Guide to Gold-Backed Cryptocurrency

Clint Siegner Clint Siegner

Clint Siegner

April 8th, 2020 Comments

What is Gold-Backed Cryptocurrency?

When you think of cryptocurrency, you most likely think of the digital currency you trade via online platforms. Gold-backed cryptocurrency is similar in that you can buy and sell it digitally, but there’s more to it.

While the value of most crypto correlates to its popularity and trade volume, gold-backed cryptocurrency has physical value as well. Instead of digital value alone, this currency’s value connects with that of gold on the market. This tangible value sets these currencies apart from regular cryptocurrencies because they have real value.

The value of gold-backed cryptocurrency rises and falls with the cost of gold. That doesn’t mean its value is the same as that of the precious metal, but it does mean that the value of gold-backed crypto will not dip below that of gold. However, it can rise higher.

That’s where the popularity of cryptocurrency factors in, as the trade volume determines how high gold-backed crypto’s value goes. While it sounds more complicated, gold-backed cryptocurrency isn’t any more difficult to trade than regular cryptos.

The only difference here is that a ledger is used to account for all the crypto coins in circulation. That way, everyone knows how many tokens are circulating and how many coins there are.

How is Gold-Backed Cryptocurrency Created?

The process of creating a gold-backed cryptocurrency is relatively simple. As with regular crypto, the process involves creating digital tokens that are then put into circulation for investors to trade. Usually, one digital token equals one gram of gold and is valued the same.

This area is where regular cryptocurrencies and asset-backed cryptocurrencies diverge. Regardless of how much traction gold-backed crypto gets among traders, its value still will not go below that of gold. That also means that investing in gold-backed crypto costs more than the few cents it can cost to buy regular digital cryptocurrency.

How do you know there’s actual gold backing this crypto, though? A third-party facility stores an amount of gold equal to the number of tokens in existence. For instance, if each coin of gold-backed crypto is worth the same as one ounce of gold, 100 coins equate to 100 ounces of gold stored to back them.

The process of creating and trading gold-backed cryptocurrency isn't much different from trading regular digital crypto. You can still exchange online, and as gold-backed cryptocurrency has grown in popularity, more companies are making it, including the UK Mint. When these companies release new coins, it offers traders more investment both in crypto and in gold.

Is Bitcoin Gold Backed by Gold?

The short answer is no; Bitcoin is not backed by gold. That does not mean it has no value, but Bitcoin isn’t connected to any physical asset, whether it’s gold, silver, oil, or any other commodity.

However, Bitcoin did contribute to the rise of gold-backed cryptocurrency. Before Bitcoin and blockchain gained popularity among traders and investors, cryptocurrency was virtually unheard of by the general public. As Bitcoin emerged, allowing traders to exchange and invest with minimal effort, more people began to invest in it and other cryptos.

That includes gold-backed cryptocurrency. While gold-backed crypto existed as far back as 1999, it didn’t take off until after Bitcoin did. That doesn’t mean all of these new cryptos become well-known or widespread now. Most don’t.

Some people prefer gold-backed cryptocurrency over Bitcoin because they feel it is more secure with a tangible asset attached to its value. It has a guaranteed threshold for what it’s worth.

On the other hand, it’s harder to keep track of physical gold in vaults as digital coins are made. Compare that to blockchain technology, which keeps track of Bitcoins. If you’re investing in gold-backed cryptocurrency, you also want to make sure your investment—including the gold—belongs to you.

Physical Gold vs Gold-Backed Cryptocurrency

While gold-backed cryptocurrency is tied to the value of gold, the two are not the same thing. Investing in gold directly involves having that physical asset either stored in your home or a facility you trust. In contrast, with gold-backed cryptocurrency, you don’t have direct access to the gold tied to your investment.

If you choose to trade your cryptocurrency, you’re trading a digital coin for the current price of gold. It might be similar to selling gold in that whatever cryptocurrency you sell also transfers whatever ownership you have of the gold attached to it. Still, you’re not selling a direct physical asset on the market.

Although this cryptocurrency is backed by gold, you still can’t see the currency, as it’s all electronic. That in itself is the most significant difference between physical gold and gold-backed cryptocurrency. A digital coin also carries far lower value than what you would get if you were to purchase gold on the precious metals market.

Usually, you wouldn't purchase a single gram of gold. That means you'll have to invest in much more crypto to achieve the amount of gold you would get if you bought a single bar, or even if you purchased gold coins.

Gold-Backed Cryptocurrency List

Just like with regular cryptocurrencies, some gold-backed cryptos are more well-known or reliable than others. Their popularity comes from factors like the backing percentage—as some cryptos are not fully backed by gold—and whether the crypto has use beyond investing.

If you’re looking for a reputable gold-backed cryptocurrency, there are plenty to choose from. Start with these options to see if any meet your needs:

  • OneGram
  • Digix Gold Tokens
  • Gold Bits Coin
  • GoldMint
  • ZenGold
  • Puregold Token
  • HelloGold
  • Xaurum

Each of these gold-backed cryptocurrencies’ value is tied to gold by the gram. Some are accepted as payment for goods and services, while others are more valuable as an investment. Some are older, like Xaurum, and only recently caught on in the investment sphere.

Before you invest in a gold-backed cryptocurrency, understand what that investment means to you. You may want to have some knowledge of the gold market, but you should research any cryptocurrency and cryptocurrency prices you plan to invest in. Ensure that the gold associated with your crypto is stored in a reputable facility and that you own it alongside your cryptocurrency investment.

Clint Siegner

About the Author:

Clint Siegner is a Director at Money Metals Exchange, a precious metals dealer recently named "Best in the USA" by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals' brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.