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Gold for the Blockchain Era

By Andreas Ruf, the CEO of InfiniGold.

Gold’s unrivalled price stability makes it one of the most risk-averse assets in recorded history. Hailed for thousands of years for its ability to serve as a medium of exchange and store of value, it is now widely regarded as the quintessential safe-haven asset in the eyes of individuals and institutions (including central banks) worldwide.

It should come as no surprise, therefore, that investments into the precious metal and gold-related products have skyrocketed in recent years – an increasing number of investors opt to buy and hold physical gold, trade futures, or to bet against inflation with funds and ETFs. The modern gold industry has no shortage of options to accommodate all flavours of investor profile.

Of course, every option has its own advantages and disadvantages – high liquidity in the form of gold products comes with fees for transacting, storing and managing holdings, while physically holding bullion requires significant investment into security.

Tech-driven enhancements to the industry have become a priority for businesses, with automation, machine learning and blockchain technologies being deployed to maintain the relevance of gold in an increasingly digital age. Blockchain technology, in particular, shows a great deal of promise and is key to reviving the utility of gold in both digital and traditional markets.

Gold-backed Tokens

During the last 12 months, the stablecoin ecosystem has seen rapid growth. Fundamentally, these tokens operate differently from regular cryptocurrencies like Bitcoin, where price is determined by an embryonic market (and thus, is incredibly volatile). In stark contrast, the purpose of a stablecoin is to achieve parity with an asset held off-chain by an issuer – typically, a fiat currency.

These tokens enable the rapid and cheap transfer of value between individuals around the globe and given their price stability, they provide an ideal low-risk bridge connecting the crypto markets to the existing financial world.

To call a fiat currency ‘stable’, however, would fail to take into account a decrease in purchasing power over time: inflation effectively debases the value of all money in circulation, meaning that from an investor’s point of view, fiat currency is not an attractive long-term holding.

The Marriage of Gold and Blockchain

Tokenising physical gold not only enables token holders to enjoy the stability of gold, but it presents new opportunities for dealing with gold, by removing the pain points of existing products. Above all, users of gold-backed tokens would benefit from greater accessibility – physical gold is difficult to transport in large amounts and feasibly impossible to divide up without precision equipment.

For immediate acquisition, buyers are often at the mercy of premiums from brick-and-mortar retailers in their direct proximity. As touched on above, securing bullion by oneself is equally a costly endeavour, leading many to instead trade financial instruments on top of gold, or to seek out oftentimes costly vaulting solutions.

Gold tokens issued on a blockchain mitigate these challenges: an issuer will take physical gold into their custody, and issue tokens redeemable for a specific amount of bullion. In this way, each token maintains a fixed value in relation to physical gold but can be held, sent and received much like any cryptocurrency – accessible on a smartphone, highly divisible, and transferable for a fraction of a cent.

Gold isn’t going anywhere anytime soon – with a track record spanning thousands of years, it will continue to provide investors with a safe haven in times of economic and political turmoil just as it has always done. As it stands, though, it has to be accepted that in a digital era, it is somewhat encumbered as an asset class.

With the fusion of blockchain technology and gold, the gap between physical bullion and the digital world can be bridged, providing investors worldwide with a highly liquid and highly accessible token to cater to a vast range of financial strategies.