Cryptocurrency, being a relatively new asset, has many people interested, but it can also be used for just pure speculation. Digitizing ownership of gold is an area of interest that has been popular in the last few years. This article will look at some of the best gold-backed cryptocurrencies and the ins and outs of this exciting new asset.
What Is a Gold-Backed Cryptocurrency? A gold-backed cryptocurrency is a digital asset derivative whose value is supposed to be underwritten by the equivalent price in gold. Each gold-backed cryptocurrency defines one of its tokens as having an equal worth of a specific size of gold, be it grams or Troy ounces.
This suggests that there should be an equivalent amount of gold in reserves or a fault of the company or trusted custodian as physically collateralized assets. Some tokens even allow redemption back to gold. Unlike most crypto, they are tied to a tangible asset, protecting it from massive price fluctuation.
Is Bitcoin a Gold-Backed Cryptocurrency? No, Bitcoin is not backed by gold, precious metal, or even fiat currency. It derives its value from various factors, including its decentralized nature, usability, demand, and technological value.
How Do Gold-Backed Cryptocurrencies Work?
Much like a gold ETF that has an issuer and relies on a trusted custodian to store physical gold, a gold cryptocurrency is also operated by a centralized issuer. It can be in the form of physical gold bars, gold coins, gold certificates, or even gold-related securities, as well as any form of gold bullion. The token then acts as proof of ownership for the underlying asset.
Some gold-related cryptocurrencies are pegged to the price of gold, while other gold back coins or tokens allow for redemption into physical gold. Suppose the coin or token allows the holder of gold-backed crypto to redeem their cryptocurrency for a definitive amount of gold by presenting the gold tokens to an issuer. In that case, it will, unfortunately, have counterparty risk.
You should be able to turn in your token and receive physical gold from a storage facility or custodian. Unlike other cryptocurrencies, there is an actual physical concern. In theory, once a gold-backed cryptocurrency is redeemed, it is burned and removed from circulation. Most gold-backed cryptocurrency exists as a token on a public blockchain, with most of them dealing with Ethereum through the ERC-20 token standard. However, other gold-backed crypto tokens exist on different blockchains, such as Algorand.
Typical Cryptocurrency vs. Gold-Backed Cryptocurrency
Most cryptocurrency is not backed by anything else. Because of this, not all investors trust crypto. One of the biggest arguments against Bitcoin is that its value is intangible and not backed by anything of actual physical value. This is where gold-backed cryptocurrencies step into the picture because of their connection to physical gold.
Because of the connection to underlying physical gold, some investors feel more comfortable investing in the cryptocurrency backed up by it. After all, gold has a much longer history than cryptocurrency as a store of value, and price fluctuations are easier to understand due to its long history.
While the underlying fundamentals may be easier to follow, it’s worth pointing out that a cryptocurrency backed by gold will ultimately track the price of gold. As long as gold does not skyrocket, you cannot expect a gold-backed cryptocurrency to do so.
What Are the Best Gold-Backed Cryptocurrencies? TOP 10 Gold-Backed Cryptocurrencies
As the idea of a gold-backed cryptocurrency starts to take off, it is time to give some of these coins/tokens a better look. The following cryptocurrencies are ten of the most prominent:
Tether Gold (XAUt)
Tether Gold gives the investor an ability to invest in gold, gaining direct exposure to the physical gold price. This is great for smaller retail investors, as it can be sized to the individual’s needs. Tether Gold is the same company that brings you Tether stablecoin, but instead of being pegged to the US dollar, it is pegged to gold.
A token holder will have ownership rights to gold on specific gold bars. The allocated gold is identified by its unique serial number, purity, and weight. A website allows token holders to check at any time on the gold bars they own and the ounces of gold possessed per bar.
Features:
- Users need to open an account at app.tether.to and have it verified to buy tokens. All purchases are made in US dollars
- 1 XAUt token equals one Troy fine ounce of gold on a London Good Delivery bar
- Tokens are transferable from one unchained Tether wallet to another
- The token is in the ERC-20 token held on an Ethereum-based wallet and as a TRC20 token on the TRON blockchain.
- Tokens redeemable back to physical gold for users and a certain minimum number of XAUt tokens. Gold is delivered to any location in Switzerland
- Tokens can also be redeemed to gold, and then the user can request for it to be sold, and cash sent to them from the proceeds of the sale
DigixGlobal (DGX)
DigixGlobal is for those who wish to invest in physical gold but do not have the means for storage and perhaps the physical cash necessary to buy a full-sized bar. DigixGlobal allows the ability to invest in fractional tokens, transfer, and redeem them at will. DigixGlobal allows anyone to accumulate gold in minute positions and manage it effectively around the clock with minimal limitations. Through this token, users can participate in a gold ETF as well. Tokens are tradable on cryptocurrency exchanges as well.
