Gold's history as a symbol of value dwarfs that of any other antiquity. Used as money in both aboriginal Hellenic republic and the Roman empire, gold was too the preferred method of payment for appurtenances along the Silk Road. When mod cyberbanking emerged during the Italian Renaissance, the concept of paper money convertible into gold was invented. This exercise ended a half-century ago, but the value of golden remains timeless.

Starting with England in 1717, modern nations began anchoring their national systems of money to gilt in what became known as the "golden standard." By the late 1800s, and until World War I, the most advanced economies were united in this approach. Today, although the money of nations is no longer anchored to it in whatever way, gold has retained considerable economic utility. Whether used to preserve savings or every bit a hedge against financial instability, gold has been a mainstay in private, institutional and state portfolios.

Gold buying is challenging

In spite of this storied history and the clear economic utility of a scarce asset, gold ownership remains challenging. Different fiat coin in bank accounts or fiscal assets in investment accounts, stores of gold must be physically safeguarded confronting theft. As these volumes of stored gilt increase, incentives for theft also rise, pushing the price of secure custody higher. Another challenge is transportability. Theft must also be physically guarded against during transit, but eliminating this risk can exist prohibitively expensive. Non everyone tin beget an armored Brinks truck.

More challenges arise at the transactional level where the gold must be both verified for its authenticity and denominated in such quantities equally to adapt both the buyer and seller. Due to the loftier costs of purity testing and the difficulties of dividing physical gilt, these constraints dramatically lower the potential for voluntary transactions between buyers and sellers. The potential for lower-value transactions suffers the most, as these buyers and sellers typically cannot rely on economies of scale to offset transaction costs. They may also prefer to use smaller and more than precise denominations than the antiquated "aureate bar."

Together, these challenges create meaning friction for both buyers and sellers of physical aureate. These hurdles can exist especially discouraging for smaller investors who may be dissuaded from ownership of the physical asset altogether. Popular gold-based fiscal products such as Exchange-Traded Funds, or ETFs, might and so be used to gain some exposure, but this is non an economic equivalent to physical gold ownership.

What is the purpose of aureate ownership?

Despite the challenges associated with physical ownership, gold markets continue to be amidst the nigh liquid in the world. Much like the geological deposits of this shiny metallic, the demand for physical golden ownership is widely dispersed effectually the earth. The desirability of aureate jewelry is universal, only and so is the demand to protect oneself from currency debasement and other fiscal turbulence. In countries where currencies are known to depreciate rapidly, it is far more common for citizens to hold their savings in physical aureate rather than as money in a banking company account.

Just weeks ago, among the COVID-nineteen crisis, long lines could exist seen forming outside of Bangkok gilded shops as residents queued to sell their aureate.

Because of piece of work stoppages brought on past the health crisis, many Thai nationals sought to catechumen some of their savings into much-needed greenbacks. The eight-yr high Thai baht toll of gold fabricated this an especially attractive choice and highlights the ultimate purpose of owning gold: exposure to the spot price of physical aureate in terms of i's own fiat currency. Whether information technology is a Thai shopkeeper protecting their savings, or a global hedge fund executing a complex investment strategy, the economic purpose of owning concrete gold is the aforementioned: exposure.

Fulfilling the purpose while overcoming the challenges

The days of waiting in line to buy or sell gold may presently be over. While Bitcoin (BTC) has been heralded equally "digital gilt," related innovations in blockchain engineering science are quietly shifting the paradigm of concrete gilded ownership. By leveraging this new technology, Tether Gold (XAUT) and other gold-backed stablecoins are fulfilling the economic purpose of physical gold ownership while overcoming many of the traditionally associated challenges. With a quickly growing market cap of approximately $86 million, XAUT has eclipsed PAX Gold (PAXG) to become the most widely held and circulated gold-backed stablecoin.

Past embedding legal championship to specific allocations of authenticated physical gold into a digital token, this highly innovative course of products combines the best of three distinct worlds:

(1) Directly exposure to the price of physical gold.

(ii) The cost-efficiency and accessibility of traditional financial assets, such as ETFs.

(3) The transactional utility of a digital token.

Earlier gold-backed stablecoins, only the largest investors could avert making stark trade-offs between (1) and (2) above. Everyone wants direct exposure to the price of concrete gold, merely at what cost? From the burden of securing concrete storage and transportation to the added friction of purity-testing and low divisibility, information technology is piece of cake to see how direct exposure has become prohibitively expensive for most investors. Unable to harness economies of scale, these investors are then priced out of physical ownership and priced into a synthetic proxy.

But margarine is non butter. Without traceable allocation to specific, authenticated and deeply vaulted physical golden, these synthetic gold-based financial products can never corporeality to the real thing, no matter how pop they go. Today, through technical innovation and legal design, gold-backed stablecoins accept been working to harness economies of scale for everyone. At present, for the first time in golden's long history, investors tin proceeds straight exposure to the cost of physical gilt without having to overcome the traditional associated costs and challenges. Physical ownership has been democratized.

The marketplace impact of democratizing physical gold ownership

The benefits of gold-backed stablecoins extend well beyond the gains for individual buyers and sellers. The market every bit a whole is affected. John Bogle's 1975 launch of the showtime index fund offered a similar value proposition to investors: democratization of diversified disinterestedness marketplace exposure. Recognizing that the functioning of actively-managed mutual funds could non justify their loftier fees, Bogle set out to offer low-cost, passive investment products by replicating the market at scale. These products' popularity exploded in the ensuing decades, as individual investors began to recognize how much money Bogle's invention could salvage them.

Despite these articulate gains for private investors, the long term impact of index funds on global equity markets has been cryptic at all-time, and likely destructive. With passive investing strategies having grown to correspond an ever-greater share of market activity, the proliferation of these index products has raised fundamental concerns over liquidity and price discovery inside equities markets. Bogle himself recognized this problem later on in his career, as he worried that the explosion of passive investing had opened the door to manipulation from speculators. Having designed index funds for long-term investors, Bogle remained dismayed into his last days by the speculative turn that the now-massive ETF industry had taken. Warren Buffet has described Bogle as the man "who has done the virtually for American investors," just the jury is still out on what passive investing has washed to American disinterestedness markets, something Bogel himself recognized.

Gilt-backed stablecoins have flipped this story on its head. Toll-efficient buying of concrete aureate has certainly been democratized but in a way that supports the long-term liquidity and toll discovery within global gold markets. Whereas the growth of passive investment flows, as recognized past Bogle, would increase the susceptibility of disinterestedness markets to manipulation, the growth of gold-backed stablecoins would take the reverse effect. Since today's gilt markets are already dominated by "newspaper" — financial instruments with no direct connexion to specific allocations of physical gold — the functioning and integrity of these markets can only meliorate every bit gilded-backed stablecoins gain prominence.

With myriad advantages from both the individual and collective standpoints, gold-backed stablecoins really practise allow the investing world to accept its cake and eat it too.

The views, thoughts and opinions expressed here are the author'southward alone and practice not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does non incorporate investment advice or recommendations. Every investment and trading movement involves risk, you lot should deport your own inquiry when making a conclusion.

Matthew Alexander is a compliance analyst at Tether, a token backed by actual assets, including the U.S. dollar, the euro and aureate. Being anchored or "tethered" to real-world currency, Tether provides protection from the volatility of cryptocurrencies.