Get the weekly summary of crypto market analysis, news, and forecasts! This Week’s Summary The crypto market ends the week at a total market capitalization of $2,17 trillion. Bitcoin continues to trade at around $62,300. Ethereum experiences no changes and stagnates at around $2,400. XRP is down by 2%, Solana by 1%, and Dogecoin by 3%. Almost all altcoins are trading in the red, with very few exceptions. The DeFi sector decreased the total value of protocols (TVL) to around…
Is the Glittering of Gold Tokenization Worth the Hype?
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Blockchain technology is evolving rapidly and changing financial assets and economic models. Therefore, its support for cryptocurrency development can no longer be ignored. Instead, it may soon revamp how we view money and its ever-changing nature.
Tokenization is one of the main changes that blockchain has brought so far. This process converts real, palpable goods into digital tokens, enabling easy transfer and virtual manipulation.
Gold is just one of the latest tangible assets to go through tokenization. Gold-backed cryptocurrencies capture the interest and imagination of investors, banking institutions, and even governments.
Today, we try to determine if investments in gold-backed tokens are feasible by answering many investors’ questions: Is the glittering of gold tokenization worth the hype?
What is Tokenization?
Tokenization is the process through which the value of a product is transferred to a blockchain system. Everything from fiat money to copyrights and precious metals can become virtual tokens on a decentralized ledger.
People can manipulate their assets in a virtual space without physical constraints through tokenization. One can buy, sell, and trade the tokens representing the real-life assets one possesses.
Bitcoin is one of the first examples of tokenization. People would trade fiat money for Bitcoin tokens (BTC) and become digital asset owners on the Bitcoin blockchain. In recent years, this process has expanded its use to include a broad range of goods that the industry divides into three categories:
Intangible Assets
These goods are non-physical assets like patents, copyrights, or carbon credits. Therefore, they can easily go through the tokenization process since they do not imply physical manipulation, storage, or shipping.
Fungible Assets
These assets are physical goods that possess two fundamental properties. First, they can be divided into smaller units to a tiny proportion. Secondly, they can be exchanged for identical assets.
Gold is a fungible asset that has recently become the subject of intense tokenization. Other similar goods include oil, wheat, sugar, and flour, among many others.
Non-Fungible Assets
These goods are unique, real-life assets that are not divisible or interchangeable. Notable examples include art, real estate, and even parking spaces, among many others.
How Gold Tokenization Works
Gold has been a referential point of value for Western civilization for millennia. As a result, its conventional and fluctuating price has impacted the entire world. As a result, humanity has gone to extreme lengths in a seemingly eternal bid to scavenge it, often leading to dire consequences.
For centuries, governments had a steady reserve of gold to back their fiat currencies. The United States had this practice until the 1970s when President Nixon decided it was no longer necessary. Other countries followed suit.
Since fiat money is not a fixed resource like gold, banking institutions can better control their liquidity, velocity, and credit supply. Nevertheless, a gold-backed currency is much more reliable than one that lacks the real-life support of a precious metal.
As blockchain is steadily replacing the traditional financial order, an interest in a gold-backed cryptocurrency has become a natural step in this evolutionary asset trade and ownership process.
Gold tokenization works quite simply. A blockchain company can intermediate the transfer of fungible goods (gold) into digital assets on the ledger.
An investor who owns gold transforms its real-life value into tokenized gold, usually in an ERC-20 asset on Ethereum.
The resulting tokens get their value from something called Proof of Asset (PoA), which confirms the existence of its real-life, palpable equivalent.
Tokenized gold is redeemable for the physical gold that the investor keeps in a certified vault. An official issuer must mint that gold. As a result, the traders must trust each other, the issuers, and the eventual vault holders.
The Benefits of Tokenized Gold
Conservative investors may look at gold tokenization as a risky path to take. Their fears spur from a general fear of blockchain technology. They dread a future where the palpable trading of real-life assets becomes obsolete. But, in their defense, most of them are veteran financiers who have seen one too many financial crises to now tread lightly on any innovation that comes their way.
All blockchain-phobia aside, there are several benefits to gold tokenization, such as:
No Need for Storage or Transportation
Trading gold physically requires plenty of logistics. Therefore, it would be best if you had a secure place to store it. You also need to ensure maximum safety during the transportation process. These conditions imply high costs and lengthy transfer times.
By tokenization, trading gold-backed digital assets can occur almost instantly or at least in a few hours. As a result, there is no need for storage, transportation, and paying all the costs that come with them.
Less Bureaucracy
Changing the ownership of physical gold bullion requires plenty of paperwork filling. It also involves the presence of an intermediary that validates the transaction. These middlemen will take their share of the commission from the trade, which increases its overall costs.
Through gold tokenization, trading this precious metal can occur globally without intermediaries and almost no paperwork. As a result, the entire process costs less, is more investor-friendly, and is eco-positive since it does not involve real paper.
Maximum Transparency
Blockchain technology establishes a highly-secure accounting environment where investors can trade gold safely and quickly. Every transaction of tokenized gold is stored on a decentralized ledger in an indivisible and unalterable information block. The data that confirms the transfer is permanent and easy to verify.
Investing in Gold-Backed Cryptocurrency
There have been several attempts to create a gold-backed cryptocurrency.
Gold tokenization is an exciting step in the evolution of blockchain technology and financial development. It offers investors a safe and easy way to buy, own, and trade one of the most expensive assets in human history at the click of a button.
Btc
Bitcoin
$62.547
price
price
0.84959%
price change
If you think that tokenized gold fits your portfolio, you can jump on the bandwagon and add it to your list of investments. Unfortunately, the prospect of a quick and substantial ROI is not excellent. However, if gold prices rise, or with a fair bit of trading, you may soon find yourself sitting on a gold mine, albeit a virtual, blockchain-based one.
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