Digital Gold-Backed Currencies Make Inroads
The crypto-currency Bitcoin has revolutionized the way we think of currencies. It offers a decentralized, secure, free-market way to exchange goods and services without going through banks. But as we’ve noted before, Bitcoin also has flaws. Chief among them is the fact that it isn’t backed by anything. In contrast to government-issued coins, which will always be at least worth the metal they are composed of, a Bitcoin literally has no intrinsic value. There’s no fundamental reason why Bitcoins couldn’t one day become worthless. (Despite gaining in value amidst the Greek debt crisis, Bitcoin prices are still down more than 75% from their peak.)
What Has Advantages Over Bitcoin?
What if a crypto-currency combined the advantages of Bitcoin’s blockchain technology with the solidity of gold backing? That’s the idea behind some upstart gold-backed alternative currencies. Bitgold (800-854-7418; www.bitgold.com) promises users “a secure vault account to purchase and hold gold, the ability to make and receive instant gold payments, and a prepaid card for spending gold at traditional points of sale.” Bitgold recently acquired GoldMoney, which has offered accounts denominated in physical precious metals since 2001. If GoldMoney users are eventually integrated into the Bitgold platform, Bitgold has the potential to overtake Bitcoin as the number one alternative currency. However, it does face regulatory risk. Unlike Bitcoin, Bitgold has assets that can be tracked and seized. Previous attempts to introduce debit cards backed by gold and silver have failed to take off in the U.S. due to legal hurdles.
Digital Gold May or May Not Be Fool’s Gold…. Here’s How to Know
Another entrant in the digitized gold market is Anthem Vault (855-428-2858; www.anthemvault.com). It recently introduced a pseudo-currency called HayekGold (named after free- market economist Friedrich Hayek). Each “hayek” represents a gram of gold on the Bitcoin blockchain. Ultimately, any gold-backed digital currency is still at least one step removed from tangible possession of physical gold. A HayekGold or Bitgold account isn’t a direct substitute for actual gold coins. But a goldbased crypto-currency can be a good substitute for one that lacks backing by hard assets.