There are currently over 2,000 cryptocurrencies listed on CoinMarketCap. With so many projects, visions, roadmaps, and technologies, how do you know which one to invest in? With crypto’s volatility making the headlines every day, you may be wondering if gold-backed cryptocurrency is a viable option. Let’s take a look.
Gold-backed cryptocurrency is backed (unsurprisingly) by gold; a tangible asset meant to increase the credibility and security of the digital currency.
As a form of stablecoin, gold-backed cryptocurrencies have their value tied to gold, instead of a currency like the USD or euro. Each coin represents a unit of gold (one coin=one gram of gold, for example), which is stored by a third party.
The main advantage lies in reducing the cryptocurrency’s volatility since the price of the coin can’t be lower than the current gold rate.
The concept of gold-backed cryptocurrency isn’t new. In fact, the first currency was launched back in 1996. E-gold was a digital currency founded by Douglas Jackson and Barry Downey. The two created a revolutionary system for that era, in which users could trade coins, make e-commerce transactions, and even benefit from mobile payment services.
In the beginning, the network backed the accounts with gold coins stored in a bank safe deposit box in Florida. But as the number of users grew to over five million, the network failed to keep up with cybersecurity requirements.
It had to handle hacks, scams, fraud, and system issues until 2009 when the company suspended all transfers due to a series of legal issues. Other gold e-currencies that have tried (but failed) to enter the market are 1mdc, e-Bullion, and Pecunix.
With the rise of blockchain technology and success of Bitcoin, trading gold-backed cryptocurrency has become safer. More start-ups are launching new versions as their intrinsic value makes them less volatile than traditional cryptocurrencies.
Gold-backed cryptocurrency works differently from other cryptos. While their price varies with demand, they can never fall below the current price of gold. The price can only go in one direction in the long run, since gold rarely devaluates and has never been worth zero.
Bitcoin Gold (or Bit Gold) was a hard fork of the original cryptocurrency that occurred at the end of 2017. The goal was to “make Bitcoin decentralised again” (similar to Bitcoin Cash).
Among the upgrades with Bitcoin Gold, users get additional safety and more protective measures to secure accounts, including replay protection and unique wallet addresses. It should be noted that, despite the name, Bitcoin Gold is not a gold-backed cryptocurrency.
With many investors concerned about the lack of physical assets backing cryptocurrencies, gold-backed cryptocurrency could help increase trust. It could even attract the interest of institutional investors.
Since the cryptocurrency’s price is pegged to the value of gold, investors face lower risks. Gold-backed cryptocurrencies don’t represent risk-free investments, however. The gold used to back up the coins needs to be stored safely with third-party organisations, and there are plenty of security issues that can arise from this.
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