the one responsible for issuing the largest USD-backed stablecoin. Each tether gold token stands for a single ounce of gold on one London good delivery bar of gold. XAUT uses the Ethereum and Tron blockchain.

Swiss vault is the place where Tether holds its gold reserve. On their website, one can search for the serial number of their particular gold bar.

5. Meld Gold

Meld Gold is an Australian start-up that combines with Algrorand, a blockchain protocol, so that they can develop a decentralized Gold token. With the aid of their huge digital platform, Meld Gold is looking further to restructure the buying and selling of gold by combining it with the current gold supply chain.

Through tokenization, the combination with the current gold supply will enable them to deliver good trading and settlement at a fast rate. With the platform, holders will be able to buy real gold and virtual good tokens.

Some benefits of the platform are that it is efficient, highly accessible and the transactions are fast and easy.

Major cryptocurrencies that are not backed by gold

There are a lot of cryptocurrencies that are not yet backed by gold; cryptocurrencies that are extremely popular and can execute a lot of things. A lot of people know about Bitcoin so we will be exempting it from the list.

1. Ethereum

Ethereum is the most popular cryptocurrency after Bitcoin. It is also the second most volatile cryptocurrency after Bitcoin. In 2014, 3,700BTC was raised through ICO (Initial coin offering) which can also be called token sales. Ethereum is different from Bitcoin in terms of its purpose, technology, and capabilities. One of the major differences between Ethereum and Bitcoin is that while miners of Bitcoin earn coin in exchange of their work, miners of Ethereum earns ether. Ether is a kind of token that helps to power the Ethereum network. Also, Ethereum allows its smart contract to be used not just for currencies, but also for exchanging contents, properties, shares, and other valuable things.

This ad promotes cryptocurrency within the EU (by eToro Europe Ltd. and eToro UK Ltd.) & USA (by eToro USA LLC); which is highly volatile, unregulated in some EU countries and the UK., no EU consumer protection. Investments are subject to market risk, including the loss of principal.

2. Ripple

Ripple is one of the biggest coins in the world of cryptocurrency. It has licensed its blockchain technology to over 100 banks which have helped it gain credibility among its users. Through RippleNet, Ripple connects banks, digital assets exchanges, and payment providers to help send money effortlessly around the world. Apart from Ripple being a currency, it also acts as a platform for trading the currency.

This ad promotes cryptocurrency within the EU (by eToro Europe Ltd. and eToro UK Ltd.) & USA (by eToro USA LLC); which is highly volatile, unregulated in some EU countries and the UK., no EU consumer protection. Investments are subject to market risk, including the loss of principal.

3. Dogecoin

Dogecoin was created even before Ethereum, but only a few people are aware of this information. It came to the limelight due to the influence of Elon Musk who recently announced his plans to use it as a payment option for his Tesla company. It is a cryptocurrency that was created as a joke in 2013 but has grown tremendously in the past year. Dogecoin functions as blockchain technology, unlike many other cryptocurrencies. This feature makes investors feel secured because blockchain technology uses a decentralized model.

We listed down all other reasons why we think you should consider investing in Dogecoin in this link.

4. Litecoin

The cryptocurrency was launched in 2011 and it is well known in the world of digital payment. With it, one can send money fast anywhere in the world and its charges are also very cheap. Due to its features, Litecoin enjoys support from ATMs, online and offline merchants, money exchanges, loyal developer communities, and internet-based casinos.

This ad promotes cryptocurrency within the EU (by eToro Europe Ltd. and eToro UK Ltd.) & USA (by eToro USA LLC); which is highly volatile, unregulated in some EU countries and the UK., no EU consumer protection. Investments are subject to market risk, including the loss of principal.

5. Bitcoin Cash

Bitcoin Cash is another cryptocurrency that is backed with a good project. It acts as peer-to-peer electronic cash and has a reliable confirmation when money is transferred. Just like Litecoin, Bitcoin Cash has low transfer fees. Litecoin and Bitcoin have some similarities, but they are not the same. They are a lot of differences between them.

This ad promotes cryptocurrency within the EU (by eToro Europe Ltd. and eToro UK Ltd.) & USA (by eToro USA LLC); which is highly volatile, unregulated in some EU countries and the UK., no EU consumer protection. Investments are subject to market risk, including the loss of principal.

Exchanges where a trader can buy gold-backed cryptocurrency

They are many exchanges that allows one to buy and store a gold-backed cryptocurrency; we have listed some of the best in the following section.

5/5

GoldenExchange

The platform is one of the best places you could buy gold-backed cryptocurrency. The platform offers a good value for a trader’s investment and also provides wallets where you can store your coin. It has quality-of-life trading features, and you can even redeem your virtual gold coin for physical gold if you so desire.

Binance

With regard to the market cap of different platforms, Binance is the largest trading platform. It has built its reputation well over the years, and a lot of investors trade with it. It has many gold-backed cryptocurrencies that you can trade and if you happen to be a big investor, you could earn BNB coin (Binance coin) which will help to cover some of the trading fees.

Coinbase

Coinbase is a well-known exchange platform that is also quite credible. It was through this platform that Elon Musk bought $1.5 billion worth of Bitcoin. A trader can buy gold-backed cryptocurrency on the platform. The disadvantage of Coinbase is that it has an expensive trading fee.

Gemini

Gemini is a good trading platform that often undergoes bank exams and audits. It is regulated by the New York department of financial service. The regulation makes it a reliable platform. The platform goes the extra mile by offering hardware keys and insurance coverage for all the assets that are stored on the platform. It has a fair number of gold-backed cryptocurrencies. The disadvantage is that one cannot be anonymous on the platform.

HitBTC

It is an exchange platform that offers high liquidity and makes provision for its users to verify their account by using KYC (know your customer). But the good thing about the platform is that it allows its users to conduct transactions anonymously if they do not want to be known. The platform offers gold-backed stablecoins like USGold (USG) and Xaurum (XAUR).

In conclusion, it is the same reason for having a token backed by the reserve of the United States that has given birth to a gold-backed cryptocurrency. It is even more valid to have a gold-backed cryptocurrency than that backed by the dollar because if a cryptocurrency is not backed by any underlying asset, how is that different from having a stablecoin that is backed by USD, which in turn is not backed by any physical asset? Nonetheless, with the nature of blockchain technology, they are many opportunities in the asset-backed currencies field. With gold-backed cryptocurrency being in use, there is the probability that it will open the door for cryptocurrency tokens that will be backed by copper, gold, or nickel in the future.

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