Gold has always been considered the ultimate safe haven, a symbol of stability and intrinsic value. However, in today’s digital world, the ways of investing and storing this precious metal are changing. The adoption of blockchain has opened up new possibilities, allowing gold to be held digitally through cryptocurrencies and dedicated tokens.
In this article, we will explore the world of tokenized gold, analyzing platforms, costs and the most secure alternatives to store the yellow metal on the blockchain.
I am not a financial advisor:
The information provided does not constitute a solicitation for the placement of personal savings. The use of the data and information contained as support for personal investment operations is at the complete risk of the reader.
With the advent of blockchain technology, gold can be represented by digital tokens that are pegged to the value of physical gold. These assets are stored in secure and certified vaults, while the owner holds the digital version on the blockchain. In this way, the benefits of physical gold are combined with the liquidity and speed of digital markets.
So-called “gold-backed tokens” (tokens secured by gold) offer a modern alternative to traditional investments, making the precious metal more accessible and easily tradable on a global level. The concept of digital gold arises from the need to overcome the physical limitations related to the custody and trading of real gold. Blockchain allows to trace every transaction, guaranteeing transparency and security.
Furthermore, the tokenization of gold allows to overcome the barriers to entry to the market. Traditionally, purchasing physical gold involves high custody costs and commissions. With digital gold, even small investors can enter the market by purchasing fractions of grams, without having to face onerous costs.
Platforms offering digital gold ensure regular audits and transparency of gold reserves. Investors can consult public reports that attest to the actual existence of physical gold corresponding to the tokens issued. Some providers even allow physical gold to be redeemed on demand, adding an additional layer of security for the most cautious investors.
Finally, blockchain enables the creation of decentralized markets, where investors can trade their tokens without intermediaries. This further reduces costs and speeds up operations. However, it is important to select reliable and regulated platforms to avoid scams or fraud.
#2. Advantages of blockchain custody
One of the main advantages of blockchain gold is its global accessibility. It is no longer necessary to go to banks or financial institutions to buy physical gold. With a simple internet connection, anyone can buy and hold digital gold, making the market more inclusive and dynamic.
Fractionability is another strong point. Gold-backed tokens allow you to buy even small quantities of gold, breaking down the barriers to entry for small investors. This expands the market and democratizes access to gold, allowing even those with limited budgets to diversify their portfolio.
The speed of transactions is another advantage. While buying and selling physical gold can take days or weeks due to bureaucratic procedures, blockchain transactions are almost instantaneous. This allows investors to react quickly to market movements and take advantage of price swings.
Transparency is ensured by blockchain technology, which records every transaction immutably. Investors can verify the origin of their gold and the correspondence between the tokens held and the physical reserves. This transparency reduces the risk of fraud and increases investor confidence.
Another advantage is liquidity. Gold-backed tokens can be traded on major cryptocurrency exchanges at any time, allowing investors to quickly convert their assets into fiat currency or other cryptocurrencies. This is a significant advantage over physical gold, which often takes a long time to sell and incurs high fees.
Digital custody also eliminates the physical risks associated with owning gold, such as theft or damage. With tokens, the gold remains stored in secure vaults, while the investor only manages the digital component, reducing logistical risks.
Finally, the ability to integrate gold-backed tokens into decentralized finance (DeFi) strategies opens up new revenue opportunities. Tokens can be used as collateral to obtain loans, participate in liquidity pools, or generate passive income, increasing investment flexibility.
#3. Potential disadvantages and risks
Despite the many advantages, blockchain gold custody also presents some critical issues that are important to consider. The first risk is related to the dependence on token issuers. Not all gold-backed tokens are actually guaranteed by verifiable physical gold reserves. Some projects, in fact, do not offer sufficient transparency on their reserves, exposing investors to the risk of fraud or insolvency.
Digital security is another critical point. Although blockchain is considered secure due to its advanced encryption system, exchanges and wallets can be vulnerable to hacker attacks. Investors must therefore take adequate security measures, such as the use of hardware wallets (physical digital wallets), two-factor authentication, and constantly updating their systems.
Volatility in cryptocurrency markets can affect the value of gold-backed tokens. Although the price of physical gold is relatively stable, tokens can be affected by the volatility of exchange platforms. Events such as the collapse of an exchange or a cyber attack can temporarily cause the value of the token to fall, causing losses to investors.
Another critical aspect concerns hidden fees. Some platforms charge high fees for trading (buying and selling), withdrawing or converting tokens into physical gold. It is therefore essential to carefully read the terms and conditions before investing.
Finally, digital asset regulations are constantly evolving and vary from country to country. Some states have adopted stringent regulations on gold-backed tokens, while others maintain a more flexible regulatory framework. This creates uncertainty for investors, who may have to deal with legislative changes that impact the liquidity or taxation of tokens.
