Will Commodity-backed Cryptocurrencies Become the Answer to Stability Concerns?

| Publish date: 09/03/2019 (Last updated: December 10, 2019 08:52 AM)

When it comes to investing in cryptocurrencies, the volatility of the marketplace is a well-known factor to take into account. Those of us who have been dabbling in these relatively new forms of digital assets are well aware of this particular facet of crypto trading, and it can be a blessing or a curse depending on how good you are at predicting the trends of the currencies you buy into. While many of us hope to see the market stabilize at some point in the near future, we aren’t quite there yet. The very nature of a modern currency that works in a vastly different way than anything that has come before it, is that many investors are initially sceptical. This is natural, and time will surely be the healer in this particular department, but is there going to be a catalyst that helps crypto break into the mainstream quicker than expected? As it turns out, this catalyst may take the form of something many investors are slightly more familiar with already, a cryptocurrency backed by gold.


A new gold rush?


You have no doubt heard plenty of old sayings about how sensible it is to invest in gold. “The desire for gold is the most universal and deeply rooted commercial instinct of the human race” is a quote attributed to Gerald M Loeb, one of the most famous stockbrokers ever to exist, and one that rings true to this day. Gold, in general, has held its value over the years. Because of this, many investors will turn to gold during recessions in an effort to protect against any losses. So how exactly does this relate to cryptocurrencies? Well, a new breed of crypto is starting to emerge that allows you to trade tokens that represent a value of gold (i.e one coin for one gram of gold) that is accounted for using blockchain technology. Those of you who were already aware of earlier attempts at digital currencies that were backed by gold may be a little skeptical, but the issues experienced by currencies such as E-gold will not be prevalent here, mainly down to the way blockchain technology works.


Stable investments will gain trust

E-gold, as anyone who was aware of the currency at the time will remember, was hugely susceptible to fraud and criminal cyber gangs. The decentralized nature of the blockchain makes this particular aspect much less of an issue when it comes to the new breed of cryptocurrencies, and while these gold-backed cryptos don’t suffer the same security drawbacks, they do still leverage the same benefits that trading in gold always has (the general stability of these investments). Having a few gold and silver-backed cryptocurrencies in the marketplace could end up giving a boost to cryptos in general, as shy investors start to realise that buying into crypto isn’t the ‘wild west’ they once thought it was. This could end up being a self-fulfilling prophecy, as more people feel comfortable investing in crypto (and don’t panic sell when there is a downturn), which in turn helps to stabilize the whole cryptocurrency scene in general.


The future looks golden

Knowing that your crypto assets can never drop below the price of the commodity they are linked to will obviously help these particular cryptocurrencies, but it may not stop there. Other cryptos are looking to launch that are backed by various other metals as well as other commodities in general, which will help the cryptocurrency economy weather through times of volatility, rather than having money flow out of it and back into more traditional bank accounts. If crypto is to become the default way in which we trade in the not too distant future, it is going to have to appear more stable than it currently does, and commodity backed cryptos could very well be the missing piece of the puzzle when it comes to building that trust. For the average person to be able to use crypto in a meaningful way, day to day, they are going to have to be able to plan for the future using it. Right now, that isn’t the case, but if these gold and silver-backed cryptocurrencies gain any serious traction, that day may come sooner than we think.


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