If you are one to keep track of financial trends, you are probably familiar with the term Bitcoin. Bitcoin is part of a bigger financial movement called cryptocurrency, a digital cash system with a fairly recent birth. It’s no doubt that cryptocurrencies have begun to take over financial news, but many aren’t convinced by the power of Bitcoin and the like. This is because most digital currencies aren’t physically backed by anything. They are just transferred peer-to-peer through the computer.
Gold, however, fundamentally appears to be the exact opposite of cryptocurrencies. This precious metal has historically held its value and has backed up many currencies. What happens when you combine the new, tech-based cryptocurrency with the trustworthy gold? You get gold-backed cryptocurrency, which has made a splash in recent financial news.
What is gold-backed cryptocurrency? Where did it come from? How does it work? These questions are beginning to arise as many companies are seeing the opportunity to bring investors back to buying one of the world’s strongest currencies.
Gold has had an exciting history, beginning in 3500 BC, smelted by the Egyptians. The Chinese began using it as currency in 564 BC, and it was later used by Ancient Greeks, Romans, and later by the Spanish – as well as early Great Britain.
By the 19th century, the world was operating on a Gold Standard that lasted until 1914. Although most worldwide currencies are no longer backed by gold, it is still quite important to the world economy. One reason for this is simply that gold has maintained its value since it began to be utilized as currency. The same thing cannot be said about paper currencies.
Now, many see gold as a great investment choice, whether it is used as a hedge investment, or just a sound investment to hold onto wealth in a secure way. It holds its value and has proven, decade after decade, to be trustworthy.
Cryptocurrency does not have as extensive and promising a history. The history of cryptocurrency begins with Bitcoin in 2008. Bitcoin was the result of a side project by Satoshi Nakamoto, the alias of an anonymous programmer and the inventor of Bitcoin. Bitcoin was the first cryptocurrency and remains one of the most important. In 2008, Bitcoin was launched as a peer-to-peer electronic cash system. In simpler terms, it is a digital currency.
Bitcoin’s most important use was decentralizing digital cash. Before Bitcoin, there were many attempts at creating digital money with a central entity. In digital money, you need a network that has accounts, balances, and transactions.
Like stated earlier, cryptocurrencies aren’t backed by anything, therefore, many do not understand them or don’t trust them. There are, however, ways to receive the benefits and convenience of cryptocurrencies with the trust and value of gold.
As you may guess from the name, this digital currency is backed by gold. The precious metal is used to back something up on a blockchain, and the intrinsic value of the currency is retained. Bitcoin and other cryptocurrencies don’t have an intrinsic value.
Gold-backed cryptocurrencies have a longer life than other digital currencies. The first digital currency, E-Gold, was launched in 1995 and was completely backed by gold. It was very popular, used by millions before it was shut down. There were other attempts, but they were not as successful, therefore the craze died out.
Fast-forward more than two decades and cryptocurrency has taken over financial news, and companies have begun to entertain the idea of gold-backed cryptocurrencies again. In 2015, Xaurum launched a gold-backed cryptocurrency, but it didn’t work.
Since the end of 2017, however, many digital currencies backed by gold have been launched and even relaunched, in the case of Xaurum. The cryptocurrency is just too strong right now. The UK’s Royal Mint has even launched a digital money – yes, the institution responsible for the UK’s physical money has launched a digital currency! Known as Royal Mint Gold (RMG), the digital currency will be backed by gold held in the mint’s chest.
Perth Mint, Australia’s biggest precious metal refinery, is also developing a gold-backed cryptocurrency, hoping to bring investors back to buying precious metals. The refinery wants to make it easier for consumers to buy gold. They will use the blockchain technology used by Bitcoin as a public accounting system.
Each gold-backed cryptocurrency works differently, but what they all have in common is that each coin is backed by a certain value of gold at launch. One coin for a certain currency is launched at a certain value, let’s say one gram for the sake of this example. After the launch, each transaction of the currency generates a small fee that is reinvested into gold. The amount of gold that backs the coin is therefore increased, increasing the real value of the coin over time.
What sets this apart from other cryptocurrencies is entry cost. Many cryptocurrencies can be bought for just pennies, but a gold-backed cryptocurrency costs however much gold costs and will never fall below the price of gold.
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