![]() ![]() One of the biggest arguments against Bitcoin is that its value is intangible and not backed by anything of actual physical value. Because of this, not all investors trust crypto. Most cryptocurrency is not backed by anything else. Open free account Typical Cryptocurrency vs. However, other gold-backed crypto tokens exist on different blockchains, such as Algorand. Most gold-backed cryptocurrency exists as a token on a public blockchain, with most of them dealing with Ethereum through the ERC-20 token standard. In theory, once a gold-backed cryptocurrency is redeemed, it is burned and removed from circulation. Unlike other cryptocurrencies, there is an actual physical concern. You should be able to turn in your token and receive physical gold from a storage facility or custodian. In that case, it will, unfortunately, have counterparty risk. Suppose the coin or token allows the holder of gold-backed crypto to redeem their cryptocurrency for a definitive amount of gold by presenting the gold tokens to an issuer. Some gold-related cryptocurrencies are pegged to the price of gold, while other gold back coins or tokens allow for redemption into physical gold. The token then acts as proof of ownership for the underlying asset. It can be in the form of physical gold bars, gold coins, gold certificates, or even gold-related securities, as well as any form of gold bullion. Much like a gold ETF that has an issuer and relies on a trusted custodian to store physical gold, a gold cryptocurrency is also operated by a centralized issuer. How Do Gold-Backed Cryptocurrencies Work? Unlike most crypto, they are tied to a tangible asset, protecting it from massive price fluctuation. Some tokens even allow redemption back to gold. This suggests that there should be an equivalent amount of gold in reserves or a fault of the company or trusted custodian as physically collateralized assets. Each gold-backed cryptocurrency defines one of its tokens as having an equal worth of a specific size of gold, be it grams or Troy ounces. What Is a Gold-Backed Cryptocurrency? – Definition & MeaningĪ gold-backed cryptocurrency is a digital asset derivative whose value is supposed to be underwritten by the equivalent price in gold. It derives its value from various factors, including its decentralized nature, usability, demand, and technological value. No, Bitcoin is not backed by gold, precious metal, or even fiat currency. ![]()
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