What Are Gold-Backed Cryptocurrencies? A Comprehensive Review

Gold-backed digital coins/ cryptocurrencies link each coin to a specific amount of gold, intending to combine the benefits of quick, secure, and cost-effective digital transactions with the lasting value of gold.

Given that many people view gold as a more dependable and stable way to preserve savings compared to traditional currencies or widely-used digital coins like Bitcoin, our article will now delve into the functionality of these gold-backed cryptocurrencies.

We will explore the mechanisms that underlie their operation.

What crypto is backed by gold
Cryptocurrency is a digital currency that operates on a decentralized computer network, free from central authority like a government or bank: Image source (CoinCentral)

How to Buy Gold-Backed Cryptocurrencies

Buying crypto coins backed by gold is mostly like buying other digital coins, but you have to think about a few more things because of the gold link. Here’s an easy guide:

  • Research and Choose a Cryptocurrency Gold-Backed: First, look for a gold-backed crypto coin that fits what you want from your investment. Check things like how much you trust the company behind it, how safe the gold is, if they have good checks on their gold, what they charge for sending or trading, and how much gold is really there for each coin.
  • Set Up a Digital Wallet: Select a reliable online wallet compatible with the cryptocurrency you intend to acquire. Confirm that the wallet’s security features align with the specific digital currency you aim to purchase.
  • Choose a Cryptocurrency Exchange: Choose a service that supports the gold-linked digital money you want. These special currencies aren’t available on all services, so you may have to search a bit. Make sure the service you pick is reliable and secure.

What benefits do gold-backed cryptocurrencies offer?

Here are some key benefits of the gold-backed crypto that you should consider:

  • Stability and Reduced Volatility: A key advantage of cryptocurrencies anchored in gold is their consistency. Gold is a physical asset that carries inherent worth and has reliably held its value through the years. This consistency can buffer against the significant price swings commonly seen in traditional cryptocurrencies.
  • Gold historically safeguards against inflation and currency devaluation: Gold-backed cryptocurrencies offer protection in financial declines or when traditional currencies lose value. They act as a shield during economic downturns.
  • Ease of Transaction: The gold cryptocurrency coin combines the straightforward handling of digital money with the value of the precious metal. They simplify the process of transferring, saving, and overseeing assets online, offering greater ease than handling actual gold pieces.

The Drawbacks of Gold-Backed Crypto

Cryptocurrencies backed by gold combine blockchain innovation with gold’s established value. Let’s look at some key drawbacks:

  1. Physical Gold Maintenance: Holding real gold for digital currency can be challenging. Some claim gold backing without proof, risking deception. The costs of securing gold can increase service expenses.
  2. Negative Carry for Large Amounts: Managing substantial gold quantities involves handling costs, reducing the cryptocurrency’s actual value, even if its market value aligns with current gold rates.
  3. Potential Scams: Many gold-backed cryptocurrencies may lack credibility or be fraudulent, posing serious risks for investors.
  4. Dependence on Gold Prices: The value of these digital currencies is directly linked to gold market trends. If gold rates fall, the digital currency’s value tends to decline.
  5. Regulatory Risks: Newness in gold-linked digital currencies may expose them to unpredictable laws, affecting widespread adoption and practicality.

Best Gold-Backed Cryptocurrency

Recent information highlights top gold-backed cryptocurrencies. Check out this gold-backed crypto-list:

  1. Pax Gold (PAXG): Affordable and backed by gold, PAXG stands out among other cryptocurrencies.
  2. Tether Gold (XAUT): Created by Tether Limited, XAUT represents ownership of real gold stored in high-security vaults.
  3. Kinesis Gold (KAU): Founded by Allocated Bullion Exchange (ABX), KAU is backed by physical gold and features a unique yield system for users.
  4. Perth Mint Gold Token (PMGT): Backed by physical gold at a 1:1 ratio, guaranteed by the Government of Western Australia, PMGT offers redeemability in multiple Perth Mint products with no additional fees.
  5. Gold Coin (GLC): Backed by a 1000:1 ratio of GLC per ounce of gold, GLC offers fast transactions, no fees, and can be stored in an exclusive Goldcoin Wallet.

Read more: How to buy Safemoon crypto?

Security of Gold-Backed Cryptocurrency

The security of gold-backed cryptocurrencies involves several key aspects:

  • Blockchain Technology: Many of these digital currencies rely on blockchain, a system that records dealings on multiple computers to increase safety and openness. Once recorded, it’s hard for anyone to change or disrupt the history of transactions.
  • Stability and Intrinsic Value: The support of actual gold lends a steadiness and a fundamental worth, presenting a more dependable and substantial asset than other digital currencies.
  • Regulatory Challenges: Cryptocurrency regulations are changing, and crypto-backed gold might undergo extra scrutiny for its link to physical assets. Compliance with regulations is crucial for the stability and acceptance of these cryptocurrencies.

The Future of Gold-Backed Cryptocurrency

The future of gold-backed crypto seems bright. Key factors boost popularity:

  1. Market Cap Growth: Gold-backed coins gain market value. Investors trust gold-crypto blend, indicating stable investment.
  2. Economic Uncertainty Hedge: Gold is a safe investment in uncertain times. Gold-backed cryptos combine digital benefits with gold stability, becoming a popular and secure money storage option.

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