Gold-pegged tokens (also known as gold-backed cryptocurrencies) are digital assets that are backed by physical gold or are algorithmically derived from the price of gold. In function, the tokens are pegged to the price of fiat currency, such as the US dollar, or to the real price of gold as a commodity.

The current price of gold that the tokens are pegged to varies by provider, but generally uses the same ratio. Gold-backed tokens typically represent a physical collection of gold that must be owned by the stablecoin issuer; the number of tokens a provider can issue is limited to the number it physically owns.

Because gold-pegged tokens take advantage of the flexibility and benefits of cryptocurrencies and the stability of the gold price, they provide:

1. More stable store of value than more volatile assets like Bitcoin and Ethereum.
2. The ability to “hold” gold without physically having possession of the asset.
3. A way to buy gold without the need for a minimum investment

each of the many gold chips on the market aims to offer unique advantages over others, such as faster transactions, gold bullion options, and no fees. Tether Gold, for example, has a market capitalization of $469 million and allows for multiple redemption options.

$100,000 worth of gold weighs around 3.59 pounds– a small dense brick of value storage. This may not seem like much to the average gym-inclined reader, but that’s where the value of gold-pegged tokens begins:

1. If you wanted to sell $20,000 of this block of gold, how would you do it?
2. If you had to move from home or country, Would you lose sleep over transporting it safely?
3. If you are storing this brick in your home, How sure are you of your safety?

Now, gold peg tokens aren’t the knight in shining armor ready to fix every single gold problem, but they do offer some competitive technological advantages. For example,

1. If you wanted to sell $20,000 of your $100,000 worth of gold pegged tokens, you could probably do it in minutes on a cryptocurrency exchange (as long as the exchange has liquidity for your token) at the market value of those tokens. You could add more gold-pegged tokens to your stash just as easily.
2. If I had to move, I would only have to protect your hardware wallet and recovery phrases. If you keep your tokens online somewhere, you don’t even have to worry about protecting a physical object.

However, the security of your gold-pegged tokens remains paramount: rather than fear a physical theft, you should take preventative steps to protect yourself from a digital one.

The following guide explores the history of gold pegged tokens, their advantages, disadvantages, and how you can invest.

History of gold pegged tokens

Although considered a new type of currency, the idea of ​​”digital gold” dates back to the founding of the Internet.

In 1995, E-Gold it was the first gold-backed digital currency. The coin was in the hands of millions of people around the world, until it was shut down by the US government due to licensing complications.

Since then various alternatives have been made, but were unsuccessful due to lack of supporting technology. Now, with the help of blockchain technology as a secure accounting method, the concept of gold-backed digital currencies is palpable.

Companies can use the blockchain to issue tokens that represent physical gold. For example, 1 gram of gold equals one token. The custodian physically keeps this gram of gold in a safe place and can be exchanged with other coin holders.

If investors don’t want to trade, most providers also allow investors to exchange their tokens for physical gold if they want to store it themselves.

Advantages of gold pegged tokens

Gold pegged tokens have several advantages over traditional gold and its cryptocurrency alternatives.

Less volatile than most cryptocurrencies

The biggest advantage of gold-pegged tokens is that they are significantly less volatile than most cryptocurrency investments.

In 2021, the value of Bitcoin ranged between $69,045.00 to $29,795.55.

In the same year, the price of gold fluctuated between $1,954.40 to $1,678.00.

This decrease in volatility allows investors to add stability to their cryptocurrency portfolio, or at least diversify away from the wild swings that cryptocurrencies often have.

In traditional investing, gold is often used as a hedge during periods of uncertainty and extreme market conditions. By applying this to a somewhat unpredictable cryptocurrency market, investors can add greater stability to their portfolios.

Eliminate storage hassles

Gold-pegged tokens make it easy to trade physical gold.

In the past, owning gold was problematic; It could be held through bullion (gold bullion) which could then be stored by third party institutions or by the owner at home.

Having gold in your home can be risky, and fees can add up quickly when paying a third party.

Gold-pegged tokens overcome both of these problems. Once a token is purchased, very few providers charge storage fees. This allows investors to protect their gold and save money in the process.

In order to make a profit, various providers will charge transaction fees, while others lend to institutions and make investments.

easily transferable

Another problem commonly associated with gold is its transportability. If an investor owned a large amount of gold, selling or transferring it was problematic. It would often involve additional fees and require the gold to be moved from one vault to another.

With gold-pegged tokens, investors can simply transfer their contract and the deal is complete.

No Minimum Investment Limit

Historically, an investor would need to spend a certain amount to purchase gold. Due to fractional tokens, there is no minimum limit to how much someone can invest.

This removes barriers to entry and allows smaller investors to include gold in their portfolios.

Less human intervention

Trading in gold-pegged tokens is often governed by smart contracts; by its default programming, interaction with other human parts is minimized.

Instead of having to arrange the transportation of gold from one investor to another, an investor can transfer their gold through a smart contract.

Disadvantages of Gold Pegged Tokens

Despite their advantages, gold-pegged tokens also have some disadvantages.

Lower potential ROI

In a market known for its high-risk, high-reward excitement, returns on gold-pegged tokens can be somewhat disappointing.

In a sense, gold is a better store of value than altcoins, but it built its reputation on stability, not upside potential.

Trust in centralized service providers

Despite being a cryptocurrency, gold-pegged tokens still rely on centralized service providers. These providers handle physical gold and often require investors to pass KYC (know your customer).

This will require an investor’s personal information, which can be seen as a disadvantage for anonymous crypto investors.

Wallets can be hacked

Although less risky in terms of market fluctuations, holders still need to protect their hardware wallets. Since most gold pegged tokens are ERC-20 tokens, they can be stored in digital wallets like MetaMask and hardware wallets like Ledger Nano X.

These wallets can be hacked, and in the process, gold-pegged tokens can be stolen.

How to buy gold pegged tokens

To buy gold-linked tokens, you will first need to use a fiat on-ramp that allows you to transfer fiat currency to cryptocurrency, be it Bitcoin (BTC) or Ethereum (ETH), or even directly to the gold-linked token.

Gemini Y krakenfor example, there are two popular US centralized exchanges that allow people to buy a popular gold-pegged PAXG token directly with USD.

Other tokens have access on different exchanges; We recommend checking out our list of the top gold-pegged tokens to find the easiest location to trade.

Final Thoughts: Are Gold Pegged Tokens Worth It?

Gold pegged tokens are an amazing application of blockchain technology: tokenizing a valuable heavy metal opens up the gold market to a much wider variety of potential investors.

As the cryptocurrency market continues to grow, demand for gold-pegged tokens is likely to follow. It is important to understand the benefits that each token provider offers before making a purchase.

Do they align with your requirements? As with any investment, do your due diligence.

Who backs your token?

Where are the facilities where your gold will be stored?

Where can you sell your token?

Where will you store your token?

Gold pegged tokens are a good way to get exposure to gold. However, gold-pegged tokens still have technological risks to guard against.

Hackers, for example, can break into a poorly protected exchange account or wallet and just as easily siphon off hundreds of thousands or millions of dollars in value.

Owning a token is the easy part: keeping it secure will require an expert understanding of how to keep your crypto secure.