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From Bullion to Blockchain: The Evolution of Gold through Tokenization

Updated Dec 28 2023
7 Min
mr slava
Nick Patel
CEO & Founder at Clinq.Gold, Bank of Bullion | Keynote Speaker

Gold has been admired as a precious metal and a store of value since time immemorial. Golden accessories were a sign of status and wealth, while golden coins were the most stable and widely accepted currencies for commodity exchange. 

The tradition of appreciating the rare yellow metal is still relevant in the 21st century, with many investors flocking to gold investments for predictable, long-term profits. However, times are changing, and the digital era gives new opportunities for benefitting from gold as an investment. Now, you don’t necessarily need to go to a bank and buy a gold bar; there are many other options for partaking in gold investments without the headache of organizing safe storage. 

Gold Going Digital 

While mass access to gold has never been restricted around the world, buying bullion gold or gold bars was illegal or constrained in many jurisdictions for a long time. That’s why gold investments became largely possible through gold proxies in the stock exchange market, such as shares of gold mining companies, gold ETFs, and other financial instruments tracking the price of gold. The major problem with these assets is that they don’t represent gold per se, and most of them are not even collateralized with gold. 

Next-Level Digitalization: Gold-Backed Tokens 

As the process of digitization accelerated at the start of the 21st century, cryptocurrencies took the world by storm. This new form of money and investment assets, backed by blockchain, offered a brand-new way of transacting, investing, and storing money. 

Gold-backed tokens emerged within this new niche as a new form of the good old gold; the philosophy behind gold-backed cryptocurrencies is a tokenized asset equaling a specific measure of physical gold stored by the project’s owners as tokens’ collateral. 

Once gold-backed tokens entered the cryptocurrency market, they attracted the attention of many tech-savvy, forward-looking investors. Unlike other cryptocurrencies with mind-wrecking volatility, gold-backed tokens are stable in price, as they are pegged to gold. Therefore, they offer a healthy balance of innovative technology, impressive liquidity, and price stability that other cryptocurrencies don’t offer. 

Yet, cautious investors should also be aware of the risks inherent in blockchain-based currencies of any kind. First, it is the absence of regulatory bodies that would offer investor protection or third-party regulation in case something goes wrong. Second, there is still a high risk of exploits, hacks, or breaches of online wallets and cryptocurrency exchanges where you may be storing your gold tokens. 

Which Type of Gold Investment Is Better? A Cross-Factor Comparison 

Upon a closer look at all forms of gold ownership available today, you may naturally have a question – which one is safer and more convenient for investors? There is no evident answer to this question, as each form of gold fits a specific set of priorities different investors have for their assets.

#1 Liquidity 

Digital and tokenized gold definitely wins the battle when it comes to liquidity. The best thing about digital forms of gold assets is the balance of operational efficiency and stable price pegged to one ounce or gram of gold. Therefore, short-term investors preferring to stay flexible with their investments and preserve an opportunity to exchange them for fiat money at any moment should definitely choose digital gold and gold tokens. Selling and buying physical gold is a slow, problematic process in most jurisdictions.  

#2 Storage Overheads 

Those wishing to park their money for a short period in gold assets will surely rely on digital or tokenized gold variants. It’s a more convenient and cost-effective option because storing bullion gold is a real headache you may want to avoid by all means. If your bullion gold property is extensive, it is worth the hassle of renting a protected bank deposit box or organizing secure storage at home. In all other cases, it’s not worth bothering with physical storage, as it will eat all your profits. 

#3 Safety 

Digital and tokenized gold are both highly safe and reliable in technical terms; they are backed by robust and rigorously protected technologies that prevent fraud, asset duplication, or theft by hackers. However, risk-averse investors planning for many years usually choose physical gold as a tangible commodity that won’t be hacked or lose relevance because of tech flaws.  

#4 Long-Term vs. Short-Term 

The investment horizon is also a decisive factor when choosing between digital and physical gold. As modern technologies evolve and quickly become outdated, you may consider bullion gold as a secure investment option in the long run. However, with the present-day hype around digitization and blockchain, gold tokens seem to offer a much better ROI in the short term. 

Now Is Good 

As you can see, gold offers a variety of options for investors depending on their tech-savviness and tolerance risks. Regardless of the variant you choose – bullion gold, classical gold ETFs and shares of gold mining companies, digital gold, or gold-backed tokens – your investment is sure to pay off with good dividends in the long run. The moment for gold investment is undoubtedly good, as the global economic and political tension rises, and investors lose their trust in USD and American treasury bonds. Thus, the time is again ripe for gold – a time-tested, safe haven for investors of all kinds. 

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