What Is a Gold-Backed Cryptocurrency? | APMEX (2024)

A gold-backed cryptocurrency is a type of digital currency where a specific amount of physical gold backs each unit. Unlike traditional cryptocurrencies such as Bitcoin, which derive their value from factors like supply and demand dynamics and speculative trading, gold-backed cryptocurrencies aim to provide stability by tying their value directly to the price of gold.

Typically, each cryptocurrency unit represents ownership or claim to a corresponding amount of gold held in reserve. This reserve is often stored in secure vaults and audited regularly to ensure transparency and trustworthiness. The value of the cryptocurrency is linked to the market price of gold, providing holders with a more stable and reliable store of value compared to other cryptocurrencies.

Gold-backed cryptocurrencies combine the benefits of blockchain technology, such as fast and secure transactions, with gold’s intrinsic value and stability, making them attractive to investors seeking a hedge against currency devaluation or economic uncertainty. They can be used for various purposes, including digital payments and remittances, and as a diversification tool in investment portfolios.

Pros and Cons of Gold-Backed Cryptocurrency

Here is a brief overview comparing the pros and cons of cryptocurrency investing.

Pros of a Gold-Backed Cryptocurrency:

• Stability: Because they are backed by physical gold, these cryptocurrencies offer a more stable value compared to other cryptocurrencies that are subject to market speculation and volatility.
• Tangible Value: Each cryptocurrency unit represents ownership of a specific amount of gold, providing intrinsic value and potentially acting as a hedge against inflation or economic instability.
• Decentralization: Financially, decentralization involves disintermediation, removing intermediaries like banks or financial institutions. This can foster financial inclusivity and reduce transaction costs.
• Transparency: Many gold-backed cryptocurrencies operate on transparent blockchain networks, enabling users to verify the amount of gold backing the digital tokens through audited reserves.
• Accessibility: These cryptocurrencies provide individuals with a convenient way to invest in gold without the logistical challenges associated with physical ownership, such as storage and transportation.

Cons of a Gold-Backed Cryptocurrency:

• Counterparty Risk: Despite being backed by physical gold reserves, youare still exposed to the risk of the custodian or issuer failing to adequately manage the reserves or engaging in fraudulent activities.
• Storage Costs: While investors are spared the expenses of storing physical gold, custodial services for gold-backed cryptocurrencies may still incur fees, reducing overall returns.
• Centralization: Some gold-backed cryptocurrencies rely on centralized entities to manage the gold reserves, potentially introducing vulnerabilities and dependencies on third parties.
• Regulatory Uncertainty: The regulatory landscape surrounding cryptocurrencies and precious metals can be complex and subject to change, leading to uncertainty regarding the legal status and treatment of gold-backed cryptocurrencies.
• Liquidity Constraints: Unlike widely traded cryptocurrencies such as Bitcoin, gold-backed cryptocurrencies may have lower liquidity, making it challenging to buy or sell large quantities.

Cryptocurrency Companies and Their Locations

If you ever plan to redeem your tokens for physical gold, the location of the crypto company may not matter to you. These companies do not have their own vaults; for example, Paxos Gold uses LBMA vaults in London. AurusGOLD utilizes decentralized storage, which means they have partners worldwide that may distribute the gold when requested.

However, the location may matter if you think you might want to request the gold to be sent to you in the future. Before signing up with a service, research the process for redeeming gold.

Gold-Backed Cryptocurrency Companies

Due to changes in regulations, you may often see changes in these entities. At the time of publishing, this was the current existing information available.

Tether Gold (XAUt)

Tether Gold (XAUt) is a digital asset backed by physical gold. It offers a blockchain-based way to buy, hold, and transfer gold ownership. Each XAUt token is backed 1:1 by physical gold held in highly secure vaults in Switzerland. Unlike physical gold bars, XAUt can be divided into smaller units, making it more accessible for various purposes. XAUt can be traded on cryptocurrency exchanges, allowing for liquidity.

You can redeem XAUt for physical gold through the Tether platform. However, depending on your location, having your gold shipped to you may not be practical.

Paxos Gold (PAXG)

Paxos Gold (PAXG) is a unique digital asset that combines physical gold’s stability with blockchain technology’s flexibility. PAXG is a digital token, and each token represents one fine troy ounce of gold.

The underlying gold is stored in LBMA (London Bullion Market Association) vaults in London and undergoes monthly audits. Paxos is a regulated trust company overseen by the New York State Department of Financial Services.

Perth Mint Gold (PMGT)

PMGT was created in collaboration between The Perth Mint and Trovio. PMGT doesn’t involve storage, management, or transaction fees unlike traditional gold products. PMGT is a cryptographic token built on the Ethereum blockchain using the ERC20 standard.

It is backed by government-guaranteed gold from The Perth Mint. The total gold represented by PMGT tokens can be validated at any time. PMGT is redeemable or convertible through GoldPass into an array of Perth Mint products.

GoldCoin (GLC)

GoldCoin (GLC) is a peer-to-peer cryptocurrency that aims to provide a digital alternative to traditional cash payment systems. It operates as an open-source platform, meaning it doesn’t rely on a central authority.

The network collectively manages transactions and coin issuance. GoldCoin uses the Scrypt algorithm and follows a Proof-of-Work mechanism.

