Gold-Backed Cryptocurrencies: Everything You Need To Know

Kevin Mwanza
Written by Kevin Mwanza
gold-backed
The value of a gold-backed digital currency is determined by the gold price. The gold that the token is linked to is stored by a trusted third party.

Gold-backed cryptocurrencies are emerging as an attractive investment option and conventional digital currencies are being criticized for their lack of physical backing and reliance on peer-to-peer computer transfers.

Asset-backed cryptocurrencies are digital currencies that are attached to the value of physical assets such as real estate, oil, commodities, minerals and even precious metals such as gold.

Here are some things you need to know about gold-backed cryptocurrencies:

They are tied to the value of gold

The value of these digital currencies is linked to the price of gold in the market. This gives them an additional benefit of having an intrinsic value apart from being on a distributed ledger and therefore easy to trade.

They are not new

The concept of a gold-backed digital coin dates back to 1999 when e-Gold was launched. E-Gold was created to withstand the highs and lows that are synonymous with fiat currency. The coin was popular among privacy-conscious institutions such as Netizens and millions of people around the world. Other versions of gold-backed digital currencies have also existed.

How it works

In a gold-backed cryptocurrency system, a digital token is launched that represents a certain value of gold. The gold that the token is linked to is stored by a trusted third party. The gold can be traded by other token holders. The value of the token is, at any given time, equal to the prevailing rate of gold.

Popular gold-backed cryptocurrencies

Some of the popular gold-backed digital currencies include Digix Gold Token (DGX) based in Singapore, sharia-compliant OneGram (OGC) based in the United Arab Emirates, Australia’s Gold Bits Coin (GBT) and Zengold (ZGC) in China.

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Not all that glitters is gold-backed

There are some cryptocurrencies with the word “gold” in their name but they are not backed by gold or related to gold. Examples of these include bitcoin gold and ethereum gold.

How to buy

The method of buying will differ from one gold-backed token to another. However, the common factor is that you should have enough bitcoin or ethereum to enable you to purchase the gold-backed coins.