I’m not as keen on Bitcoin as I used to be. Too volatile for my taste.
I’m more comfortable with physical gold bullion as my store of value. That said, I’m not ready to give up on blockchain technology quite yet.
The thing about blockchains is that they provide an immutable and complete record of every transaction you make. Can’t be forged, can’t be changed or deleted. Every digital asset you own on a blockchain comes with a perfect provenance.
This is one of the reasons I’m interested in gold-backed crypto tokens.
How gold-backed tokens work…
A gold-backed – or gold-pegged – crypto token is typically paired with a physical bar of gold. 1 for 1. One token for one ounce of pure gold.
In this way, they’re similar to dollar-backed stablecoins, which can generally be traded for $1.00 in fiat.
When I buy one gold-backed token, it’s the same as buying an ounce of gold, except I don’t have to take physical delivery of the gold, or pay for its secure storage.
I can hold onto the token for as long as I like. Or I can sell it on the blockchain. When I sell, I’ll receive the dollar equivalent of the day’s spot price for gold.
That said, with most providers, I can also choose to take delivery of my one-ounce bar of gold if I want it.
Remember, my token is absolute proof of ownership. I have the right to hold it, sell it, or convert it… or take delivery of the physical gold.
The advantages of gold-backed crypto tokens.
The most obvious advantage is that you can own gold without taking delivery.
Of course, we’ve always been able to do this with traditional allocated gold storage services.
But with crypto, we can generally transfer tokens from our wallets to those of another investors. For example, with PAX Gold (PAXG) you can move or trade your tokens at any time, because they’re on the Ethereum blockchain.
This is an incredibly fast and easy way to sell gold. It makes the whole thing a lot more liquid.
And, as mentioned, I can convert my token into physical gold at any time.
Disadvantages?
The main one, I think, is concerns over the security of your crypto wallet. There is a learning curve there. You have to get familiar with crypto and follow best practices to keep your wallet and its gold-pegged tokens secure.
Where can you buy gold-backed tokens?
There are plenty of options. But here are my top three, based on my level of confidence in them as companies that will endure and deliver on their promises. Not financial advice… just my personal opinion.
What’s next?
For now, it looks like the offerings in this space are fairly simple… buy a token that is pegged to the price of gold, with each token worth one ounce of pure gold.
I think we’ll see more services appearing in the future.
For example, in the world of DeFi and NFTs, it’s not unusual to be able to earn interest on your tokens, or to use them as collateral for loans.
We’ll see what the future holds for gold-pegged tokens.
In the meantime, being able to buy these tokens sounds like a great advance in itself.
Further reading:
Digital Gold: Why Bitcoin Has Many of the Qualities Investors Value in Gold