Cryptocurrencies are quite popular these days. But, why is it that there are still many who are skeptical when it comes to investing in it? The main reason would be its credibility. Though crypto enthusiasts talk about a big sums of money, no one can actually see it. This lack of physical backing is a major contributor to its backlash. To deal with this, the concept of asset-backed cryptocurrencies started to circulate. These different types of digital currencies attach to a physical asset like gold. This is why there is what they call gold-backed cryptocurrency.
How did Gold-backed cryptocurrency start?
The first digital currency backed by Gold was introduced in 1999 and it was called E-gold. This crypto was easily embraced by many because transactions can be done using anonymous accounts. And since it’s backed by Gold those who fear volatility gained more confidence to try it.
It gained worldwide popularity, but due to several problems, it had to shut down. Some known issues it faced were lagging transactions mainly due to the sudden increase in the number of user transactions. Plus the issues on security due to different cases of cybercrimes.
In recent years, there have been several efforts to bring back this concept. This is the reason why we are currently enjoying a good number of crypto which are related to gold and other assets.
How does Gold-Backed Cryptocurrency Work?
The basic idea is to have a crypto equivalent to one gram of Gold. A third-party organization, like LearCapital, will be responsible for storing. So now, traders could use the crypto coin to trade in a value equivalent or higher to Gold.
The great thing about this idea is that the value of the crypto will not fall to zero. It will always have a minimum value which is the current value of gold. And if ever this crypto gains popularity, its value could rise higher than the usual gold value.
The difference compared to other cryptos
Besides the obvious of being tied up with the value of gold, these gold-backed cryptos have high-level entry costs. With the usual digital currencies, we are used to seeing low entry-level cost. This is among the reasons why most crypto enthusiasts invest in it during its early days since they could invest pennies.
So all you need to do is to consider which crypto is promising and invest a small amount of money. Then, you wish for it to become big in a few months. Of course, there is no guarantee to that but the good part is you only invested a small amount with a high yield if you are lucky enough.
With Gold-backed crypto, the minimum investment is equivalent to the current price of Gold. This is a bit hefty to some investors.
Another difference is in the price swing. With the usual cryptocurrencies, the price could fall and rise at any level. This is not the usual case for Gold-backed currencies since when it’s not performing well, it will land to its minimum value equivalent to Gold.
Some Popular Gold-Backed Digital Currencies
- Gold Bits Coin
- Digix Gold Tokens
When you think about the best crypto investment to make, it certainly would be around these Gold-backed cryptocurrencies. It gives you the benefits of Gold plus the advantages of digital currencies like decentralization and transferability. It’s getting popular with investors these days and the trend is expected to continue for the coming years.
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