When it comes to investments, gold is seen as a place of refuge that can withstand shocks like wars or economic tanks. However, there are drawbacks to buying actual gold, including issues with storage, shipping, and liquidity. As a result, a variety of substitutes have become more popular, including gold government debt, marketplace funds (ETFs), and derivative contracts, among others.
The gold-pegged cryptocurrency is a relatively recent addition to these gold-related investments. Follow along as we describe these tokens and how they operate.
Gold-pegged cryptocurrency—what does that mean?
A gold-pegged cryptocurrency offers customers access to gold without worrying about storage or custody, and allows them to buy, exchange, and borrow gold. They eliminate the drawbacks of transferability, low liquidity, and transportation.
Similar to gold exchange-traded funds and contracts for difference, they monitor the price of gold without requiring the metal to be physically owned.
It is noteworthy that many cryptocurrencies are linked to gold in some form, and they are supported in a variety of ways depending on the program.
The following post will examine some gold-pegged cryptocurrencies that are known to be popular.
The Benefits and Drawbacks of Investing in Gold-Backed Cryptocurrency
Like any other endeavor, investing in gold-backed cryptocurrencies has advantages and disadvantages. Let’s take a closer look at both:
Tokens backed by gold offer many benefits
First and foremost, ERC-20 tokens are the majority of gold-backed tokens, allowing them to be traded and transferred easily on a variety of exchanges, both centralised and decentralised.
They eliminate real gold’s liquidity risks by enabling users to trade them whenever they choose, provided they have access to a marketplace. Another advantage is that they may be fractionalized and divided, enabling investors to accumulate tiny amounts without necessarily having to put up a huge quantity of money.
In addition to the many advantages commonly associated with cryptocurrencies, gold-pegged tokens also have the advantage of being easier to store and transfer than actual gold.
Cryptocurrencies backed by gold may be purchased on decentralised exchanges. Therefore, their owners may purchase them with no KYC requirements (compared to CFDs and ETFs).
The drawbacks of gold-backed tokens
They come with some dangers because they are derivative products. One of them is that, while this may be different in some projects that provide physical redemption, professional investors do not have a major stake in the gold to which their tokens are tied.
Furthermore, they are dependent on centralised service providers to handle the safe keeping of the actual gold that serves as the tokens’ backing; investors have no control over this at all. Since the majority of them are ERC-20 Ethereum-based tokens, there may be substantial gas costs associated with each transaction or movement of the token.
The demand for gold-pegged cryptocurrencies is far narrower than the one for regular gold contractual agreements for difference (CFDs), making them much less liquid.
Financial intermediaries vary from CFDs in that they are susceptible to attacks. Even though the chances of this happening are extremely remote, every smart contract has some possibility of failing.
Top Gold-Positive Cryptocurrencies
Even if there may be a lot of cryptocurrencies that make the claim to be tethered to gold, only two, in our opinion, are worthwhile investigating. These are Tether Gold and Paxos Gold (PAXG) (XAUT). Both tokens have a respectable trading volume and are produced by reputable businesses with a track record in the industry. Other gold-pegged cryptocurrencies fall short of providing significant stability, and their websites haven’t been maintained in years, which is a warning sign.
Gold Paxos (PAX)
The largest gold-pegged cryptocurrency at the time of posting, in March 2022, is PAXG, with a total actual worth of over $550 million. It has the greatest regular trading volume as well.
Each PAXG token “denotes one pure troy ounce of actual gold from a particular serialised gold bar,” as stated in the project’s published document. Surprisingly, if a person has enough PAXG to equal a full gold bar, they can exchange their tokens for the real thing.
This has the advantage of enabling possession to be split into units with up to 18 decimal places, exposing individuals to extremely small quantities of gold. The coin is supported by Ethereum’s ERC-20 token standard, which facilitates its network portability.
It’s also important to note that the Paxos Trust Company, the company that issued PAXG 0, is a licenced custodian and a supervised finance company. It is a government business that is subject to NYDFS (New York State Department of Financial Services) and must observe the strictest guidelines for safeguarding client money. Additionally, the NYDFS also controls PAXG directly.
Gold Token (XAUt)
In early January 2021, CryptoPotato announced that Tether, the organisation responsible for the most popular virtual currency (USDT), had introduced a new digital asset denoted XAUt. The token mainly shows one troy fine ounce of gold on a London Good Delivery bar and is developed on the ERC-20 and Tron’s TRC-20 standards.
Possession of the gold on the designated gold bars is available to XAUT holders in its entirety. Their distribution may be identified by a special product code, weight, and quality.
According to the paperwork, XAUt holders are also permitted to examine the information on the gold bars connected to their addresses at any time via the website.
Users must have finished the key to this sustainability with TG Commodities Limited to submit a redemption request for real gold. The firm issuing the tokens is this one. If not, the token can be traded on well-known cryptocurrency exchanges like FTX and Bitfinex.
Overall, there are a lot of gold-pegged cryptocurrencies, but only the two listed above satisfy the requirements for liquidity and repute.
Gold has long been regarded as a relatively safe investment as well as a well-known hedge (protection) against inflation and unstable economic conditions.
Of course, this also entails the danger of a capital loss, just as with any other investment. None of the aforementioned should be regarded as financial advice in light of this. Only instructional and amusement objectives are intended for the content. Never spend more than you can afford to lose; instead, always do your homework.
Frequently Asked Questions
Q1: Is it preferable to invest in bitcoin or gold?
Due to the available marketplaces for both, purchasing and selling bitcoin and gold are both quite simple processes. However, gold has an advantage due to the more widely used methods of exchanging it.
Q2: What cryptocurrency is supported by gold?
The gold-backed token, AurusGOLD, often called AWG, is backed by and redeemable for 1 gramme of 99.99 per cent pure gold from LBMA-certified refineries. The stable digital gold token can be utilized as a substitute for erratic fiat money or as the oldest method of gold investment.
Q3: Is gold ever going to decrease in value?
Gold has always preserved its worth over the long run, even though its price might fluctuate in the immediate term. It has protected against inflation and the devaluation of important currencies throughout the years, making it a wise transaction.
Q4) What is the difference between Bitcoin and Bitcoin Gold?
The “Equihash” algorithm is used by Bitcoin Gold, not by Bitcoin or Bitcoin Cash. And that is what? Bitcoin Gold employs graphics processing units (GPUs) or graphic cards to enable individuals to mine since it is intended to become more user-friendly than its peer cryptocurrencies.