Gold Backed Cryptocurrency
Gold Backed Cryptocurrency: Though cryptocurrency was viewed with skepticism when it first came to the investment market, it has gained legitimacy over time. Despite the slow start, certain cryptocurrencies are now backed by gold, which has led to them being more accepted by traders and investors.
One game changer, in particular, was the introduction of Blockchain technology, which created a safer, more secure trading system for selling, buying and trading cryptocurrency. With these recent developments, certain countries are looking at ways to develop cryptocurrency backed by gold, with some having already created their own cryptocurrencies. Backed by the relative security of gold, the future for gold-backed cryptocurrencies gives rise to many opportunities.
The Benefits of Gold backing
The introduction of gold to cryptocurrency has helped investors feel safer about their investments, not only due to the relatively stable value of gold but also because adding gold brings tangible value to an otherwise intangible cryptocurrency market. The best way to think about this is exchanging an amount of gold for an equal amount of a given cryptocurrency. As a simple example, one gram of gold could be exchanged for one coin, though exact values would depend on the specific cryptocurrency being purchased.
The resulting coin that is issued holds the current value of the gold, but the investor is protected, and possibly enriched, in two ways. First, the gold-backed cryptocurrency could increase in value and possibly surpass the value of the gold. Second, the value of the gold backing the cryptocurrency remains independent, meaning the value of the gold should remain relatively stable irrespective of cryptocurrency success. Take a poker game as an example. Players use poker chips that represent a fixed cash value that is backed by actual money. The players may at any time buy more chips or exchange the chips out for actual fiat currency. Similarly, an investor could use gold or fiat currency to purchase cryptocurrencies, and then exchange that cryptocurrency for gold when the investor decides to “cash out.”
Where will the Gold be stored?
Of course, the Blockchain system requires transparency and security in order to be safe and successful, but gold-backed cryptocurrencies will also require security in the form of physically storing the gold. As such, it is advisable for third-parties to hold the gold for safekeeping so that investors may freely invest and exchange cryptocurrency for the underlying gold at the desired time.
Another advantage of gold-backed cryptocurrency is that gold may be freely transferred without bank involvement. Though any investment carries its own set of risks, the introduction of cryptocurrencies backed by gold and other precious metals should stabilize the crypto market and provide investors with added peace of mind.