A gold-backed digital currency will have large amounts of gold stored in central bank vaults. Because gold is plentiful, the digital currency will have more credibility and trust if it is backed by a large amount of gold reserves. Gold backing is also important for anti-inflationary reasons, because it helps make a currency stable. But few cryptocurrencies have adopted gold backing. Here are some pros and cons of digital currency backed by gold.
A gold-backed cryptocurrency is a derivative digital asset with its value supposedly underwritten by an equal price in gold. The value of a single gold-backed cryptocurrency is equal to the value of one gold unit. This gold value must be present in a trusted custodian or company reserve for the coin to have any real value. Investors can use the gold to purchase or sell other crypto tokens, earning higher returns.
Another drawback of digital currency is the fact that it is not universally accepted and is therefore subject to exchange rate risk. Because gold fluctuates in relation to the value of world national currencies, the value of a digital currency can also fluctuate. Because of this risk, some holders use their DGC as their main monetary asset. While this can result in increased volatility in the value of a digital holding, this is still better than the alternative.
Despite the high volatility, bitcoin is a relatively stable currency compared to other cryptocurrencies. Its price has not soared since its high in November of last year, but it is still worth over $54,343 in October 2021. Even if it is a little late to invest in digital gold, one lucky man, Erik Finman, became a millionaire in the 1990s. He invested $1,000 in bitcoin at 12 years old and made $1 million in April 2021.
Although gold-backed cryptocurrencies have been around for years, they are a better option for investors. The main benefits of gold-backed cryptocurrencies include low minimum purchases and easy transferability. Moreover, they can be incrementally invested. Some gold-backed cryptocurrencies are Tether, the largest issuer of USD-backed stablecoins, XAUT. Gold-backed XAUT tokens represent one troy ounce of gold in a London Good Delivery bar.
Pecunix, another gold-backed digital currency, was the first digital currency to be backed by gold. The value of a Pecunix account was in gold grams. Davis founded Pecunix in 2002 and registered it in Panama. Its gold-storage location was Mat Securitas Express AG in Zurich. The company transferred the location of its gold storage in 2008 and is now a leading cryptocurrency.
The gold-backed digital currency XAUT is a popular example. Every XAUT token is backed by one troy ounce of gold. XAUT tokens are held in a secure vault by a gold-standard country. However, they come with a 1% charge for trading. The fees associated with Gold Coin may be prohibitively high, so this digital currency is only an option for large investors.
Asia Broadband is a high-margin resource company that focuses on precious and base metals. Specifically, the company focuses on the acquisition of highly prospective gold projects in Mexico. With assets worth $100 million and physical gold drawn from the mining production segment, AABBG is set to launch in March 2021. Its price is backed by gold and is therefore very stable. The company has a gold mine in Mexico.
Another example of a gold-backed digital currency is Counos Gold. The digital coin was created on the Ethereum blockchain and launched as an airdrop to crypto forum readers in January 2017. While the website says it is a smart-contract-governed ecosystem, Counos has stopped offering it as an asset-backed digital currency. This makes it much more difficult to determine the value of gold. So, if you’re interested in buying gold with bitcoin, do your research and invest in a gold-backed digital currency.
Another digital asset backed by gold is Paxos Gold. Paxos Gold is a Singapore-based cryptocurrency exchange that offers gold-backed cryptocurrency. The coin has been regulated by the New York State Department of Financial Services. Although this gold-backed digital currency is still relatively new, it will soon be published on cryptocurrency exchanges. Its price may even go up. Is Digital Currency Backed by Gold?