The company keeps physical gold backing the cryptocurrency in Singapore and Canada. Furthermore, the custodians they use are fully insured members of the Bullion Association.
Features:
- Users register, choose a wallet and then buy. You can buy DGX with crypto
- 1 token or DGX is equal to 1 g of gold. All gold is backed by 100-gram Swiss gold bars from some of the leading refineries in that country
- The token is based on the Ethereum blockchain, stored on Metamask and other ETH wallets
- Tokens have no storage fee. The ETF storage fee is 0.4% per annum. The physical gold bar storage fee is 0.6%, while the transaction fee for sending tokens is 0.13% per transaction. The “recast” or token conversion fee to physical gold is 1%
You should note that DigixGlobal is reviewing the Singapore Payment Services Act, which may have the company changing jurisdictions.
Paxos Gold (PAXG)
Paxos Gold is a gold-backed cryptocurrency issued by Paxos, the company that created the Singapore-based cryptocurrency exchange known as itBit. Paxos is a regulated and legal custodian through a trusted charter issued by the New York State Department of Financial Services and one of the most common ways to own gold via crypto.
The ERC-20 token allows users to access gold from traditional markets. Using the token, they can own, transfer, store, and speculate on gold much easier and faster than in the physical markets. Users can also subdivide gold holdings, which would be much more difficult with physical gold.
Paxos Gold can also be traded as futures, where you can enter either perpetual or quarterly futures contracts on some exchanges.
Features:
- Backed by one fine Troy ounce of gold at a ratio of 1:1
- No custody fee is charged for holding tokens. The gold ETF, ranges between 19 and 40 basis points per year. Physical gold coins and other products can be anywhere from 10 to 100 basis points per year. Unallocated gold is 1 to 10 basis points per year, and other gold tokens can be up to 100 basis points per year. If you hold an LBMA 400 Troy ounce gold bar, there is a fee between 5 and 25 basis points per year
- Paxos Gold allows for instant settlement
- PAXG offers access to major gold ETFs in other gold tokens
- Can be redeemed for physical gold
- Regulated by the NYDFS
- Widely available on most major exchanges
GoldCoin (GLC)
GoldCoin peer-to-peer cryptocurrency strives for decentralization and economic freedom. The development team believes transactional confirmation speed and economic freedom are crucial to payment systems. The confirmation speed is just 2 minutes, beating many major currencies. The ERC-20 coin can be stored and sent from any Ethereum wallet.
The backing is a ratio of 1000 GoldCoin per ounce of gold, which makes it much less volatile than many other cryptocurrencies, which are not pegged to any stable asset. It also provides the benefits of a digital asset, physical gold, and it is easily divisible, portable, and transported. The token can be redeemed back into physical gold at any time. It can also be converted back to fiat. GoldCoin can be found at exchanges and on the company’s website. Furthermore, you can purchase GLC from a system of ATMs.
Features:
- Each GoldCoin token is 1/1000 of an ounce of gold
- The platform scales through the on-chain and off-chain scaling methods
- It is mind through the proof of work algorithm, like Bitcoin.
Perth Mint Gold Token (PMGT)
The Perth Meant Gold Token is a tokenized version of the GoldPass certificate at a ratio of 1:1, which is also backed by physical gold at a ratio of 1:1. Each certificate can be traded for tokens, as can the tokens for certificate and fiat on digital asset exchanges. Physical gold is stored in Perth Mint’s central bank. The Government of Western Australia guarantees the gold.
The token is like other cryptos, easily transferable and divisible. It can be redeemed back to gold or other fiat equivalents at any time. The fiat connection unlocks liquidity even for the biggest trades.
The crypto does not have any transaction, storage, or management fees. This makes it one of the world’s most influential and affordable gold-backed tokens or gold-backed cryptocurrencies.
Features:
- The token can be redeemed in multiple Perth Mint products, from a small 1-ounce cast bar to a 400-ounce LBMA-accredited London Good Delivery bar
- The Earth Meant publishes all balances of GoldPass accounts, meaning anyone can publicly verify the backing of the token with gold
- 1 PMGT is equal to 1 ounce GoldPass certificate and 1 ounce of physical gold.
- Tokens can be traded on the over-the-counter gold market XAU
Meld Gold by Algorand (MCAU)
Like other gold-backed tokens, Meld Gold makes gold accessible to small investors. The tokens allow the transaction of gold in real-time and can also eliminate some of the volatility that comes with the procurement of physical gold. The token, at least in theory, shields investors from steep inflation as it happens in mainstream crypto markets. It also can eliminate slow transactional times, one of the biggest problems with the physical metal market.
