Gold-backed tokens enable anyone to invest in gold without having to actually store the precious metal yourself. These digital tokens are linked to physical gold stored in vaults, so each gold-backed token has a specific amount of tangible gold supporting its value.
In this guide, you will learn everything you need to know about gold-backed tokens and how you can get started with investing in tokenized gold.
In a nutshell: Similar to stablecoins that are tied to the US dollar, gold-backed tokens represent intrinsic value through physical gold. Although the coins operate on a distributed ledger that makes them easy to transfer and store, they also have “tangible” value, a feature that most other digital assets lack. Holders of gold-backed tokens appreciate the tangible value of their tokens, and they have the peace of mind knowing that their gold-backed digital token will never fall below the price of gold.
What are Gold-Backed Tokens?
The concept of digital gold first entered the markets in 1999 when Doug Jackson founded E-gold, a company that sold “digital gold” to its customers. The company amassed millions of users who enjoyed easy cross-border transactions and peace of mind knowing their “E-gold” represented a tangible asset.
However, E-gold faced a number of issues as the internet expanded exponentially in the early 2000s. The company was constantly targeted by hackers looking to exploit rudimentary security features in order to steal E-Gold from customer accounts. Furthermore, E-Gold failed to keep up with its growth in traffic and eventually succumbed to stiff competition.
The new version of digital gold comes in the form of gold-backed tokens. Gold-backed tokens, similar to the once great E-Gold, represent a certain amount of gold that’s most commonly measured in either ounces or grams per token. Gold-backed tokens, however, enjoy a number of additional benefits from existing on the blockchain. The distributed ledger provides ample amounts of security, and the majority of gold-backed tokens can transfer hands within seconds.
It’s important to note that gold-backed token projects have come and gone in recent years, and thus investors should conduct proper due diligence before purchasing any gold-backed digital tokens. Interested parties should evaluate the way a company stores the gold, how much they have, where it is located, and how often they are audited.
Should You Invest in Tokenized Gold?
The idea behind gold-backed tokens is to provide everyone with the opportunity to own physical gold represented by a digital asset on a distributed ledger.
Throughout the rise of Bitcoin, many in the media labeled the innovative cryptocurrency as a type of “digital gold” that exists on the blockchain. Bitcoin derives value from its unique technological attributes while real gold does so from its physical attributes. Gold doesn’t corrode, providing a sustainable store of value, and humans seem to naturally draw emotional value from it as well. Having said that, investors now have the option to purchase digital tokens that represent value of actual gold.
Gold is heavy, its transportation is fraught with difficulties, and secure storage costs add up quickly. Rather than purchasing physical gold, investors can choose their favorite gold-backed token as the representation of their gold’s value.
Investors who are bullish on gold may find it easier to purchase gold-backed tokens rather than finding gold coins, bars, or even diving in the gold futures market. The best platforms for gold-backed tokens offer consistent audits of the banks holding the gold, low fees, low storage costs, and near instantaneous transfer times. Holders of gold-backed tokens face no storage or transport issues plus the tokens are often far more liquid than any other “gold asset” option.
How to Invest in Tokenized Gold?
The process of investing in tokenized gold is nearly the exact same as typical digital assets.
You have to identify the token you want and then navigate to an exchange offering that token. Depending on the tokens unit of measurement (gram or ounce), the price per token will vary.
Using the designated platform of the gold-backed token will yield additional benefits like lower purchasing fees and additional information regarding the process of digitizing the gold. The most important aspect of a gold-backed token is the project behind it. Therefore, the safest way to purchase tokenized gold is to first research and analyze the platforms that offer a gold-backed token, focusing on the company’s commitment to transparency, security, and reputation.
Top Gold-Backed Tokens by Market Capitalization
Dozens of startups have entered the tokenized gold market since its inception in 2015, but not all platforms are equal. Investors should conduct ample research and find the gold-backed token that fits their needs. Many projects have been upended from fraud allegations, so it’s important to find a company that you trust before handing over a dime.
Below, you can see a list of the leading gold-back tokens by market capitalization.
| Platform | Token | Measurement | Location | Link |
|---|---|---|---|---|
| DigixDAO | DGX | 1 gram = 1 DGX | Singapore | https://digix.global/#/ |
| OneGram | OFC | 1 gram = 1 OFC | UAE | https://onegram.org/ |
| HelloGold | GOLDX | 1 gram = 1 GOLDX | Malaysia | https://www.hellogold.com/ |
| Perth Mint Gold Token | PGMT | 1 GoldPass Certificate = 1 PGMT | Australia | https://pmgt.io/ |
| PAX Gold | PAXG | 1 troy oz = 1 PAXG | United States | https://www.paxos.com/paxgold/ |
| Tether Gold | XAUT | 1 troy oz = 1 XAUT | United States | https://gold.tether.to/ |
The Bottom Line
The emergence of gold-backed tokens offers yet another investment vehicle for those looking to further diversify their portfolio. Although the purchasing process is significantly different, tokenized gold should still be viewed as an investment in a tangible asset.
Gold has long been a safe haven for those looking to store wealth in a structured manner, but it also provides a form of monetary protection. Given the COVID-19 caused economic fallout of many fiat currencies, the value of gold has shot up tremendously in 2020, giving investors yet another sign that gold is here to stay.
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