For as long as cryptocurrency has existed, it’s opponents main beef with it has been that cryptocurrency doesn’t have intrinsic value. How can you trust the value of a currency with nothing backing it they say? However, they seem to be ignoring the fact that digital tokens were just the start of cryptocurrencies and blockchain assets. They are a proof of concept, and it is my belief that in the future we will move past these and turn our attention to tokenizing real world assets. The blockchain presents a unique opportunity where almost anything can be a tradeable assets and anyone can create these assets. However, in today’s article we’re going to be talking about a specific asset: gold.
Gold has been money since somewhere around 700 BC, but humans beings have been fascinated with gold for longer than that even. Even now, people turn to gold as a hedge against economic turmoil in other markets. It has a finite supply, it has useful applications, and human beings have generally accepted for whatever reason that shiny metal is absurdly valuable. Unfortunately, gold is also kind of a pain. Physical gold is heavy, it can be easily stolen, it’s easy to buy counterfeits, it comes with large spread prices and it’s difficult to sell in large quantities if you need to.
However, thanks to the blockchain, precious metals are about to get an upgrade. Digix is a stable coin that is pegged to a gram of gold. The company in charge of this platform has created a way for investors to quickly and cheaply buy and sell gold on the Ethereum blockchain. This presents a ton of benefits, and it replaces almost all of the negative aspects of purchasing gold. No longer will your profits be eaten up by massive spread prices on physical gold if you need to liquidate your assets, and selling gold is now instantaneous. It requires no wait times, it requires no third party verification, and it does not require you to find a buyer. For cryptocurrency traders it also provides another valuable service, it creates a stable environment for you to take a break from the crypto coaster.
Need some stability for your assets or a place to park your day trading profits that’s not in US dollars? Then DGX might be the oasis that you’ve been looking for. Investors can easily swap their profits in and out of gold. This is both cheaper and faster than using both US dollars and physical metals. Did a big drop in the market just happen? Within minutes you can cash out your gold nest egg to purchase assets at a discount and take advantage of the blood bath for your own profits.
By utilizing a cryptocurrency token, you can also make physical assets divisible. Digix stores its gold that it uses to back up the issued tokens in a vault in the form of gold bars. When dealing with physical gold you obviously can’t just break up a gold bar and sell it a gram at a time to whoever walks in the door, but on the blockchain you can. Much like how a Bitcoin is divisible into a seemingly infinite number of Satoshis, a gold bar is also divisible into many DGX tokens. In fact, many different investors could own a portion of one bar under this system. Users can also redeem their tokens for gold bars in person if they’re willing to go to Singapore to get them. The website states they own 100 gram gold bars, meaning that you’ll need 100 DGX for redemption purposes.
All of this is of course maintain by the immutable ledger that prevents any tampering and smart contracts which manage the functions of the system. Records for storage activities can be publically accessed, and the system is based on something they call Proof of provenance.
“PoP is a protocol that we have developed to track the movement of physical assets (gold in the case of DGX) through the change of hands, from the bullion supplier to the custodial vault in a transparent and cryptographically secure manner. PoP addresses the issue of proving the existence of the physical asset, the authenticity of its ownership and the security of its storage in the custodial vault.
It does this by verification transactions on the blockchain and uploading real world documentations onto IPFS, a distributed file sharing database, and the blockchain. More information can be found in our whitepaper on our main site.”
Essentially, the Digix blockchain works something like a supply chain management crypto token would. Gold transfers are logged at every step of the journey and this information is recorded to the blockchain. The token holders can then verify these actions to prove that the gold is where it should be. You can verify this information for yourself using the explorer. Of course, the company also has quarterly audits done by Inspectorate as part of their registration as a real financial institution. Their gold is stored at the Safe House, a precious metals storage facility in Singapore in affiliation with Silver Bullion, who help facilitate these services.
While these benefits alone may be enough to convince you that gold and the blockchain were a match made in heaven, there’s yet more to see for this project. DGX has also been working on a number of partnerships with other cryptocurrency projects that would give it even more functionality. This includes being included as a multi-collateral asset for the Maker Dao project. If you’re somehow unfamiliar with Maker, they are behind the DAI stable coin. DAI is created by locking up Ethereum as collateral, but soon they will be introducing even more collateral options, and DGX is on the list. This is an exciting prospect, because it stops the problem of your collateral needing to be cashed out if its value dips out of the safe zone in regards to equity. It also allows you to take advantage of your safe stores and leverage them to make more money in other investments, while still retaining your safety net.
Digix has also partnered with a variety of exchanges and platforms which will allow you to use your digital gold tokens for things like sending invoices and accepting payments in gold with Request Network, using gold to pay for retail purchases with PundiX and TenX or convert gold into luxury experiences Aditus.
The blockchain allows for traditional assets to be utilized in ways never before possible. It allows for liquidity, transfer of ownership and portability of assets. Imagine being able to take a million dollars worth of gold with you anywhere you went in the world? That’s now a reality. It can be held in a private wallet, and it can even be quickly liquidated to pay for essential goods just as easily as cash by swiping a bank card should you find yourself in a jam.
What about DGD token?
In addition to DGX, which is backed by a gram of gold, the creators have also issued DGD. This token is a governance asset, and there will only ever be 2 million of them in existence. You see, DGX is only part of the entire system. The team behind this gold backed stable coin want to do a lot more, but they need the community to help do that. Holders of DGD will get to submit and vote on proposals. These could range from nearly anything such as proposing marketing efforts to grow the platform or even suggestions for new assets which the DigixDAO should take on such a silver.
Holders of DGD are actually eligible for rewards for their participation. These rewards are taken from the transaction fees which are generated when DGX tokens are traded on the internal marketplace, where investors buy and sell their gold. Users who do not participate in the governance process will not receive any rewards. This is figured out on in a “points” system, and users who have higher activity than is the required threshold could actually be due more rewards on top of their locked coin stake. While I very much like DGX, I don’t feel like DGD has enough benefits to be worth investing in it.