Gold started its life as a form of money, a means of payment in return for labour or another commodity such as food. In the early days, people would carry gold around and pay with it, but it became a burden due to its weight and the fact it would need to be divided into various sizes depending on what you wanted to exchange it for. The first goldsmiths ‘bankers’ decided they would hold the owners gold and give them an amount of IOU’s that would equal the quantity of gold held, minus a small fee obviously, this would allow the owner of the gold to then purchase their goods or labour in exchange for the IOU, the seller or labourer knew they could then visit the bank and exchange the IOU for the gold held at the bank. These IOU’s became the first type of paper money as everyone was confident they could exchange the bank IOU for the physical gold anytime they wanted and there would always be enough gold in the bank to back the IOU’s. Everything went fine for years until the bankers began to realise that most people weren’t coming back to the bank to claim their gold and hand over the IOU, it was easier for everyone to simply pass the IOU to someone else in exchange for whatever service they wanted to pay for, everyone was happy with this as they knew at any point, whoever held the IOU could return it to the bank and exchange it for gold, this was a perfect gold backed paper money. But, bankers being bankers, they decided they could get away with printing more IOU’s than was backed by gold and distribute them as loans which they could then charge interest on, they knew they could get away with this because almost no one was coming back to claim their gold, so they would never know there wasn’t enough gold to cover all the IOU’s. and they would profit from the interest lending money they didn’t have in the first place! If, however, everyone decided they would visit the bank to exchange the IOU back to gold then those at the back of the line wouldn’t get theirs! No doubt this resulted in the early demise for a few of the first of many greedy bankers…
If you are interested in the start of banking then I highly recommend this 47 minute video, How Banks Create Money out of Thin Air
This is a simplified example of how paper money came into play, and shows why gold has for thousands of years been the real store of value unlike todays ‘FIAT’ money (fiat money is a form of money not back buy gold or anything of any value).
This brings me to the question of gold backed crypto that can be spent using a third party such as visa… and is it a good thing?
All the ICO’s I’ve considered and information I’ve read relating to this idea seems to point to the possibility of history repeating itself but in a more digital way.
You will be either be purchasing a quantity of gold that is said to be held in a bank vault possibly in another country audited by ‘someone honest’, this gold will be digitized and put on the blockchain, you can then either use a visa card linked to the digitized gold which is converted to your currency at the point of sale or you would buy the cryptocurrency tokens that are backed by the digitized gold which you would then hold assuming they would retain their value in line with the gold spot price. You could of course always sell the tokens or use them to purchase goods using a visa card which would then be converted to your currency at the point of sale.
Very few banks or countries are totally honest about how much gold they hold in their vaults, are we to believe the holders of our gold will be any more honest? What happens if it comes to light there’s not as much gold backing just one of the crypto tokens, as they claim? Will it undermine all the other gold backed tokens and cause them all to crash and become worthless?
I think using a card to make payments with cryptocurrency is a good thing as it promotes the use of crypto in everyday life and allows the user to effectively act as their own bank, this is especially useful in countries where large populations don’t have access to banking.
One of the questions I do have though is how do I know there is always going to be enough gold in the vaults to cover either the money I have paid for it or enough to cover the number of issued tokens I have bought and hold in my wallet. This seems to come down to me trusting the banks, vault owners or the owners of the company I have bought the tokens from.
Having watched how fraudulent and criminal most banks are and how manipulated the current gold markets are with their paper gold contracts, ETF’s, gold futures and derivatives etc. I have exactly zero trust in banks, the Comex or the LBMA.
I hope I am wrong as digitized gold on the blockchain being used as a means of everyday payment could massively increase the amount of gold purchased to back the new cryptocurrency tokens, possibly from Shanghai Gold Exchange which deals in PHYSICAL GOLD, pushing the price of physical gold higher, hopefully breaking the fraudulent manipulation of the gold price by the paper gold market currently controlled by the Comex & LBMA.
Am I wrong in my thinking? It would be great to hear your views…
See some of the gold-backed cryptocurrencies on our page here.