The return of the gold standard in the era of cryptocurrency
In observing currencies through history, it’s undeniable that none have even come close to dethroning gold when it comes to storing value. At the core of civilizations for millennia, it has served as everything from a material for making coins, to an investment option, to the direct precursor of fiat currencies. For all intents and purposes, gold is most likely the strongest asset in existence and a popular hedge against other investments.
Its steady appreciation over the past few decades has no doubt been impacted by the proliferation of markets for consumers to purchase and sell the metal – a plethora of online dealers, offline stores and even vending machines enable anyone to trade gold easily, whether by taking physical possession, holding it in a vault, or speculating on it with financial instruments such as futures or ETFs.
All isn’t perfect with the current means of acquiring gold, however – there’s an important distinction to make between the actual price of gold – or the ‘spot’ price (at time of writing, this is ~$1190 per troy ounce) – and the price it’s sold at for a premium by dealers (the difference between the two is called the spread). In general, the larger the amount of gold purchased, the lower the spread. Conversely, purchasing gold in small denominations (i.e. by the gram) often results in a much larger spread, due partly to the added cost of creating bullion and coins from bigger bullion. Of course, buying gold in large amounts, in a single trade, often isn’t feasible as a result of prohibitively high costs. The ETF offering mitigates this somewhat, allowing greater divisibility – at the cost, of course, of brokerage and management fees.
There needs to be a middle ground for investors, and it seems that blockchain technology may very well be the way to go about ensuring it. Though the gold standard officially ended in the early ’70s, many wish to see a return to the days of money backed by the asset. With recent technological breakthroughs, which are manifesting on a number of unlikely platforms, it’s possible to return to this model – this time, by issuing digital tokens provably backed by gold, whose existence can be periodically verified by independent auditors.
Gold seems the logical choice as an underlying asset for tokens. Historically, it’s been very stable. Combining its liquidity and stability with cryptocurrency’s portability and ease of transacting anywhere around the globe would create an incredibly powerful currency, and remove limitations to both gold and non-backed cryptocurrencies’ efficiency as a means of exchange/store of value.
By tethering tokens to each gram of gold, investors will be able to have granular control over their holdings and without premiums, these grams will be as close to the spot price as possible (accounting slightly for management and administrative costs across the board). Moreover, as they would be freely tradeable on markets and exchanges, such tokens would undoubtedly be highly liquid worldwide.
Gold as a bridge between the physical world and that of cryptocurrency seems to be the logical step forward – true to the ethos of decentralized monies, gold is free from manipulation by central banks. It’s time to ensure that it can translate into a form better suited to the digital era, and blockchain technology is ideally poised to turn this concept into a reality.