In the 21st century, physical metallic gold no longer represents the same value it did in the past. Instead of hoarding and trading physical gold, many individuals now trade bonds and representations thereof. Can the same mechanism and investor mindset sustaining the price of gold today provide any further value for cryptocurrency?
The History of Gold
Gold has been a store of wealth and currency for a long time. The first gold coins were first struck in Lydia around 600 BC. The metal was valued for its lustrous properties, its malleability, and its lack of reactivity (meaning it does not rust or tarnish). Using it in coinage, jewelry, and art gave it a value to ancient people. In modern times we still appreciate these qualities, with the added understanding of its fantastic electrical properties as well. While some of its physical properties were extremely desirable, its scarcity made it a great way to facilitate transactions and store both personal and state wealth.
Eventually, carrying around gold became somewhat of a hassle. It is heavy and, unless properly stored, capable of being stolen. For these and other reasons, bills eventually came to become representations of gold and other precious metals. In fact, it was only recently in history that nations took themselves off gold or precious metal standards. The shame in this is that the gold standard helped currencies stay relatively stable and is one of the reasons that the Swiss franc performed so well until 1999 when the country abandoned the gold standard.
What Drives the Price of Gold Today?
The first thing that gives gold value even today is the same physical properties we discussed above. It is a very versatile and workable metal that does not tarnish. It is also extremely useful in manufacturing electronic goods. Thus, as long as people use it in devices, the metal will have some sort of value. The second factor that drives the price of gold is investors’ and traders’ belief that it has value. They trade it via bonds and papers daily in gold securities. The flow and trade of money keeps its price alive.
Comparing the Gold Market to the Cryptocurrency Markets
Similarly to the trading of representative gold, cryptocurrencies’ values are largely driven by the investors who believe in them and trade them. There is a reason why cryptocurrency analysts continue to pour over daily trading volumes. In fact, the top 10 cryptocurrencies were responsible for about US$4.7 billion worth of trading volume in the last 24 hours at the time of writing. Bitcoin alone has around 263,379 transactions daily. So it is clear that traders are confident in the world’s largest cryptocurrency. However, this pales in comparison to the trading volume and transactions of gold. Some estimates put gold’s daily trading volume at about US$125.3 billion. A project called GoldMint aims to harness the confidence that gold inspires to help increase cryptocurrency transactions and trading volume. Considering the discrepancy between cryptocurrency and gold trading, clearly the cryptocurrency market could benefit from similar trader confidence.
Rethinking Gold Secured Cryptocurrencies
There have been a few attempts by various cryptocurrency projects to integrate gold into cryptocurrencies via tokens, but for the most part these have used gold as the backup or secondary currency. Essentially, those other projects were using gold as their gold standard. This is where GoldMint is different. The team wants gold’s turnover and trading to be the token, not gold itself. They aim to do this by transferring transactions to smart contracts and by making non-liquid gold reserves – such as the jewelry and bullion coins mentioned earlier – liquid. The latter point will help provide additional gold turnover with the unique benefit of being in the form of a cryptocurrency immediately.
Check out GoldMint’s website here: https://goldmint.io/
This is a sponsored post and does not necessarily reflect the opinions or views held by any of The Merkle employees. This is not trading or investment advice, the responsibility of due diligence rests solely on you.