A growing number of people in the cryptocurrency world seem to believe that gold-backed cryptocurrency is better than both tokens that are not backed by gold and gold itself. The argument is that gold-backed cryptos, like GoldCoin.com, combine the advantages of cryptocurrency and gold, giving you the best of both worlds.
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How Is Gold-Backed Cryptocurrency Different from Other Crypto?
The biggest difference between traditional cryptocurrencies and gold-backed cryptocurrencies is their volatility. Traditional cryptocurrencies are highly volatile, but gold-backed cryptos are stablecoins that are tied to the price of gold.
The other major difference is the price, as most gold-backed cryptocurrencies so far have a higher entry cost than other cryptos, with GoldCoin being one of the few notable exceptions.
It Has the Stability and Reliability of Gold
Investors and economists tend to associate gold with stability, and people tend to invest in gold when the market is doing poorly or in times of uncertainty. This characteristic of gold carries into gold-backed cryptocurrencies since the precious metal backs the token.
The price of gold-backed cryptocurrency is directly tied to that of gold. The two go up and down together, so the cryptocurrency inherits the stability of gold.
Offers a Store of Value or Investment
Not only do gold-backed cryptocurrencies have the stability of gold, but they also are viewed as a store of value or an investment opportunity. This contrasts sharply with the volatility that most cryptocurrencies are associated with. Because of their volatile nature, few people looked at cryptocurrencies as a solid investment, at least before the introduction of stablecoins.
Thanks to stablecoins, like those backed by gold, it is possible to invest in gold-backed cryptocurrencies in the same way that you would invest in another financial asset or at least with similar goals in mind. Gold-backed cryptocurrencies are just a subset of the stablecoins that are growing in popularity as a value store with the benefits of cryptocurrency.
Easy to Store
Compared to physical gold, gold-backed cryptocurrencies are significantly easier to store. If you own physical gold, you need a secure location to store it, so you must find a physical space and ensure it has enough security measures. Most people with physical gold end up paying for secure storage in a bank or vault.
By contrast, gold-backed cryptocurrencies can be stored in a fully digital crypto wallet. You do not need to find storage or provide physical security to protect the cryptocurrency. Luckily, cryptocurrency wallets take up no physical space and are readily accessible.
Yes, gold-backed cryptocurrencies require physical gold to be stored somewhere, but that is not the concern of the owners. The project behind the cryptocurrency is responsible for that storage. Because they store the gold backing all the coins, instead of just a handful, that storage is also much more efficient and cost-effective.
Connects to the Blockchain
Gold-backed cryptocurrencies allow you to get the benefits of gold while also connecting to the blockchain, which is not possible with physical gold. This connection to the blockchain makes gold-backed cryptocurrencies more practical than the physical gold that backs them. You can easily buy and sell them or shop using them, especially when compared to how challenging this would be to do with physical gold.
Easy to Buy and Sell
The fact that gold-backed cryptocurrencies connect with the blockchain also makes them much easier to buy and sell than physical gold. After all, one of the key functions of the blockchain is to facilitate transactions via smart contracts.
Compare the simple process of sending cryptocurrency to a new wallet address to what you would have to do to buy or sell physical gold. You would need to agree on the price and find a location to meet and exchange it. Then, the buyer would have to find somewhere to store it. A simple blockchain transaction is more convenient and efficient.
What About the Cost of Entry?
Some argue that gold-backed cryptocurrencies tend to have a higher entry-level cost than most cryptocurrencies. Many cryptocurrencies are known for their lower entry points, but gold is an expensive commodity, so gold-backed cryptos tend to be similarly expensive.
However, this is not always the case. GoldCoin, for example, has a much lower point of entry than gold and is more affordable than many cryptocurrencies. So, the right gold-backed cryptocurrency can make gold significantly more accessible.
The Takeaway
Gold-backed cryptocurrencies are stabler and a better store of value than other cryptocurrencies while being easier to store, buy, and sell than gold. Cryptocurrencies like GoldCoin can add to these benefits by also reducing the cost of entry.