#4. Major cryptocurrencies and tokens
There are many gold-based tokens on the market, each with specific characteristics. Among the most popular are:
PAX Gold (PAXG)
Blockchain: PAXG is an ERC-20 token issued on the Ethereum blockchain, ensuring compatibility with a wide range of wallets and DeFi platforms.
Trading Liquidity and Daily Volumes: PAXG is listed on several major cryptocurrency exchanges, including Binance, Kraken, and Coinbase. This broad spread ensures good liquidity, with daily trading volumes often exceeding $10 million. However, this data can fluctuate based on market conditions.
Issuance Procedures: PAXG is issued by Paxos Trust Company. Each token represents one troy ounce of physical gold held in high-security vaults. Paxos provides regular reserve attestations through independent audits, ensuring that each PAXG is backed by a corresponding amount of physical gold.
Tether Gold (XAUT)
Blockchain: XAUT is available on both the Ethereum blockchain as an ERC-20 token and the Tron blockchain as a TRC-20 token, offering flexibility to users based on their preferences.
Trading Liquidity and Daily Volumes: XAUT is tradable on platforms such as Bitfinex and FTX. Although its presence is more limited than PAXG, XAUT maintains adequate liquidity, with daily trading volumes ranging between $1 million and $5 million, depending on the market.
Issuance Procedures: Issued by Tether, each XAUT token represents one troy ounce of physical gold held in Swiss vaults. Tether offers the ability to redeem physical gold, although there are minimum requirements for redemption. Reserve information is provided periodically, but some investors require greater transparency in reporting.
Perth Mint Gold Token (PMGT)
Blockchain: PMGT is an ERC-20 token issued on the Ethereum blockchain, ensuring interoperability with numerous Ethereum-based services and platforms.
Trading Liquidity and Daily Volumes: PMGT is available on select exchanges, such as Independent Reserve. Daily liquidity and trading volumes are relatively lower than PAXG and XAUT, often below $1 million, reflecting a more limited spread.
Issuance Procedures: Issued by the Perth Mint, owned by the Government of Western Australia, each PMGT is backed by physical gold held by the Mint. The Perth Mint provides a government guarantee on the purity and quantity of the gold, providing a high level of security for investors.
AurusGOLD (AWG)
Blockchain: AWG is an ERC-20 token issued on the Ethereum blockchain, benefiting from the security and pervasiveness of the Ethereum network.
Trading Liquidity and Daily Volumes: AWG is tradable on exchanges such as CEX.IO and STEX. Daily liquidity and trading volumes are moderate, often ranging between $500,000 and $2 million, varying based on market demand.
Issuance Procedures: Issued by Aurus, each AWG token represents 1 gram of physical gold held in certified vaults. Aurus works with multiple refiners and custodians to secure gold backing for issued tokens, offering regular audits to ensure reserve transparency.
GoldCoin (GLC)
Blockchain: GLC operates on its own independent blockchain, distinct from more common networks like Ethereum.
Trading Liquidity and Daily Volumes: GLC is available on lesser-known exchanges, such as Dove Wallet and Altilly. Liquidity and daily trading volumes are relatively low, often less than $100,000, making GLC more suitable for investors with a higher risk appetite.
Issuance Procedures: Unlike the other tokens mentioned, GLC is not directly backed by physical gold reserves. It is designed to act as a digital currency with a deflationary monetary policy, inspired by the scarcity of gold, but without a corresponding physical reserve.
The choice of token depends on the needs of the investor. Those looking for security and transparency might prefer PAXG or PMGT, while those willing to take more risks for potential gains might focus on less regulated tokens.
#5. Costs, fees, and transparency
TThe costs associated with blockchain gold storage vary greatly depending on the platform used. The main expense items include:
Buying and selling fees: Exchanges charge fees that can range from 0.1% to 1% for each transaction. Some exchanges offer discounts for high trading volumes or for using proprietary tokens.
Custody Fees: Some tokens, like PAXG, include custody fees in the price of the token itself. Others, like XAUT, require annual fees proportional to the value of the gold held.
Transaction Fees: Network fees, especially on congested blockchains like Ethereum, can impact your overall costs. During times of high traffic, gas fees can increase significantly.
Redemption Fees: If you want to convert your tokens into physical gold, there are often additional fees and minimum order requirements. Some providers also charge logistics fees for shipping the gold.
Transparency is a key element in choosing a token. It is essential to verify that the issuer provides regular audit reports (third-party certifications) and detailed information on gold reserves. Platforms such as PAXG and PMGT stand out for their transparency, publishing frequent audits and ensuring that the tokens issued correspond to the physical reserves.
Some platforms also provide public dashboards that show the value of reserves, the number of tokens in circulation, and recent transactions in real time. This level of transparency provides greater security for investors and makes it easier to track their assets.
Finally, it is also important to consider the reputation of the platform. Independent reviews, third-party audits, and regulatory certifications are indicators of the solidity and reliability of the service.
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