Since the dawn of man, Gold has been known as a safe haven asset. During the times of the coronavirus, the shiny metal is highly sought after, as investors fear recession and inflation. There is and always has been a big overlap between crypto investors and gold bugs, which now comes to light in their assessment of their governments’ attempts to keep the economy afloat by - once again - printing more money.
With trillions of dollars already being printed in the US alone and the Federal Reserve’s announcement of unlimited quantitative easing, it is no wonder that fans of crypto and gold are unified in their cause now. This has even caused the GoldMoney CEO Roy Sebag to call for an economic society of sound money between the Bitcoin and gold communities.
As it seems, the blockchain community will be all too happy in joining such an economic union, given how gold backed tokens are already a reality and can bring many benefits to investors, compared to gold bullion and certificates.
Recently, Algorand has announced a partnership with the Australian blockchain project Meld. The Brisbane-based startup plans to offer an efficient and transparent to buy physical gold digitally. For this purpose, Meld wants to record the full supply chain history of the physical gold on the Algorand blockchain.
This makes it possible to distribute the storage of gold reserves, rather than relying on a single custodian to vault the reserves, removing any single points of failure. Meld works in cooperation with the Australian gold industry, seeking to establish a partner network consisting of many businesses with varying sizes, including pawn shops, scrap merchants, mints, gold refineries, and vaults.
To cite their press release: “Independent vaults will still hold gold, as will refineries as they receive gold. At each of these points in the supply chain, gold tokens can be minted and recorded. No single entity will hold all of the gold.”
As such, Meld will merely act as a market maker, rather than a centralized custodian, minting and burning tokens depending on market supply and demand. Thus, Meld wants to create a truly decentralized system to buy gold, both digitally and physically through localized gold merchants, or having gold delivered to them on demand.
While this allows gold buyers to tap into a deep partner network throughout the gold supply chain, the partner companies profit from an extension of their product lineup, access to efficient decentralized gold storage, and a reduced exposure to market volatility. Also, this will allow partner companies to trade, transition and store gold without any fees.
Originally built on the Ethereum blockchain, Meld’s prototype will soon be ported to Algorand. As a reason for this step, Meld cites that Algorand is “best suited to connect all the components of the gold market: bringing suppliers, resellers and buyers directly where they want to trade their assets.“
With 1,000 transactions per second and being secured the first ever True Proof of Stake consensus model, Algorand is indeed perfectly suited for the online trading of gold backed tokens, guaranteeing fast transaction times and low fees. On top of that, Algorand offers a rich set of technical layer 1 features, such as standardized assets.
Down the line, this might even lead to fully new business models being built around gold trading. For example, the ability to restrict the transferability of standardized tokens can help with regulatory compliance, which could make it possible for Meld to easily expand to jurisdictions other than Australia. While Meld’s gold backed tokens could be available as soon as Q3 2020, the company plans their international expansion for the next year.