Cryptocurrencies can be considered both Peter Pans and Jack’s beanstalks of the world of technology. They seem to keep the curiosity, they never grow old, and at the same time, they grow bigger and bigger with every passing day! In all of these, cryptocurrencies – and many digital currencies for that matter – have grown without any backing of physical assets.
While this growth might be deemed as a great advantage by people who want to reap Return on Investments, the lack of physical backing for the cryptocurrencies is a cause of alarm for many financial experts.
Any cryptocurrency that is backed by a physical asset or anything of stable value will surely be considered a welcome move by both finance and technology. This is where the relevance and awesomeness of gold-backed cryptocurrency come in.
Defining Gold-Backed Cryptocurrency
As the name implies, gold-backed cryptocurrencies are digital currencies that are backed by the value of gold. This type of currencies brings the advantages of a distributed ledger system while retaining the value that is driven by precious metal.
Unlike the classical notion of cryptocurrency confined to Bitcoin and Ether, gold-backed coins have an intrinsic value, and quite akin to Stablecoins, it increases the reliability and dependability.
The Inglorious Past
There have always been instances where innovation has faced its share of resistance, and cryptocurrency was not an exception.
In fact, the first attempt in unifying gold and technology came in the form of e-gold 5 years before the new millennium was born. It has 5 million users before its abrupt shutdown in 2009. Following a lot of unsuccessful attempts in creating the perfect gold backed digital currency, Xaurum was launched in February 2015. The popularity of the bitcoin was a major factor in influencing this launch. However, after a shortlist time of glory, Xaurum fizzled out.
In recent times, thanks to the cryptocurrency boom, there has been a renewed interest in this asset-driven innovation. There have been a lot of new launches and even a few relaunches including Xaurum.
How does it work?
There are different ways in which different gold-backed cryptocurrencies work. However, the common attribute that encompasses all these currencies is that they are backed by a certain value of gold at launch.
Let us take the example of one gram. one gram was backed by one gram of gold at its launch. Every transaction generated a small fee which was reinvested in more gold. This would mean that the amount of gold that backs the coin keeps on increasing steadily, resulting in the real value of the coin increasing over time.
What Makes Gold-Backed Cryptocurrency Different?
On the surface, the key difference between other cryptocurrencies and gold-backed cryptocurrencies is that the later is backed by a physical entity of intrinsic value. Another difference lies in the pricing. Most of the cryptocurrencies can be bought for meager amounts. Gold backed cryptocurrencies, on the other hand, launch at the price of gold.
Another passive-yet-valuable advantage that these cryptocurrencies bring is that the price of a coin will never fall back below the value of the price of gold at any given time. If a particular gold backed cryptocurrency becomes popular, the price will only become greater than the value of gold.
This amazing property of gold back to cryptocurrencies has given rise to a lot of gold-backed coins and even ICOs.
How to invest?
After stating all these elements of lucrativeness, it is essential to know how to invest and reap the benefits as well! The most common way to buy gold backed coins is to have enough of either Ethereum or Bitcoin to buy them. There are a lot of self-explanatory websites that facilitate the buying of the new type of cryptocurrency.
Before gold-backed cryptocurrencies, any attempt to unify gold and technology has not taken off in a welcoming way. There have been instances of scams and even gold-backed cryptocurrency is not an exception. However, among the many other options that have a few disadvantages of volatility and increase the probability of scam, gold-backed cryptocurrencies are all set to become the next big thing in the crypto world.