It shares principles with Bitcoin, emphasizing decentralization. GoldCoin enables instant payments to anyone, anywhere in the world. Transactions can be conducted without transaction fees.

Meld Gold by Algorand (MCAU)

Meld Gold (MCAU) is a digital gold token built on the Algorand blockchain. It supports the entire gold supply chain and offers investors and industry partners a safe, secure, and stable platform.

Each Meld Gold certificate represents 1 gram of physical Australian-recycled gold at 999.9 purity. Unlike some digital assets, users can redeem these certificates for physical gold. Meld Gold offers other digital precious metals, including silver, platinum, and palladium.

AurusGOLD (AWG)

AurusGOLD (AWG) is a gold-backed cryptocurrency managed by a network of players from the traditional gold market. Each AWG token is 100% backed by gold, making it a reliable store of value. It is collateralized by 1 gram of 99.99% LBMA standard gold, securely stored in fully audited and insured vaults.

Aurus connects trusted partners from the precious metals industry with the cryptocurrency market. These partners enable people to buy, trade, and earn tokenized precious metals securely and conveniently. Partners include refineries, brokers, and traders worldwide.

AABB Gold Token (AABBG)

Asia Broadband Inc. (AABB), a gold producer and a leader in mine-to-token digital asset management, is behind AABBG. AABBG is an ERC-20 token developed on the Ethereum blockchain. Users can store, send, and receive AABBG and other cryptocurrencies like BTC, ETH, ALGO, USDC, and USDT.

AABB recently launched its proprietary and innovative AABB Wallet. The transition to this wallet underscores Asia Broadband’s commitment to continuous innovation and improvement.

BITXGOLD(BITX)

BITXGOLD is the first Shariah-compliant token backed by physical gold stored in a secure vault. Each BITXGOLD TOKEN represents 0.1 gram of 999.9 purity gold. The gold stored is audited in real time and can be verified online.

Gold bought from Dubai is tax-free. Dubai’s gold rates depend on international prices, making it affordable. BITXGOLD offers high liquidity due to its token issuer acting as a liquidity supplier.

The information provided herein is for educational and informational purposes only and should not be construed as financial advice or a recommendation to invest in any particular gold-backed cryptocurrency or company. Our company is not affiliated with any specific gold-backed cryptocurrency projects or companies mentioned in this content. We do not endorse, recommend, or promote one gold-backed cryptocurrency or company over another

What to do Before Investing in Gold-Backed Cryptocurrency

Before investing in a gold-backed cryptocurrency, conducting thorough research and considering several factors to make informed decisions is essential. Here’s a checklist of what to do before investing:

1. Understand the Concept: Familiarize yourself with how gold-backed cryptocurrencies work, including their underlying technology, the mechanism for backing tokens with physical gold, and any associated fees or risks.

2. Research the Project: Investigate the background, credibility, and reputation of the cryptocurrency project issuing the gold-backed tokens. Look into factors such as the team behind the project, their track record, and whether the project has undergone third-party audits to verify the gold reserves.

3. Assess Transparency: Verify the transparency and integrity of the gold backing the cryptocurrency tokens. Look for companies that provide regular audits and transparent reporting of their gold reserves to ensure that physical assets genuinely back the tokens.

4. Evaluate Security Measures: Assess the security measures implemented by the cryptocurrency project to safeguard the gold reserves and protect against risks such as theft, fraud, or hacking attacks. Ensure that the project employs robust security protocols and follows best practices in the custody and storage of assets.

5. Consider Regulatory Compliance: Check whether the cryptocurrency project complies with relevant regulatory requirements, especially if it operates in jurisdictions with specific regulations governing digital assets or precious metals. Look for projects that have obtained necessary licenses or approvals from regulatory authorities.

6. Understand Risks and Volatility: Investing in any cryptocurrency, including gold-backed ones, carries inherent risks, such as price volatility, regulatory uncertainty, and liquidity constraints. Assess your risk tolerance and consider diversifying your investment portfolio to mitigate risks.

7. Evaluate Liquidity: Consider the liquidity of the gold-backed cryptocurrency tokens and whether there is a robust market for buying and selling them. Assess factors such as trading volume, exchange listings, and market depth to ensure you can easily enter or exit your positions as needed.

8. Seek Professional Advice: If you need more certainty about investing in gold-backed cryptocurrencies or need assistance in evaluating potential investments, consider seeking advice from financial advisors or investment professionals with expertise in digital assets and precious metals.

By following these steps and conducting thorough due diligence, you can make more informed investment decisions regarding gold-backed cryptocurrencies and reduce the likelihood of encountering unexpected challenges or losses.

What is a Stablecoin?

When you begin researching gold-backed cryptocurrency, you will come across the word stablecoin. A stablecoin is a cryptocurrency designed to maintain a stable value, often pegged to a fiat currency like the US dollar or a commodity like gold. Unlike other cryptocurrencies, such as Bitcoin or Ethereum, which can experience significant price volatility, stablecoins aim to minimize fluctuations in value, making them more suitable for everyday transactions and as a store of value. They achieve stability through various mechanisms, such as backing by reserves, algorithmic control, or collateralization. Stablecoins are used for purposes like remittances and trading and as a hedge against volatility in traditional markets.

Gold-backed cryptocurrencies may appeal to investors seeking a hedge against currency devaluation and economic uncertainty, or those seeking a decentralized way to invest. It is prudent to do your due diligence before making a large investment.