Precious metals have long been regarded as a store of value and medium of exchange across civilizations. Some, like gold and silver, still have a vast amount of utility in manufacturing and industry due to their non-corrosive nature.
Many have tried across the last few decades to merge the world of tangible precious metals with the digital economy. One of the most famous attempts was E-Gold, co-founded by former oncology doctor Douglas Jackson in 1996.
The privately issued virtual currency backed by gold proved to be popular. At its height, E-Gold was processing nearly 50,000-100,000 transactions each day. Federal authorities eventually cracked down on the platform and indicted Jackson in April 2007.
The cryptocurrency stablecoin market has traditionally been dominated by fiat-backed options like Tether (USDT). But a variety of cryptocurrencies backed by precious metals, like SilverCoin, DigixGlobal, and Aurus, have also emerged.
Many argue precious metal-backed cryptocurrencies offer investors a sense of stability and security in a volatile cryptocurrency market. Others say these types of coins serve as a useful diversification tool in a portfolio, with the potential for growth if the coin proves to be popular.
But how do precious metal-backed cryptocurrencies work? How can prospective investors know which coins they should invest in? Keep reading for deeper insight about cryptocurrencies backed by precious metals.
Allowing Investors To Redeem Coins For Real Assets
Legitimate precious metal-backed stablecoins have an adequate amount of bullion in reserve to back the coin.
A third-party maintains the supply of precious metal. Companies will conduct audits of the reserves to provide coin buyers with assurance coins are fully backed by precious metals.
Some projects go even further, like setting up live streams of bullion reserves and making it possible for coin holders to directly know the serial numbers of gold and silver assigned to their digital coins.
These steps reassure coin holders that they can immediately know their cryptocurrency is properly backed, instead of waiting for monthly or quarterly audits.
Supporters of cryptocurrencies backed by precious metals point out how if one coin is backed by an ounce of silver, then the coin’s price will always (at least) be equal to the current silver spot price. But if the cryptocurrency becomes heavily traded and rises in popularity, then the coin’s value could eclipse the spot price – reaping greater returns for investors.
Some cryptos backed by precious metals offer the ability to purchase in a fractional nature. This means buyers with any budget can purchase coins backed by metals like silver or gold, and then redeem for physical bullion.
Access to valuable metals like gold or silver is further democratized because buyers are not limited to purchasing by the gram, ounce, or pound. The high spot price of gold can make even a gram of the ‘yellow metal’ financial inaccessible for many who would like to invest.
Many cryptocurrencies backed by precious metals are Ethereum-based, meaning holders need an ERC-20 supported wallet like Trezor, Ledger, MetaMask, or MyEtherWallet to hold, buy, and sell.
Understanding How To Buy Precious Metal-Backed Cryptocurrencies
Buyers who understand the concept behind cryptocurrencies backed by precious metals can probably understand some of the key elements to watch out for.
Some projects will be evasive about their auditing process and be vague about the purported reserves of physical bullion. These coins should be avoided. Investors who own coins not actually backed by legitimate reserves stand to watch their investment become worthless.
Some precious metals, like gold and silver, are commonly faked. Counterfeiters often make fake products with base metal and then plate with gold and silver. Well-made fake bullion will even weigh the same as a genuine piece.
Those interested in cryptocurrencies backed by precious metals should be careful about the coins they buy. Prospective investors need to make sure they invest in projects with verified bullion reserves audited and received by a reputable third-party to ensure authenticity.
Stablecoins Backed By Precious Metals
Virtual currencies backed by precious metals are growing in popularity across 2020. Financial turmoil and uncertainty have turned some to these types of coins to protect their assets and add physical bullion to their portfolio while investing in the lucrative world of cryptocurrencies