The Value of Gold Backed Cryptocurrency
Gold and silver bugs cling to the catch phrase: “If you don’t hold it, you don’t own it.” And while many of us are not gold and silver bugs – and might be puzzled by this, we have to admit that they do have a point. In crypto speak, do you really own Bitcoin (BTC) if you’re not holding the private keys that unlock it on the blockchain? Well, you might mistakenly be of the opinion that you do. However, if you don’t hold or have full control over the private keys – you are certainly setting yourself up for failure. This is why it is always best not to keep your crypto holdings for an extended length of time on any crypto exchange – as in most cases the exchange control the private keys, not you. If you’re not a day trader or a party with similar needs, it best to exchange or trade and to move the relevant holdings off exchange a.s.a.p. The collapse of Mt. Gox is a perfect example of the kind of risk you’re exposing yourself to by ignoring the above adage.
So what is the value or worth of cryptocurrency backed by gold and silver if you don’t hold the physical gold and silver? I intend to cover this and more in this blog post…
Different Types of Cryptocurrency Backed by Gold and Silver
It will most likely not come as a surprise to you that not all cryptocurrency backed by gold and silver are equal. Some are redeemable for physical gold and silver in fixed quantities (1 gram, 1 ounce, etc.) while others are pegged to gold and silver prices (predominantly USD prices given the world reserve currency status of the dollar). While some are a horse of a different color altogether.
Nonetheless, without getting into the specifics, all types of cryptocurrency backed by gold and silver provide some form of exposure to gold or silver. Some more than others. This impacts on the price and popularity of each. E.g. crypto currency backed by gold (or silver) that is redeemable for physical gold (or silver) tend to be more popular and higher priced than its counterparts.
Regardless, you probably reckon it is still merely a promise that can be broken – something that exposes one to a combination of counterparty and third party risk. So why mess with it in the first place?
The True Value of a Gold Backed Cryptocurrency
One of the biggest advantages of a gold backed cryptocurrency is probably the ability to transfer value via the blockchain from one point to the next on a global scale without much fluctuation. Due to market arbitrage, it tends to maintain a stable price relative to other assets – meeting the requirement to be deemed a stablecoin.
A gold backed cryptocurrency also makes it much faster and cheaper than any attempt to send physical gold. It also leave a traceable audit trail. There is no way of not sending it and then claiming that you did sent it (or vice versa). The blockchain doesn’t lie.
Another cool feature of crypto currency backed by gold is that coupled with smart contracts, it gives the ability to execute conditional transactions or transactions of which the terms of the contract are guaranteed to execute.
The best part: Gold backed cryptocurrency provides you with the ability to transfer value without the need to involve banks.