What is Gold-Backed Cryptocurrency?
A gold-backed cryptocurrency is a coin or token that represents a value of gold and is backed by actual physical gold. The value of these gold tokens is pegged to the value of actual gold. For every digital gold token generated by the blockchain, there have to be equivalent gold deposits stored in a secured and trusted geographical location. What we now have are digital gold currencies of actual gold bars. The majority of the digital gold currencies are ERC-20 tokens that exist on the Ethereum blockchain.
Gold is used as a hedge against market panic and is viewed as a haven when there is a market downturn. This is partly because the value of gold assets cannot be inflated away, i.e its price is not tied to any form of economic activity, unlike other asset classes. Gold-backed cryptos are also expected to have this property.
One big advantage gold-backed cryptocurrencies have over physical gold is that they can be divided into small units and transferred relatively easily.
Pax Gold (PAXG) is a gold-backed cryptocurrency, launched by the creators of Paxos Standard (PAX) in September 2019. As an ERC20 token operating on the Ethereum blockchain. Pax Gold is tradeable on a large variety of exchanges and has become an accessible way for traders to start investing in gold. PAXG, being a gold-backed token has physical gold reserves for its token holders. Token holders can choose to sell their digital assets or obtain a digital gold certificate to redeem actual physical gold. Each token is backed by one fine troy ounce of a 400 oz London delivery gold bar, stored in Brink’s vault.