The Epochs: Evolution of Gold-Backed Cryptos

Gold-backed alternative payments systems and stores of value have been a feature of the Internet for over 20 years. They’ve been around since before Bitcoin kicked-off the cryptocurrency era we’re in today.

But even those were not the first attempts at alternative payment systems.

1990 – The Original Cryptocurrency Prototype: Digicash

Before the advent of gold-backed cryptocurrencies, there were early prototypes of digital currency, like Digicash in 1990 which was based on  David Chaum’s 1983 paper, “Blind Signatures for Untraceable Payments” . Although innovative for its time, Digicash was not backed by gold or any other physical asset. This early form of digital currency laid the groundwork for future developments in the cryptocurrency space.

1996 – 2006 – The DGC era (Digital Gold Currencies)

The DGC era marked a significant shift with the introduction of gold-backed digital currencies.

Pioneers in this field included E-gold,  E-bullion, Pecunix, and Liberty Reserve. Each of these platforms sought to combine the security and inflation-resistance of precious metals backing, with payment system capabilities of digital currencies.

Among these, Goldmoney emerged as the only player with staying power. Founded by James Turk, Goldmoney initially focused on digital gold currencies before transitioning into a vaulted gold platform (see below). In 2015 it was acquired by BitGold (founded a year earlier by Roy Sebag and Josh Crumb) and became a publicly traded company on the TSX (under the ticker TSX:XAU)​​​​​​​​.

Online Gold Vaults / Vaulted Gold

Goldmoney’s evolution into an online gold vault highlights the broader industry shift towards secure, digital storage of precious metals. Online gold vaults like BullionVault and Goldmoney allow users to store bullion in various secure locations around the world. The value prop of these platforms is store of value, protection from inflation, and to a lesser extent – capital mobility (we will look at the shortcomings in this latter aspect in a separate post).

The rise of cryptocurrencies

The Bitcoin white paper, released on October 31st, 2008, changed the game and ushered in the cryptocurrency era we’re in today.

Where Bitcoin positions itself as “digital gold”, later blockchains, such as Ethereum – added tokenization protocols at the second layer (“Layer 2” or “L2”). These token specifications (e.g ERC-20 on Ethereum and Avalanche, BRC-20 on Binance Smart Chain) facilitated the creation of gold-backed crypto tokens.

Gold-backed crypto tokens

With gold-backed cryptocurrencies we see the attempt to create a true, digital bearer asset that is backed by gold or other precious metals – right down to having bars in a vault correlated by their serial numbers to circulating tokens.

These systems try to combine store-of-value (precious metals backed tokens) – that can be redeemed by the bearer, with payment systems that leverage the underlying blockchain mechanics to transfer value at a distance.

Closing thoughts

It’s early days, and these projects aren’t 100% there in terms of a totally frictionless bearer instrument backed by precious metals. Some systems operate within their own walled gardens (like Kinesis) while others are on less accessible Layer 1’s (like LODE on Avalanche).

But it should be noted here that most of the impediments to these systems are regulatory, not technical.

There is still a degree of trust in these systems – there is some reliance on the platform intermediary – although in the case of LODE, they’re doing a good job building continuity and zero-trust into the system. Lode’s smart contracts are open source and can continue to run independently even if the company were to cease to exist.

More on that (and much more) in future updates to the new Gold-Backed Crypto Monitor (GBCM) by DollarCollapse.

To dig into these projects, see the main Gold Backed Crypto Currencies Directory

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