Blockchain Eases Gold Ownership

Gold has a an exceedingly long history as a symbol of value and has been used as a method of payment since the days of ancient Greece. It wasn’t until the Italian Renaissance that the idea of paper money convertible to gold was invented, and while that practice ended some 50 years ago, gold is still considered to be one of the safest assets worldwide.

As Cointelegraph says: “Today, although the money of nations is no longer anchored to it in any way, gold has retained considerable economic utility. Whether used to preserve savings or as a hedge against financial instability, gold has been a mainstay in individual, institutional and state portfolios.”

However, ownership of gold is not easy, because “Unlike fiat money in bank accounts or financial assets in investment accounts, stores of gold must be physically safeguarded against theft.” Transporting gold is also risky, “but eliminating this risk can be prohibitively expensive. Not everyone can afford an armored Brinks truck.”

Furthermore, gold has to be verified, and the testing for the purity of the gold is expensive. Together, these challenges create significant friction for both buyers and sellers of physical gold. It is especially difficult for the small investor.

Despite these issues, the gold market is one of the most liquid in the world, and in countries where currencies are known to depreciate rapidly, it is far more common for citizens to hold their savings in physical gold rather than as money in a bank account. The Covid-19 crisis has further highlighted the importance of gold in some nations. For example, long lines could be seen forming outside of Bangkok gold shops as residents queued to sell their gold.

Blockchain’s relation to gold

While Bitcoin has been heralded as “digital gold,” related innovations in blockchain technology are quietly shifting the paradigm of physical gold ownership. For example, Tether and other gold-backed stablecoins are fulfilling the economic purpose of physical gold ownership while overcoming many of the traditionally associated challenges.

Cointelegraph says: “By embedding legal title to specific allocations of authenticated physical gold into a digital token, this highly innovative class of products combines the best of three distinct worlds:

(1) Direct exposure to the price of physical gold.

(2) The cost-efficiency and accessibility of traditional financial assets, such as ETFs.

(3) The transactional utility of a digital token.

The claim is that gold-backed stablecoins really do allow the investing world to have its cake and eat it too. We will have to wait and see.