Have you ever wondered how the internet actually works? What does a web address signify? Today's internet utilizes HTTP architecture to connect users to websites, recognizable as the http:// heading on every web address. HTTP is a request-response protocol in which a web browser (think Chrome, Firefox, or Internet Explorer) submits a request to the server hosting the website related to the web address submitted. The server then responds with the necessary data to fulfill the request and display the site. HTTP utilizes intermediary network elements to improve response times and fulfill requests during periods of high network volume. Depending on a user's geographic location relative to the hosting server, this request-response connection may be direct, or may involve many servers routing information along the chain.
This client-server approach utilized by the HTTP protocol results in slow downloads, the potential for lost or interrupted connections, and censorship by governments and other network administrators. Computer science entrepreneurs have taken note of these inefficiencies and developed the SAFE network, a decentralized overlay of the Internet based on cryptographically secure consensus among groups of peers. The result is a completely distributed system of authentication and secure storage of data, without any servers, that accomplishes what hitherto had been done only by blockchain technology: secure, global, peer-to-peer consensus. The SAFE network replaces the idea of a single connection chain between requester and server with a web of simultaneous connections between SAFEnet users. This is accomplished by allowing requesters to also act as network servers. Any SAFEnet user can designate extra storage space to the SAFE network and store encrypted caches of network data on their hard drive. This encrypted data is parsed between multiple locations and can't be accessed directly by individual users. A complex algorithm allocates this web data to the optimal locations and redundantly stores copies across the global network. Since multiple copies of all data exist across the SAFE network, there is zero possibility of downtime or lost/interrupted connections. In addition, accessing sites via a web of simultaneous connections vastly improves download times. The SAFE network is completely free from censorship, empowering users to freely share and access information regardless of citizenship. Beyond vastly improving user experience, the Internet reimagined via the SAFE network will decentralize the web hosting industry. Every-day users will be able to turn extra hardware space into additional income. If a user volunteers storage space to the SAFE network (acting as a server) they are compensated with a small of amount of the network's native crypto-currency (SAFEcoin) every time a request is fulfilled utilizing data stored on their hard drive. In the same fashion, users who host data on the SAFE network pay a fee in SAFEcoin each time their site is accessed. The SAFE network is currently under-going extensive community testing. Updates can be found on the SAFE network forum (https://forum.safenetwork.io). A limited quantity of the network's native crypto-currency, SAFEcoin, was offered via a pre-sale to fund network development and is trading on crypto-currency exchanges under the ticker MAID.
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Many investors, traders, and financial institutions utilize ETFs to gain exposure to gold without truly understanding the product they are purchasing. "Exchange traded fund" is not a legally-defined term in securities law statute. Rather it is a market term individually defined by each fund's binding legal documents. ETF structures are quite complex and are designed by the best lawyers money can buy to benefit the share issuers and limit their liability.
In the case of GLD, the largest gold ETF by daily volume, documents such as the Unallocated Bullion Account Agreement, Participant Agreement, and Trust Indenture Agreement severely restrict investor's claims on the trust's underlying assets and limit the Custodian's legal liability. For instance, the GLD Trust Indenture Agreement states that "the Sponsors, Officers, Directors, Employees and Affiliates of the Trust are indemnified against liability for claims in connection with performance, outside of gross negligence, including securities law liabilities". Essentially, if investors sued to recoup losses in the event of the fund's collapse, any judgement would likely be paid out of the fund's assets, if there were any left. Worse still, the GLD Participant Agreement states "the Authorized Participant (investor) acknowledges that it is an unsecured creditor of the Custodian with respect to the gold held in the Participant Unallocated Account and such gold is at risk in the event of the Custodian's insolvency." Therefore, if there is a major financial crisis in which Custodian or Sponsor banks fail, GLD shareholders would be among the last in line to recoup their investment. We believe this would be news to the majority of GLD shareholders. An in depth analysis of these documents can be found at the following link. http://solari.com/articles/Precious_Metals_Puzzle_Palace/ Beyond the hopelessly complex financial arrangements and legal claims surrounding gold ETF investment, there is an inherent conflict of interest for gold ETF Custodians and Sponsors. Current regulations allow major financial institutions and banks to maintain net short positions in gold futures and derivatives markets while serving as gold ETF Custodians and Sponsors. This means they can "sell" derivatives and future contracts based on the current gold price while purchasing bullion on behalf of gold ETF investors. In our opinion, this goes beyond typical market-making activities as physical gold and financial derivatives based on gold price are not the same asset. Some have alleged price-fixing activities result from this unique financial relationship. In addition, ETF share price is determined by supply and demand on the open market, rather than shares being priced on net asset value per share, as is the case with mutual funds. This increases the potential for price manipulation. Bottomline, if a gold ETF investor believes they own an outright share in physical bullion, they are mistaken. Until recently, gold ETFs were the most convenient option for investors and traders looking to gain exposure to gold prices digitally. However, technological advances now allow for the tokenization of physical assets on the blockchain, a distributed decentralized ledger. DigixGlobal has leveraged these technological advances to create the DGX token, the first crypto-currency with each token backed by 1g of physical gold. Utilizing ethereum smart contracts, DGX tokens can be exchanged for an equivalent quantity of physical bullion and redeemed by investors. For example, an investor who holds 100 DGX tokens can exchange their tokens for an 'asset card' representing a 100g bar of physical bullion, or visa versa. The asset card stores all of the bar's pertinent attributes on the ethereum blockchain, including quarterly audit sign offs, and can be used to redeem gold directly from the custodian. Clearly this new tokenized gold system is superior to gold ETFs, as each DGX token is specifically backed by physical bullion with no underlying legal agreements or contractual liens. Furthermore, the conflicts of interest discussed above are avoided. Put simply, investment in DGX is clean-cut gold ownership. |
AuthorTyler Logsdon is a CPA and Registered Securities Representative located in Newport Beach, California. He is actively employed in the blockchain industry. Categories
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