A coin or token issued that represents a value of gold; for example, one physical gram of gold equals one coin.
A gold-backed cryptocurrency is a derivative digital asset whose value is supposedly underwritten by the equivalent price in gold. Each gold-backed cryptocurrency defines a single one of its tokens arbitrarily as having an equivalent worth of certain grams or troy ounces of gold, meaning that this equivalent should be present in the reserves/vaults of the company or a trusted custodian as physical collateralized assets.
Some gold-backed tokens even allow for the redemption of the tokens back for gold. Unlike most cryptocurrencies that have speculative value, a gold-backed token’s value is tied to a tangible asset, which cushions it against severe price fluctuations. The majority of gold-backed cryptocurrencies exist as ERC-20 standard tokens, although there are exceptions such as Paxos’ PAX Gold.
Blockchain-based digital assets backed by gold and other real-world scarce commodities are becoming increasingly appealing for investors looking to hedge their portfolios against weakening fiat currencies or regulation-bound stablecoins.
The biggest advantage that digital versions of gold hold over their physical counterparts is that they can be divided into any small unit or amount and transferred to another party.
Gold-backed cryptocurrencies have, however, historically struggled with systemic issues, such as:
At present, the five leading gold-backed cryptocurrencies are
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