Physical Gold and the BlockchainNovember 4, 2017
Blockchain and its direct cryptocurrency applications are the biggest disruptors of the traditional fiat currency system right now. But, in the world of finance, there is one more entity that holds a similar position. While it might be less pronounced in the public mind for this role, this entity is both very famous and obscure at the same time.
The entity in question is gold and its uses as a means of financial transactions. Even though gold has been one of the oldest methods of monetary transaction and items of value, it has become less relevant in the second half of the 20th century. This is only related to it as a means of payment – it still retained its position of a tradable commodity.
However, now, there are several ventures and initiatives that are trying to develop platforms which could in some shape or form utilize a merger of digital and physical gold. Here is the breakdown of the advancements in this domain as well as an analysis of how could this play out in the financial market in the coming years.
The Gold Standard
As a metal, gold has been in use for more than 6,000 years for various purposes. It was not long before different societies recognized its rarity and stability as a material, making it a great thing for carrying value. From that point on, gold became a method of storing value and quickly end up a tradable good and currency.
For centuries, gold was the backbone of any other form of currency, which is how the gold standard came to be. With it, fiat currency was simply used to represent the gold supplies of a particular nation. In the 1970s, this form of value representation ended when the national debt took its place.
But while almost 50 years passed since then, many individuals and organizations have been working on returning gold to a form of currency. Like centuries ago, the problem with gold as a currency remained the fact that it is difficult to track and exceedingly complicated when it comes to trading small amounts of it.
Now, gold has an excellent potential ally and it comes in the form of the blockchain technology. With it, any amount of gold could be represented digitally and traded. At the same time, the representation of the same gold would be equal to legal tender in the eyes of those who use it.
The London Blockchain Summit
This London event had a very interesting stunt pulled by the UK Royal Mint. There, Nicola Robinson, who is a senior strategic marketing manager at this institution gave a 1kg gold bar to an audience member. The bar, worth $40,000 was then lost among the audience, was used to show how difficult is to track and manage gold, even in otherwise relatively regulated environments.
The showcase was designed to show how the blockchain tech would be an ideal ally in those managing this process. While the tech cannot be used for physically storing gold, an RMG (Royal Mint Gold) blockchain would be great for managing this commodity’s ownership. This project was revealed in 2016 and its intent of creating a reliable record of changing old ownership, along with offering instantaneous sales for the same precious metal.
Now, Robinson used the opportunity to reveal that the RMG’s first transaction took place on August 2nd with the mining of the genesis block. She explained that the system produces a digital representation of a piece of real gold. Now, it is already working using the BitGo wallet technology, even though it is still not yet public.
The wallet tech, provided by the CME Group, a financial market company has so far verified over 50,000 individual blocks. Now, Robinson believes that the blockchain could be used to manage small amounts of gold, including a single ounce. This would provide small investors who potentially desire to enter the gold market with and with a chance to do this using their limited means.
Their entry would, in turn, provide more liquidity for the entire market. Aside from this, Robinson hinted that the Royal Mint has other initiatives in the work related to the blockchain. Some of these are related to bullion trading, while future development could include platforms for the global trade.
While she did not provide the exact date for the launch of the platform in the public domain, she did finish her talk with a very upbeat idea. According to her, the RMG is the start of the global revolution when it comes to trading gold.
Aside from the government-based initiatives, there is the private company domain which is also invested in bringing gold back to a usable currency. Gold Money is a company that offers its users the ability to buy and trade gold in the same manner as they would access digital currency or even a traditional online bank account.
The means how Gold Money achieves this is by storing the gold of users at their vaults and providing a reliable accounting of their whereabouts and amounts. At the same time, being that the gold has a digital representation of itself, even the most minuscule amount, it can be used as a means of payment. This way, it does not matter if the person wants to buy a car or a cup of coffee with their Gold Money card.
In each case, the procedure is completely identical. Because of it being in the digital domain, similar to things like eSports and social networks, it offers a lot of flexibility to their users and ways they can employ it. Gold Money is only a single company, but it is a representation of a movement trying to once again place gold at the forefront as a currency.
Using Gold for Payments
Returning gold to the position of a payment means will not be an easy process and those who support its regularly employ libertarian concepts that have only a limited appeal. But in the modern world where financial models are becoming ever more diverse, a new-old currency would be more than welcome. Like with bitcoin, the blockchain would be able to provide the same thing to gold and transform it into a regular means of payment once again.