Bitcoin’s become one of the most popular and talked about investments over the last few years. The cryptocurrency’s meteoritic rise led to make early investors striking it big.
Enthusiasm in the crypto market has spurred countless investors to buy into Bitcoin and other cryptocurrencies.
One of the most popular debates about Bitcoin is its status as a ‘digital gold.’ Some argue the cryptocurrency should not be seen as comparable to the yellow metal since Bitcoin is not a medium of exchange, store of value, or a unit of accounts.
Others make a different point. They say the flagship cryptocurrency’s rarity, vast price potential, and ability to be bought, sold, and traded in various settings make it a modern-day ‘digital gold.’
Bitcoin Is Not Digital Gold, But Stablecoins Are
Bitcoin’s status as a store of value is arguable due to its volatility. In recent years, the cryptocurrency has largely functioned in behavior analogous to the stock market, rather than a stable asset like gold.
Many regard Bitcoin as a high-risk asset since the cryptocurrency often has double-digit valuation days. Some do make a case the crypto has functioned as a store of value, but Bitcoin skeptics believe it has no intrinsic value at all.
The debate over Bitcoin’s status continues. The ‘store of value’ debate has not gone away as the cryptocurrency’s proponents point to the underlying blockchain network as an example of intrinsic value.
While the debate over if Bitcoin can be seen as digital gold might never end, gold-backed stablecoins like GoldCoin.com are certainly digital gold.
Gold-Backed Cryptocurrencies? What Is The Allure?
Cryptocurrencies backed by gold are a class of stablecoins rapidly rising in popularity. Gold bullion has been an enticing investment choice across 2020 as a hedge against economic turmoil.
Gold supply chains have suffered immensely across the year. The coronavirus has placed mining operations on hiatus, while state control and monitoring of mining areas have been reduced in some nations due to strict lockdown rules.
Gold-backed stablecoins issued by reputable companies have physical gold bullion as backing. It is audited and reviewed by a trusted third-party to assuage coin holders that a reserve properly guarantees their assets.
Some gold-backed crypto companies go a step further and set up live streams of bullion reserves so holders can view reserves at any time. This is a more secure process than having to wait for a monthly or quarterly audit to receive reassurance.
One of the advantages of gold-backed stablecoins (and other stablecoins have in general) is their consistent nature. Stablecoins backed by precious metals will never fall below the spot price of the asset. They do have the potential to rise in value if the coin proves to be popular.
Various Types Of Stablecoins
Stablecoins backed by fiat currencies remains the most popular option today. Some stablecoins are crypto-collateralized, meaning they are backed by a basket of digital currencies.
These coins are over-collateralized to mitigate the effects of the virtual currency’s volatility.
Other stable coins, like Basecoin, are non-collateralized. They are not backed by anything but rely on a consensus mechanism to control the supply.
A smart contract consensus mechanism will create new coins as demand increases to bring the price down. If the coin starts to dip, coins are automatically bought back from the market to decrease the circulating supply. Theoretically, this type of stablecoin will always remain at a static price since they hinge on market demand and supply.
How Are Stablecoins ‘Digital Gold?’
Some like to label the newest popular cryptocurrency as a form of digital gold. Stablecoins do have a legitimate case to be named so as they can be classified as money under Aristotle’s criteria.
Even though gold bullion is not used as money, stablecoins can easily be sent to family and friends as payment or used for purchases. Stablecoins are a unit of account because some are fractionalized, meaning they can be divided into any amount. This means people can take any amount of money and purchase a fraction of a stablecoin.
The reserve backing a stablecoin makes it a legitimate store of value. Fiat currencies and commodities like precious metals, diamonds, and oil all have intrinsic value.
As a result, stablecoins represent assets people can rush to during tough economic times to keep a portfolio stable – a form of ‘digital gold’ for the modern era.
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