The Rise and Rise of Gold-Backed Cryptocurrencies

There are currently thousands of cryptocurrencies circulating the web. One variant — the stablecoin — ties its value to a physical resource. Gold-backed cryptocurrency is an example of this as its value relies on that of gold, which is stored by a third party. Unlike other cryptocurrencies, gold-backed variants are more stable, and their value can’t go lower than the current rate of gold. In this article, we’ll be tackling gold-backed cryptocurrencies and their continued rise in popularity.

A Brief History

The first gold-backed cryptocurrency emerged in 1996 — E-Gold and was founded by Douglas Jackson and Barry Downey. Despite its slow start, transactions began going up in 2000, with more than 50,000 in only two months. The company continued to make waves in the financial scene, despite multiple trials and tribulations, but it closed down in 2005 as it had become an unknowing accomplice in numerous phishing scams. For a while, that was the last the world heard of gold-backed cryptocurrency.

But now, with the rapid development of blockchain technology, trading in gold-backed cryptocurrency is much safer than it was before. More and more gold-backed variants are popping up, especially since their stability is appealing in what is usually a volatile market. Plus, compared to other stablecoins, gold-backed cryptocurrencies are generally more valuable, since the value of gold rarely goes down.

Investing in Gold — Traditional Methods and Crypto-based Alternatives

Investing in gold has always been a popular choice, given its consistently high value. Many people have purchased physical gold items, such as coins, jewelry, and even bullions. However, this method of investing can be tedious, as it requires you to store the gold properly and have its value appraised. Today, traders prefer methods that let them invest in gold without physically acquiring it.

Gold receipts are an example of this. These paper receipts can be turned in for physical gold. Before the receipt turned in, it can go through multiple trades and barters until it ends up in the hands of someone who wants the stored gold. Admittedly, this is an outdated practice, and only a few establishments still offer this service. These days, a common way to invest in gold without actually owning it is through exchange-traded funds (ETFs), which work like individual stocks and allow the investor to track the current price of gold. Today’s top-performing gold ETFs, such as GLD, IAU, and GDX, have had a strong year in light of the pandemic, tallying a record of 3,510 metric tons in the first half of this year alone. Positive flows as well as rising gold prices have led to ETFs setting record highs.

Despite the appealing nature of these traditional investments, they are not accessible to everyone. Gold-backed cryptocurrencies however offer a more convenient alternative, where investors don’t need to hire brokers or appraisers. Take KaratGold as an example. It’s physical gold in digital form. This gold-backed cryptocurrency offers investment options and cryptocurrency exchanges, and it can all be accomplished on your smart device. Additionally, it offers users payment cards that work with ATMs and e-Wallets. Whenever someone pays with KaratGold, they pay with real gold, just in digital form. Cryptocurrency is the more convenient choice and gold-based stablecoins are now one of the more an appealing options. The popularity of gold-backed cryptocurrencies can only grow from here.

Bridging the Gap

Both gold and bitcoin have been reaching record highs in value. With older investors more inclined to invest in gold and younger generations more interested in cryptocurrencies, gold-backed cryptocurrencies could serve as the bridge that connects the two. Both parties seem to have a penchant for investing in alternative currencies, so perhaps meeting in the middle will help either side broaden their investment perspectives. It’s a step that would supplement gold-backed cryptocurrencies even more.

Carolyn Coley is a blockchain reporter. She joined Smartereum after graduating from UC Berkeley in 2018.


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