What Is Gold-Backed Cryptocurrency?

In spite of the world going ga-ga over digital currencies, nobody seems to know what’s making cryptocurrencies tick. And that’s because most digital currencies have no physical backing and are transferred from peer to peer, via a computer.

Enter gold-backed cryptocurrencies.

As their name implies, these digital currencies are backed by gold. So, while they have all the benefits of being on a distributed ledger and are easy to trade, they are actually backed by a precious metal.

By using a precious metal to back something up on a blockchain, the cryptocurrency’s intrinsic value gets retained, unlike Bitcoin (BTC) and Ethereum (ETH), which don’t really have intrinsic values. To understand a bit more about what a gold-backed cryptocurrency is, let’s take a look at the gold-backed cryptocurrency history.




Gold-Backed Cryptocurrency History

E-Gold, the first digital currency backed entirely by gold, was launched in 1995. It was quite popular, used by millions of people around the world before it shut down. There were other unsuccessful attempts at launching a digital currency backed by gold before the craze died out for awhile.

After Bitcoin became popular, many companies started dabbling in gold-backed cryptocurrencies again. For example, in February 2015, Xaurum launched its gold-backed cryptocurrency, but it fizzled out too.

More recently, thanks to the unprecedented cryptocurrency boom in 2017, there has been renewed interest. In the past few months, many gold-backed cryptocurrencies have launched and, in some cases, relaunched ( e.g., Xaurum).

Even the U.K.’s Royal Mint, the institution responsible for producing all of the U.K.’s physical money, has launched its own gold-backed cryptocurrency.

As more companies get on board, the obvious question that investors have is, “How does gold-backed cryptocurrency work?”

How Does Gold-Backed Cryptocurrency Work?

While different gold-backed cryptocurrencies have different modus operandi, on a broad scale, each coin is backed by a certain value of gold at launch.

For example, a gold-backed cryptocurrency called OneGram was backed by one gram of gold at its launch. Since then, each transaction of the gold-backed currency has generated a small fee, which has been reinvested in more gold. This has increased the amount of gold that backs the coin. Therefore, each coin has increased in real value over time.

Difference Between Gold-Backed Cryptocurrency and Other Cryptos

The biggest difference between gold-backed cryptocurrencies and other cryptocurrencies is the entry-level cost. While most cryptocurrencies can be initially be bought for pennies, gold-backed cryptocurrencies launch at whatever the price of gold is.

The other big difference is that, unlike other cryptocurrencies, the price of gold-backed digital coins will never fall below the current gold price. However, if a gold-backed cryptocurrency becomes popular, its price will become greater than the value of gold. It’s like the coin has a built-in stop-loss.

Gold-Backed Cryptocurrency List

The gold-backed cryptocurrency list has been steadily increasing. By the time you read this, a few more might have been added. As of this writing, the list includes the following:

Airgead

ANTHEM (AGLD)

AurumCoin (AU)

AurusGold (AWG)

BullionCoin (XAAU)

CURRENSEE (CUR)

DigixGlobal (DGX and DGD)

DinarDirham (DNC)

Flashmoni (OZT)

Gold Bits Coin (GBeez)

Gold Cryptocurrency (GOLDC)

GoldBase (ABG)

Goldbloc

GoldBlocks (GB)

GoldCrypto (AUX)

GoldMineCoin (GMC)

GoldMint (MNTP)

HelloGold (HGT)

IC3 Cubes (IC3)

OneGram Coin (OGC)

Orocrypt (OROC)

OZcoinGold (OzGLD)

PureGold (PGT and PGG)

Reales (RLS), Darico (DRC)

Royal Mint Gold (RMG)

Sudan Gold Coin (SGC)

X8currency (X8C)

Xaurum (XAUR)

XGold Coin (XGC)

ZenGold (ZGC)

(Source: “A guide to gold-backed cryptocurrency,” Goldscape.net, February 2, 2018.)

Gold-backed Cryptocurrency ICOs List

A few of the above-mentioned gold-backed cryptocurrencies are currently in the initial coin offering (ICO) stage. The gold-backed cryptocurrency ICOs list includes the following:

Darico (DRC)

Flashmoni (OZT)

Gold Bits Coin (GBeez)

PureGold (PGT and PGG)

Reales (RLS)

For those who are willing to wait a bit, Sudan Gold Coin (SGC) is an upcoming ICO.

Given the many options, it’s not surprising that people are keen to know how to buy gold-backed cryptocurrency.

How to Buy Gold-backed Cryptocurrency

While the method of buying gold-backed cryptocurrencies varies from coin to coin, the common factor is that you need to have enough of either Ethereum or Bitcoin to be able to buy the gold-backed coins. Once you have the required BTC or ETH, you can go to the website of the gold-backed cryptocurrency you are keen on buying and follow the instructions.

Gold-backed Cryptocurrency Scam: Is It Safe to Buy?

On January 16, the Commodities Futures Trading Commission (CFTC) filed charges against My Big Coin Pay, Inc. (MBC) for allegedly misappropriating more than $6.0 million from customers in a cryptocurrency scam. According to the CFTC, the Nevada-based startup company gave the illusion that it was promoting a gold-backed coin for its digital wallet. (Source: “CFTC Charges Randall Crater, Mark Gillespie, and My Big Coin Pay, Inc. with Fraud and Misappropriation in Ongoing Virtual Currency Scam,” Commodity Futures Trading Commission, January 24, 2018.)

The CFTC charged the company, founder Randall Crater, and his associate Mark Gillespie—of New York and Michigan, respectively. The CFTC alleges that the entire setup was a scam comprising of “false and misleading claims and omissions about MBC’s value, usage, and trade status.”

While the scam coins list has a few notable names, like OneCoin and PlexCoin, so far, MBC is the only gold-backed cryptocurrency that has a case booked against it.

Given the possibilities of scams, it is not surprising that people ask “Are gold-backed cryptos safe to invest in?”

Look at it this way, just because one doctor gets caught in an organ-selling scam, does it mean that all doctors are bad? No, right? In the same way, as long as you stick to gold-backed cryptocurrencies that were started by legitimate organisations like the U.K. Mint, you should be good to go.

In fact, if you ask me, a gold-backed cryptocurrency is safer than an ordinary cryptocurrency, because you are at least assured that the price of the gold-backed coin will not fall below the value of gold. And that’s saying a lot, given the volatile nature of cryptocurrencies.