What’s in store for gold backed cryptocurrency if any ?

#cryptocurrency #gold #digitalassets #fintech #blockchain #innovation #economics #investment

The BRICS countries continue to negotiate a new currency that will be backed by gold. Presumably, it will be a cryptocurrency, and this innovation will have a number of advantages as well as a number of disadvantages, the main of which will be serious obstacles to its global implementation.

Would such a currency be able to outperform the US dollar?

A gold-backed cryptocurrency is a form of digital asset that has backing in real gold reserves. This approach combines the benefits of cryptocurrency technology with traditional precious metal, creating a hybrid asset.

Prospects for such a cryptocurrency

• Stability and trust. Backing a cryptocurrency with gold can give it stability and confidence. Gold has long been considered a stable store of value, and such a cryptocurrency can provide similar confidence in the safety of value.
• Liquidity. The new currency can provide liquidity as it can be easily exchanged for gold or other assets. Each unit of cryptocurrency will be a stable medium, and will provide protection against inflation as it will represent a certain amount of gold. And the influence of geopolitics will be leveled as much as possible.
• International trade. Such cryptocurrencies can facilitate international trade by simplifying transfer and settlement processes, as they can be globally accessible.
• Portfolio diversification. Holders of a gold-backed cryptocurrency can diversify their investments with both a digital asset and physical gold.
• Transparency and auditing. Thanks to blockchain technology, such cryptocurrencies can provide transparency in tracking the ownership and movement of gold, as well as provide auditing of transactions. 
• Low transaction costs, as cryptocurrency transactions typically cost less than traditional wire transfers.
• Reduced influence of the U.S. dollar on the global financial system, making the currency system more balanced.

But along with the benefits, there are potential risks as well as obstacles that cause the implementation process to stagnate.

• Transparency and trust. The central idea behind cryptocurrency is decentralization and transparency. However, backing assets such as gold may require a high level of trust in the organization or platform issuing the cryptocurrency. Questions arise about how accurately and effectively the organization is monitoring its gold reserves.
• Auditing and verification. To ensure trust, regular audits and verification should be conducted to ensure that the amount of gold backing the cryptocurrency actually matches the stated reserves. This may require additional effort and resources.
• Risk of hacking and theft. Hacks and thefts of cryptocurrency exchanges and platforms are not uncommon. If gold-backed cryptocurrency is stored on a centralized platform, there is a risk that attackers can gain access to gold reserves.
• Gold volatility. Gold prices can fluctuate depending on various factors such as economic events, geopolitical situations and even the degree of demand for precious metals. The volatility of gold is much less than the volatility of various currencies, but it does exist and it can affect the value of gold-backed cryptocurrency.
• Regulatory and legislative issues. Depending on the jurisdiction and country in which a gold-backed cryptocurrency operates, there may be regulatory and compliance issues with securities laws, financial activities, etc., that may arise. In addition, it is expected that central and commercial banks will oppose the new currency, as such a cryptocurrency poses a threat to their interests.
• Also, the issue of distribution of gold reserves between countries will be an issue that needs to be resolved; there may be disagreements that will take time and resources to resolve.
• Costs of preserving and maintaining gold. Securing and managing real gold reserves may require significant costs for storage, transport, and auditing and inspections.
• Difficulties in exchanging for gold. When cryptocurrency needs to be exchanged for real gold, there may be complexities in the process related to logistics and physical exchange.

However, technical and regulatory complexities are not as important as political issues. The U.S. dollar is firmly entrenched in the global financial system and shaking its position will be very difficult, as it will mean a significant reduction of U.S. influence on the world stage.

Overall, while gold-backed cryptocurrency has the potential to eliminate some of the problems common to traditional cryptocurrencies, it also faces risks and challenges related to reserve management, technical security and regulatory compliance.

In sum, gold-backed cryptocurrency represents a unique symbiosis of modern technology and the lasting value of the precious metal. Its prospects promise stability, liquidity and the possibility of portfolio diversification, making it an interesting tool for investors.

However, this ambitious approach also comes with a number of challenges. Transparency, trust and auditing come to the fore, and the complexities of gold exchange and regulation can cause some hiccups in the process.

The creation of an international gold-backed cryptocurrency will undoubtedly create additional opportunities for global trade and reduce reliance on the US dollar. However, it will cause debate and complications in terms of international relations and balance of power.

The future of such a cryptocurrency lies in the area of balance between innovation and tradition, where blockchain technology and gold meet to form a new standard currency. Still, whatever path it takes, it will certainly be an interesting step in the evolution of the financial system.