Wednesday, August 21, 2019

What the future of money will look like: Secured Gold Backed Crypto

Back a few years ago before Bitcoin was all the talk, as if Bitcoin is going to be the new money of the future, or a one world currency.  Obviously that hasn’t happened but the Crypto market is growing by leaps and bounds.  We’re going to take a look at a few exciting projects and let readers decide for themselves.  But at first glance, projects are taking shape they are just taking longer than usual.  We’re not going to get into a discussion about tZero, the first regulated securities token, which is still delayed.  But we are going to look at what some on the fringe have been doing, and their tokens and products are just launching.  We’re going to look at how these solutions solve major problems. 

First, the problem of Crypto not being ‘backed’ by anything.  A token is being launched called Kinesis (KVT) that is backed 1:1 by gold and silver.  By itself that’s not a new idea or so novel – but how they are doing it is looking that this launch can be successful.  The founder has explained more about this in a Forbes article:

Kinesis Money is fully operated by the Allocated Bullion Exchange (ABX), an institutional marketplace set up in 2011 for the trade of physical precious metals, gold and silver, being two of the most stable and definable stores of value, across seven global locations.  For the benefit of Kinesis Money, ABX provides the comprehensive infrastructure with the advent of blockchain technology - and the introduction of cryptocurrencies. This gives it a firm advantage over other cryptos in the gold space which simply do not have this backing.

So this isn’t just a couple of kids in the garage – this is a serious commodity backed exchange.  What other types of players have entertained the idea of Gold backed currency?  Russia’s Central Bank has even considered a gold backed Crypto Currency:

“As for mutual settlements, we will consider, of course, [the] proposal on … a gold-backed cryptocurrency.

As most people know, the fundamental difference between Crypto currency and fiat currency is that fiat currency is backed by banks, which are backed by central banks, so it’s notable to watch what central banks are doing in the crypto market.  And what’s ironic about a Gold backed currency – Gold is used as a reserve by some central banks as a physical commodity that always has value.  This has become unpopular in the last 10 years, but China and Russia are hoarding Gold.  In particular, Russia
There’s even a long list of Cryptocurrencies that are backed by gold in some form.  But also the fact that there are so many novel approaches to the same concept solidifies the idea. 

“There’s no monopoly on Great Ideas” Randall S.

Of course, this is all digital so the big risk is going to be getting hacked.  If your ‘digital’ gold get’s hacked it’s the equivalent of your Gold storage being looted.  That’s where Dark Vault comes into play, a new custodial and security service launched by Crypto startup Blackwatch.  Just like in the example with Gold tokens, there are secure custodial solutions out there, but this one seems to be unique.  If it’s as good as it looks, this can create a situation where once again fiat investment dollars will be flowing into Crypto. 

We interviewed a former employee of tZero who wishes to remain anonymous, and this is what he said:

“There’s an unknown number but in the billions of dollars waiting to invest in Crypto if someone can solve the security issue.  Everyone is afraid of being hacked.”

So as institutional investors feel safer, we believe they will start investing in coins like Kinesis, just like investors hold cash.  When you are holding cash you are actually in a Forex trade, that’s denominated in US Dollars (if you are in the US).  Stablecoins are the future, not wild volatile tokens like Bitcoin.   What Bitcoin did was attract attention of the world and get the Crypto market started, which was great – Bitcoin was the prime mover.  But you can’t pay your salaries in Bitcoin nor is it really a good ‘investment’ as due to the mining feature it requires more and more US Dollars to flood into it in order to support the price.

Actually banks and central banks have been thinking of issuing their own coins for a long time.  Just as recently as March 2019, IBM announced 6 banks to issue stablecoins and use the Stellar XLM platform (just as Kinesis):

Announced Monday, six international banks have signed letters of intent to issue stablecoins, or tokens backed by fiat currency, on World Wire, an IBM payment network that uses the Stellar public blockchain. The network promises to let regulated institutions move value across borders – remittances or foreign exchange – more quickly and cheaply than the legacy correspondent banking system.  So far three of the banks have been identified – Philippines-based RCBC, Brazil’s Banco Bradesco, and Bank Busan of South Korea – the rest, which are soon to be named, will offer digital versions of euros and Indonesian rupiah, “pending regulatory approvals and other reviews,” IBM said.

Clearly, Crypto is not just a fad – it’s changing the underlying architecture of the global financial system.  But this is something that’s been happening over a long time frame.  Crypto is a technology, not a form of money.  But that technology was utilized in the ultimate use case to be a form of money in a Crypto currency. 

As explained in Splitting Bits, the US Dollar has been used and traded electronically since the 1990s.  So the idea of electronic currency is nothing new.  What’s new is currencies are no longer created exclusively by central banks.  Now many new currencies are being created almost on a daily basis.  Many of them will fail, but the ones that survive the test of the markets, may be the next G8 currencies traded on the Forex market.

To learn more about money, checkout Splitting Pennies - Understanding Forex