Shinny gold bars pile over a dark table

What Is A Gold-backed Cryptocurrency?

Gold-based cryptocurrencies’ history is older than Bitcoin.

When the price of Bitcoin came face-to-face with gold, reaching parity of rates in 2017, investors around the world gazed with interest the concept of gold-backed cryptocurrencies.

Even though the idea of cryptocurrencies sounds recent, gold is the oldest exchange medium in History – and the idea of trading it on the internet is not as new as you may think.

If you don’t know how gold-backed (or golden-based) cryptocurrencies work and how to trade with them, get to know more about it below:

E-gold: the first gold-backed cryptocurrency

Barting and looking for alternative paying systems are part of the global economy’s history since humanity learned how capitalism works. Not long after the internet went mainstream, gold and silver emerged as the first trade medium online.

Before Bitcoin came to the surface, there was E-Gold, the first-of-a-kind digital currency backed by gold in 1995. It was used by millions of people in more than a hundred countries – but no longer after its success, the necessity of shutting it down afterward makes its memory barely alive today.

Doug Jackson, the founder of E-Gold, believed that gold was a superior currency to paper money (despite the consensus among economists that the gold-standard system prevented governments from responding quickly to a crisis).

The idea of rethinking money was an amazing first-step to modernizing the global economy, but E-Gold’s execution… not so much.

E-Gold was launched by Jackson in 1996 and worked on a back-end system, envisioned to circulate gold as a private and international currency independently of governmental controls.

Why E-gold pleased international sellers?

  • It allowed netizens to open accounts anonymously, even though the service provided almost zero security solutions;
  • Facilitated transactions across borders;

And why it didn’t work out?

However, the honeymoon phase with the investors didn’t last for long, since E-Gold’s servers buckled under the traffic load, expressing several hanging transactions and, consequently, frustrating the users.

These problems opened doors for scammers, allowing them to perform phishing attacks, stealing most users’ passwords and draining their accounts.

E-Gold was mostly used by credit and debit card traffickers and stole the federal government’s attention in 2003. In 2005, the Secret Services made a raid on the company’s offices and discovered that Jackson was, in fact, laundering money. He pleaded guilty in 2007 and still wears an electronic ankle bracelet for his trouble.

However, with the ascension of the blockchain technology, which provides encrypted-security for its users, Jackson’s optimism is on the rise: he finally registered E-Gold with FinCEN and is applying to states for money transmitting licenses.

How does a gold-backed cryptocurrency work?

In a golden-backed cryptocurrency logic, a token (or a coin) represents a value of gold (1 gram of gold = 1 Bitcoin, for instance). This gram if gold can be stored by a trusted third-party or “custodian” in a digital wallet, and can also be traded with other coin holders.

The minimal price of the coin will always equal to the current gold rate – and if the cryptocurrency value goes up, the greater is the value of gold.

It sounds very simple, but investing in a gold-backed cryptocurrency also present risks. What if the person you’re trading with doesn’t present any physical place to store it or any digital wallet?

If you’re feeling interested in trading with gold, make sure to investigate the other party and make sure that it has, in fact, a place to store their physical goods. Also, make sure that gold crypto is owned by you and if the gold storage is accountable.

The most popular gold-backed cryptocurrencies at the moment are Ekon (EKG), Golden Currency (GCT), and GoldFinX (GiX). There are a lot more available for trading and others in development, as well as a big popular adoption since there are positive expectations for their market value in the near future.

If you’re planning on investing… beware!

Before making an investment in a gold-backed cryptocurrency, make sure that the gold coin really worths what it says it is. Study and get familiarized with the value of gold; If it’s too far above or below the standard price of it, you’re facing a scam.

As well as any crypto-product, be diligent before putting your money to the test.

What are your thoughts? Do you think gold-backed cryptocurrencies worth the risk? Leave a comment on BitClub Network’s official page on Facebook and let us know!

Back Home