One of the common criticisms and challenges of bitcoin and other cryptocurrencies is their price volatility which renders their consideration as a store of value nearly impossible. Some believe that gold backed cryptocurrencies may hold the key to solve these key challenges.
There are already several cryptocurrencies, otherwise known as altcoins, backed by gold that have been launched. Several of the leading online bullion exchanges have implemented or are also implementing blockchain to create more efficient mechanisms for managing transactions. Each month it seems like there are more and more players joining the fray.
My friends at The Hutch Report have provided me with an analysis of this nascent gold backed cryptocurrency niche along with a review of some the various players in the space. There are already some obvious differences across platforms which will most likely serve to weed out the serious players from those looking to make a quick buck.
This analysis provides an objective review of the strengths, weaknesses, opportunities, and threats as well as a look at 23 gold-backed crypto and digital currencies. A review of some of the exchanges is also thrown in for good measure.
Those Interested in more detail you can download the full report on Gold Backed Cryptocurrency.
If you are looking for either a “To the moon, Alice” kind of report, or “This bubble will crash” kind of report, you are likely to be disappointed.
Rather, this report analyses the increasing number of cryptocurrencies being backed by gold bullion. Included are research and analysis on 23 different companies and 4 gold exchanges using the blockchain.
I had permission to post the entire article, but it’s a massive 46 page PDF and I had a hard time condensing the report. Here is their conclusion.
Hutch View
The marriage of cryptocurrencies and gold enables another alternative to fiat currencies. Although we can’t imagine fiat currencies to be replaced overnight, the promises of gold-backed cryptos do look compelling moving into the future and they are certainly important to follow.
In spite of the strengths of a gold-backed cryptocurrency, there are still many unknowns. In their short history, we already have some that have come and gone. Our research into many of the up and coming gold-backed cryptocurrencies has shown that the information available is not completely clear or transparent and sometimes sketchy at best.
Previous examples of blatant fraud is also a reason to be defensive but not dismissive of the newcomers. There is not enough of a track record with which to have the confidence to make a significant investment although it is worthwhile to look at them from a short-term trading aspect in order to see how well they function and if they are able to deliver on their promises.
The principal strength of the gold exchanges based on the blockchain is that they are being developed by reputable organizations. We don’t lose sight of the fact that these blockchains being used are centralized which means they don’t incorporate many of the advantages of the decentralized model for which cryptocurrencies such as Bitcoin have become known. They are not yet fully operational therefore it is difficult to judge their efficiencies.
Although these new gold backed cryptocurrency and blockchain gold exchanges provide a compelling alternative to the purchase of gold, we would not be jumping in just yet. However, the future looks very exciting and by understanding the current developments in the sector through this report you are provided with a greater advantage as they mature.
At this point, we believe it is prudent to follow the strongest management teams behind these ventures. Among the exchanges Goldmoney, The Royal Mint and the IEX Group, in partnership with Sprott Inc are the strongest. Among the gold backed cryptocurrencies, we will be following BullionCoin.
Mish View
If you want to hold gold, hold gold. But if you are still itching to get into cryptocurrencies despite (or because of) the massive crypto-rally, then gold backed crypto may be the way to go.
Mike “Mish” Shedlock
This is a very interesting and dynamic twist in the whole cryptocurrency world…
Love the comments above.
The really important thing is that these are a specific type of crypto – as is Tether for example – that will attract a different audience…there is room for everyone and most things, right?
Mish, I believe that your understanding of what is happening in the cryptocurrency space is quite poor. As well, you seem to think that gold has some unique attribute which means that it and only it can be considered money. Any reading of Mises on money will show that many of the cryptocurrencies and definitely bitcoin meet the classic definition of money. As for your understanding of cryptocurrenices, consider that your pushing of a gold backed cryptocurrency is a very small part of what is considered as the third stage of building the ecosystem of blockchain and cryptography that are the enabling technologies of cryptocurrencies. The market for asset backed cryptocurrencies is expected to be $5 trillion and trading volumes are expected to be $40 trillion by 2025. This is all part of what Jeff Garzik, one of the developers of the blockchain functionality used by bitcoin and other cryptocurrencies considers the third stage of the development of the ecosystem. The first stage was the creation of bitcoin and other cryptocurrencies. The second stage was enabling both interbank transfers and transfers across cryptocurrencies. The third stage was all about asset backed cryptocurrencies and the fourth stage, which has already started is tying it all together. When that is done the potential trading volume on blockchain will be $4 quadrillion according to LAT Crypto Reseach. And only those banks and other third parties such as BIS and Swift that fully embrace blockchain may survive. What I find humorous is that you and many of your commentators are discussing the merits of what is considered one of the reserve currencies of cryptocurrencies bitcoin, the whole cryptocurrency ecosystem is being built out and you are completely oblivious to this fact and the monumental changes its about to bring in. Wake up!
will disappear . Bitcoin is only digitally scarce in its own universe.ito choose from), digital others have that too) and speculation. Gold grounds them. Remove gold and over time the value will s (oJust, yes, but without hard backing all crypto have is multiple c (m
Gold-backed cryptos completely miss the whole point of cryptos. The goal of crypto-currencies is to reduce or eliminate trust. Trust is eliminated by open-source software and rigid rules regarding issuance of the currency. The blockchain assures that the whole community of users can audit transactions, including issuance of the currency, while ensuring that nobody can alter or delete records. Gold-backed cryptos introduce the problem of third-party trust that cryptos have already successfully eliminated. Now we must trust that some third party has the gold they say they have and that nobody can verify. The idea is stupid and a completely unnecessary backward step toward third-party trust that we just eliminated.
Borderless not borderline.
Don’t think that’s the problem Bernie. Problem will be hurdles put in place for transferring physical gold to fiat in order to control gold back crypto that are borderline.
Is it possible to convert this cryptocurrency -backed by gold- into physical gold ? If yes, how ? How to be sure there’s real gold behind it ? Physical or paper-gold ?
Gold bugs will say never sell but others will find more hurdles. Fully expect some criminal gang to set up vault or find a way to achieve non-traceable routes. the innocent) will end up paying to make life hard for criminals. A single state won’t make a difference but expect all major states to join in and find a common methodology. (t-t
.All the state will be able to do is interferE with the transfer of gold to fiat. They will put major hurdles in the way to prove provenance.
interfere with the transfer of gold to fiat.All the state will be able to do is interfer
States won’t be able to control transfer across borders and and the criminal fraternities will use it, back by gold.
There will be unintended consequences in the gold market.