Each token digitizes the Meld Digital Gold Certificates, backed by physical gold. The tokens can be secured on the Algorand Wallet, which users can then monitor their token value. It allows decentralized storage and holding globally at any location and time.
Features:
- Can be purchased through the over-the-counter markets and from Meld partners
- Algorand, on which the tokens said, supports atomic swaps and standard asset tokenization features
- The token can be converted to any fee and crypto on an exchange or back to gold certificates and physical gold
AurusGOLD (AWG)
AurusGold, also known as AWG, is a gold back token that is collateralized and redeemable for 1 gram of 99.99% gold from LBMA certificate refineries. The digital gold token can be used as an alternative to unstable fiat currencies or other cryptocurrencies, as it is one of the easiest ways to invest in gold. AWG is minted by gold traders that can arbitrage between the AWG and bullion gold markets, keeping the price of AWG in line with the spot price.
Features:
- Small increments of 1 gram make accumulation simple
- Can be converted for physical gold from LBMA certificate refineries
Cash Telex (CTLX)
One of the more interesting tokens out there right now is Cash Telex. This is because it is linked to a diversified gold, silver, diamonds, and real estate fund. The Cash Telex gold coin represents 1 gram of gold that is securely bolded. All gold held is fully insured and audited, and publicly verifiable.
Features:
- Cash Telex offers a wide variety of tokenized assets
- Cash Telex gold coins, in 1 gram increments, making accumulation simple
- All gold is publicly verifiable
AABB Gold Token (AABBG)
AABBG is one of the newest gold-pegged cryptocurrencies. The virtual token has a few disruptive and futuristic advantages over its competitors. It allows a mine-to-token gold-backing format that ensures the existence of tokens on the digital web. It verifies all of its physical gold assets that back the token 100% from the company’s production segment.
Features:
- Token represents physical gold held from the company itself
- Gold is verifiable publicly
CACHE Gold (CGT)
Cache Gold Token transparently combines the unique qualities of gold with the blockchain. The tokens are fully packed, redeemable, and regulated with worldwide liquidity. Each token represents 1 gram of pure gold. CGT features almost instantaneous settlement of transactions in a widely distributed network infrastructure. The company offers GramChain, an asset tracking system to provide real-time bar locations, photographs, and gold-held serial numbers.
Features:
- Each token represents physical gold in 1 gram increments
- The company is a real-time monitoring system with photographic proof of gold holdings
Kinesis Gold (KAU)
Kinesis Gold is another cryptocurrency that is backed up by physical gold. Each KAU is backed by 1 gram of physical gold stored in fully insured and audited vaults and in your name. It allows you to spend, trade, send, and earn physical gold anywhere in the world. There are no storage fees, and transaction speeds are lightning quick, being confirmed within 3 seconds. Redemption is simple but has a minimum of 100 grams.
Features:
- Kinesis Gold offers extreme divisibility
- Kinesis Gold coins are denominated in 1 gram increments
- Redeemable at 100 grams
Conclusion
Protecting your wealth with gold has been utilized for over 5000 years. With the expanded blockchain, it’s a logical leap from carrying around large amounts of physical metal to having a tokenized version. As long as there is verification and auditing, you should be able to take advantage of a much easier way to store gold. There is a bit of an argument that “if you don’t hold it, you don’t own it.” You do have to have a certain amount of trust in the auditors and custodians, especially as most people will be storing gold outside of their own countries.
However, the fact that you can divide an ounce of gold in so many different ways and in so many small increments makes it advantageous for retail traders to go down this path. However, remember that there are more likely than not to be some storage fees and transaction fees. If you are a longer-term holder of gold, this probably won’t be a big issue.
On the other hand, if you are looking to speculate on the price of gold simply, the simple list solution is to trade the contract for a different market, which is simple speculation on the price of gold. You can do that quite easily and with a very modern and robust platform. Most traders will not only trade gold from a short-term perspective but also hold it for financial safety over the longer term making a mix of CFD markets and gold-backed crypto complementary.
FAQ: Frequently Asked Questions
- Is there crypto backed by gold? Yes, several gold-backed cryptocurrencies track the price of the underlying metal, as we have explored in this article.
- What is the best gold-backed cryptocurrency? Multiple coins are available for those wishing to track the price of gold. However, to indeed be stable, you should be able to convert your crypto into physical gold.
- What stablecoin is backed by gold? Tether Gold is backed by gold and is also used as a stablecoin.
- Is there silver-backed crypto? Yes, there are a handful of silver-backed cryptocurrencies, the biggest one being SilverCoin.
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