Tokenized Gold May Ease Scarcity, Boost Development
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Tokenized Gold May Ease Scarcity, Boost Development

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By MBN Staff | MBN staff - Wed, 05/27/2020 - 19:24

Getting your hands on physical gold has become particularly hard in times of COVID-19. Blockchain technology, often perceived as providing the foundation for assets that compete against gold, can actually help solve the problem.

The reason for physical gold’s shortage is twofold. First, an abrupt demand surge from investors looking for a safe haven in the middle of COVID-19-related market turmoil. Andy Schectman, President of bullion dealer Miles Franklin in Minnesota, commented on this to Investing News: “People are waking to the fact that they need to protect themselves, not just physically but also financially. Equity markets that are that volatile and that overvalued to begin with are pushing people into precious metals,” he said. The second reason is related to mobility restrictions, imposed as prevention against the virus, disrupting gold flow from refineries to purchasers. Chris Blasi of Neptune Global Holdings said to the same news outlet: “Flights between Europe and the US started being restricted. That obviously curtailed a lot of metal because the European refineries really dominate in volume for the bars.”

Tokenized gold or gold-backed cryptocurrency may be an indirect way to sort out the scarcity issue. As described by Goldscape.net this asset is “a type of crypto-coin where each token is backed with physical gold. A token or coin is issued that represents a value of gold. The gram of gold is stored by a trusted custodian, and can be traded with other coin holders.” Even when tokenized gold comes with certain risks, it is appealing for many reasons. In an article for Medium, Blockchain.com summarizes some of the main advantages: “24/7 access, ease of transferability, cost, and overall convenience of use compared to traditional gold ownership options.”

An exciting example of a fintech company that has launched a gold-backed cryptocurrency is GoldFinX. The company’s tokens are called GIX and they go beyond providing the aforementioned benefits of tokenized gold. The Singapore-based company has built its business model on a fair-trade concept. As Francois Dumont, COO of GoldFinX, said in an interview with Mexico Business News, “GIX are backed by gold and by a real, fair-trade business model. We finance something that generates gold and thus ensures the value of the GIX. In GoldFinX’s business model, everyone makes money: the investors, the miners and the company. This is fair-trade crypto financing.”

What Dumont is referring to is the way in which his company acquires the gold backing GIX. GoldFinX selects small, informal artisanal gold miners around the world, helps them to become formal and finances them so they can upgrade their daily operations. In return, the miners give a portion of their gold production to the company. Finally, the gold is stored in a vault. Dumont says that the amount of gold in the vault “progressively increases over time. This is to the benefit of GIX holders. If for any reason our cryptocurrency fails, the gold in the reserve will be sold and distributed to GIX holders.”

Artisanal gold miners often work in extremely rough conditions where human rights violations are frequent. Formalizing them and allowing them to access financing is a major step for improving their life-standard. Mexico is no stranger to the world of artisanal mining. Workers in this field are known there as gambusinos. They do not have a concession title and work excruciatingly long hours in dire conditions to sell their gold in the black market at low prices. Gambusinos tend to use mercury to refine their product. That is a highly-polluting and dangerous method. Crypto-based solutions can be deployed, not only to the benefit of legal gold buyers but also to that of artisanal miners in Mexico and around the world.

Photo by:   Torange

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