- PAX gold is a digital representative of physical gold, where one token equals one ounce of London Good Delivery Gold bar
- These tokens are based on ERC-20 and the transactions are executed through smart contracts
Gold is a scarce, malleable, chemically stable, non-corrodible, beautiful, and universally acclaimed precious metal. Greeks were the first known civilization to make gold coins and use them for commerce more than 2500 years ago. Since then, it has become a storehouse of value across geographies and generations. Great Britain, in 1717, created the Gold Standard followed by the US which adopted the Gold-Silver standard in 1792, which backed their currency with a fixed amount of gold. However, during the world wars, there was rough money turbulence around the world caused due to financing the war and bearing the expenses. Thus in 1971, the US dollar removed itself from gold and declared itself as a fiat currency backed by the government instead of an asset.
The dollar has since then lost 98% of its value, with other fiat currencies around the globe losing even more, but gold has increased its value over time. Back in 1971, the average closing price of gold was $40.8 compared to $1934.71 in 2023, the data from Macrotrends says. Gold became an asset class with unique market dynamics and appears as a good long-term investment plan in investor portfolios throughout the world.
The Gold Market Present Now
Presently most of the processes involved with gold like buying, selling, keeping collateral, or transferring are manual, non-transparent, and outdated. This comes as a shock given the rise of digital money and more transparent and efficient methods replacing traditional methods. The primary reasons can be attributed to the size and weight of physical gold bars, which makes them costly to store and transport. Moreover, most of the gold is not easily accessible and is restricted to long-time investors only.
People now buy or invest in gold through OTC, ETFs, futures, or gold outlets. These methods somewhat limit the challenges of physical gold but still, each instrument has problems of its own. For instance, renewing a futures contract which expires every 3 months, could be expensive and risky for naive investors. The ounces or grams of gold people buy from their local outlet, do not guarantees its purity.
What Is PAX Gold?
PAX Gold is a digital token, a digitized version of real gold, with each token representing one fine troy ounce of a London Good Delivery gold bar. These bars are of the highest quality and accredited by the London Bullion Market Association and are kept in the safest vaults in the world. Each bar is serialized and its ownership can be divided up to 18 decimal points. If a customer has enough tokens to represent a whole bar, they can claim a bar at any time.
These tokens are based on ERC-20 and can be used across the wide network of Ethereum’s dApps, wallets, and exchanges. All transactions are carried out on the Ethereum public using smart contracts and similar to other cryptocurrencies, can be carried out 24*7. Some key features of PAX Gold are as follows:
- Users can visit the Paxos website and enter their Ethereum address with PAX Gold tokens to learn about the serial number of their gold bar. Users can convert their tokens to real gold, fiat currency, or other cryptocurrencies through exchanges. Paxos has a network of gold retailers too, which allows you to acquire a small amount of gold through your tokens.
- Paxos doesn’t charge any storage fees, just the gas fees over the Ethereum network and a little Paxos transaction fee.
- As it runs on a blockchain network, the transfer of ownership can be done instantly, with both parties having an immutable record of transactions stored on the blockchain. This makes trading gold easy and fast.
- The gold bars represented by PAX Gold tokens are kept separately from the company’s assets and during a case of bankruptcy, do not fall under the company’s assets.
Final Thoughts
By including gold on the blockchain, Paxos has made gold ownership democratic, decentralized, and easy for small investors, who want to own some ounces of pure-quality gold. Currently, the PAX Gold runs only on the Ethereum network, but the company is looking forward to including more public blockchains. Bitcoin and Gold have many shared properties like overstepping borders, being universally recognized, and limited quantity. Thus, a large user base of Bitcoin is also likely to buy and support these gold tokens.