Gold-backed cryptocurrency is a type of crypto stable coin where each token is underwritten with physical gold. The token price is attached to the current gold price, making the price less volatile than Bitcoins or other altcoins. Each gold-backed cryptocurrency specifies a single one of its tokens containing an equivalent worth of precise grams or ounces of gold. This means that the equivalent must be present in the company’s reserves or under a trusted custodian as physical indemnified assets. A token or coin represents the value of gold. For example, one gram of gold equals one token.
Some gold-crypto token allows you to redeem the token back for gold. Unlike most cryptocurrencies with speculative value, the value of a gold crypto token is tied to a tangible asset. The asset cushions the tokens against price fluctuations, and you can use any investment for backing cryptocurrencies, but gold is the best choice after flat currency.
Most gold-backed cryptocurrencies are in the form of ERC-20 standard tokens, but you can also find other tokens such as Paxos’ PAX Gold. An ERC-20 is a standard used for building and assigning smart contracts on the Ethereum blockchain. Smart contracts are then utilized to create smart investments or tokenized assets you can spend on. On the other hand, PAX Gold is a product-backed gold stable coin issued by Paxos. Each gold token is supported by one fine troy oz of gold kept in Blink’s vaults operated by Paxos. PAX Gold enables exposure to global gold markets externally from the Exchange Traded Fund (ETF), futures contract, or other derivative products.
Blockchain-based digitized currencies backed by gold and other scarce commodities are becoming more attractive to investors. If you are keen on safeguarding your portfolios against the weakening of flat currency or regulation-bound stable coins, you should try digital gold currency.
The main advantage of digital versions of gold is that they can be divided into any small amount or unit and is transferable to another party. Gold-backed cryptocurrencies, however, have low liquidity as you can’t trade them across many exchanges.