2016 marks an exciting year for investors eager to own and transact gold in the digital economy. Technological advances are setting the table for tectonic shifts in the way we transact online.
With combined daily transaction volume of approximately $21 million USD and combined assets in excess of $42 million USD, digital assets such as SPDR Gold Shares ETF (GLD) and iShares Gold Trust ETF (IAU) are currently among the most popular options for mainstream investors holding and trading digital gold.
Though backed by physical gold, ETF shares don't represent a specifically identifiable gold bar or coin, rather they represent a share in a large amount of gold bullion held in trust. Constant arbitration on the open market ensures the ETF share price stays in line with the value of the underlying holdings.
Until recently, if an investor wanted to use gold ETF holdings to purchase goods and services online, the investor must first liquidate the ETF position for digital cash before spending the funds. In other words, it isn't possible to purchase a book on Amazon with GLD shares. This demonstrates gold's historic inability to function as a digital currency in the online marketplace.
In comparison, the Digix Proof of Asset (PoA) protocol is the first to successfully 'tokenize' gold bullion on the Ethereum blockchain utilizing the Inter Planetary File System (IPFS). 'Tokenization' is the process of securely storing pertinent asset information onto a unalterable public ledger. That 'token' can than be traded in trust-less peer-to-peer markets. Once a PoA Asset Card representing a specific gold bar is created via the PoA Verification Process, the Minter Smart Contract can be utilized to parse the PoA Asset Card into Digix tokens (DGX). Each DGX represents 1g of specifically-identifiable physical bullion. These DGX tokens can be converted back to PoA Asset Cards via the Recaster smart contract at any time.
With the Digix platform live, now is an opportune time for gold investors to tokenize their bullion holdings via the Digix Proof of Asset (PoA) protocol. As DGX tokens gain traction as a digital store-of-value and online collateral, the tokens may trade at a premium to physical gold prices.
We believe this premium would be justifiable and could represent the market's desire for physical bullion's registration & audit via the Digix PoA Verification Process. As a global DGX market develops, investors could potentially profit from purchasing gold bullion and minting DGX to sell on the open market, increasing DGX supply and the value of the DigixDAO platform.
For a detailed outline of the Digix platform and it's smart contract processes, please see the Digix WhitePaper.
Tyler Logsdon is a CPA and Registered Securities Representative located in Newport Beach, California. He is actively employed in the blockchain industry.
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