Home Cryptocurrency What Are Gold-Backed Stablecoins: Explained

What Are Gold-Backed Stablecoins: Explained

A cryptocurrency based on gold or silver, in its most basic form, is the current version of the gold standard: a monetary system in which a currency is directly tied to actual precious metal. This system’s coins or tokens offer token holders real virtual currencies with a value closely tied to the real assets they represent: gold or silver.

To elaborate, gold- or silver-backed crypto manages its value by maintaining a direct, steady link with a trustworthy asset (gold or silver), eliminating what many risk-averse experts consider as one of crypto’s flaws: its absence of inherent value, which leads to severe price fluctuation.

Stablecoins (crypto coins whose value is related to external assets) such as Pax Gold and Tether Gold are among the most popular, as well as another worth mentioning, the XBullion coin, are a few examples of gold-based cryptocurrencies. These coins utilize these tangible assets and might have greater tangibility and predictability than their entirely digital cousins.

As a consequence, their value will never fall below the price of the physical gold that supports them, even while the token’s value might rise in line with the actual physical commodity, giving both security and the possibility for profit.

The History Of Gold-Backed Money

To completely comprehend the advantages of gold-backed money, it is necessary to first understand the concept of connecting currencies to valuable metals and how that has historically played out. Fixed-rate gold-backed currency was first established by the United Kingdom in 1861 to assist stabilize an economy that was becoming increasingly global. Because gold has always been a precious asset for banks and other financial institutions, linking an exchange rate to its gold holdings ensured that commerce was always in surplus.

The United States followed suit in 1879, and the US dollar remained backed by gold until 1933.

What caused this shift? People began to hoard gold supplies in part as a result of the First World War and the Great Depression of the 1930s. As a result, currencies became detached from gold and silver, and their values began to fluctuate more dramatically since they were based on intangible promises, similar to today’s digital cryptocurrencies.

Bringing The Gold Standard Further To The Twenty-First Century

Although the United States abandoned the gold standard entirely in 1971, the concept of tying money to something precious remains a sound financial strategy. With blockchain technology linking trade like never before, cryptocurrency fans knew it was only a question of time until they associated this new financial revolution with a reliable, trustworthy asset.

What Are The Advantages Of Gold-Backed Cryptocurrencies?

The advantages of gold-backed cryptocurrency are numerous and are mostly related to its stability in comparison to alternative options such as Bitcoin or the Ethereum network. We’ve included a handful of the most often mentioned advantages below:

It’s a Reliable Alternative

As previously said, a true gold-backed cryptocurrency has greater market consistency than its more unstable alternatives. This is since it is inextricably related to the recent gold price, which is essentially among the most dependable markets in the world. Everyone has always desired precious metals, so a coin related to those metals is certain to preserve its worth for as long as it is connected with these resources.

The Market Is Simpler to Grasp

Because of this consistency, the price changes of gold-backed crypto generally are easier to comprehend. Many market changes of Bitcoin as well as other crypto-assets may appear random, if not arbitrary. Nonetheless, with some of these stablecoins, you may examine the daily gold market for trends, changes, and forecasts that can assist you in making sound investing decisions.

Cryptocurrency Is Simple To Store

Individually storing significant amounts of gold is difficult unless you have access to a Swiss bank (or even several). Modern digital gold and silver allow investors to benefit from their worth for trading, investing, and spending without having to worry about their physical location throughout all situations. Lower expenses for utilizing it as a selling asset can result in increased convenience and profit.

It Bypasses Central Bankers And Banks

Investors can transfer wealth using blockchain investing methods without needing to visit a bank. This is advantageous in several ways: it is speedier, more accessible, and helps you avoid the swings that might occur when trading money abroad. In a nutshell, it’s an excellent approach to avoiding a terrible exchange rate.

Final Thoughts

The main idea behind these stablecoins is to provide a method of having a digital representation of an actual asset. This can help ensure its value will never fall below the price of the physical gold that supports it, while at the same time having an option for a profit. We hope that you find this article to be an informative starting point that you can use as a guide.