How this blockchain startup is trying to address cryptocurrency issues with gold

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Cryptocurrencies have been the talk of the tech world in recent years, as bitcoin reaches new heights and hundreds of alternative coins, known as altcoins, continue to receive sky-high valuations. Even so, bitcoin and its contemporaries are bogged down by one major issue: their value is still mostly speculative. Despite people making inroads to turn cryptocurrencies into a mainstream financial tool, their valuations are still driven largely by investor sentiment and major news events.

See also: State of the blockchain: Bitcoin climbs on despite Chinese resistance

Until now, there hasn’t been a real solution to this volatility conundrum. While bitcoin and the blockchain that supports it could be a potentially game-changing technology, institutional investors will remain wary until it can prove its real value. However, a new company is banking on being able to change that with a simple fix: tying their new cryptocurrency to the value of gold.

Gold has always been one of the safest investments in times of doubt. Although the metal doesn’t appreciate like equities or even money in a savings account, it retains value exceptionally well. Even after the dollar was unpegged from gold, the precious metal remains a favorite of risk-averse investors, thanks to its low volatility.

Now, a new platform, GoldMint, is looking to merge the excitement for cryptocurrencies with the reliability of gold.

The rise of asset-backed coins

Instead of deriving value from speculation and sentiment, GoldMint is creating a stable and transparent way to price their coins. The company is pegging the value of their tokens called GOLD to the precious metal itself. To do so, they have created a logistics system that lets customers trade in their precious metal, which is objectively valued, and receive an equivalent amount of GOLD in return. This sets it apart from other cryptocurrencies and means that its underlying architecture must be different.

GoldMint, which is currently running its ICO, is using the blockchain technology Graphene. It is necessary to employ a unique blockchain for this project because the basic concept of using a physical asset is entirely foreign to bitcoin. While bitcoin’s chain requires users to show their proof-of-work to profitably participate (this is called mining), gold cannot be created with spare processor power. The Graphene blockchain allows miners to run the network and receive commission from users who transact in GOLD in the form of a different administrative token called MNT.

The use of the Graphene blockchain architecture also gives GOLD security advantages. Because it is open source, the company can implement a series of tools and enhance security. Moreover, it is a proven ecosystem, as several other financial systems use its underlying infrastructure.

How gold is turned into GOLD

GoldMint has found a surprisingly simple solution to turn customers’ physical gold into digital tokens—Custody Bot. The hardware is a secure storage system that has a built-in spectrometer. When people put their physical gold into the bot, it will automatically weigh and grade the metal and transmit the value to GoldMint’s systems. Users will then receive their equivalent value in GOLD tokens. The value is derived from the LBMA (London Bullion Market Association) fixed price.

The best part of this system is that the Custody Bot itself can be widely available, as it is essentially a secure vending machine. Customers can find any location that hosts a bot and walk away with GOLD instantly, instead of having to wait days for transactions to complete. They can then use the proceeds from their ring, for instance, to purchase other things.

As of now, the company is aiming to target access to 1 percent of the world’s gold circulation by installing it in pawnshops around the world. The eventual goal is to offer this service in more locations such as shopping centers.

Once in their digital wallet, token holders can use them to pay for any service that accepts the cryptocurrency. The company is already offering an API to companies and merchants to expand the network’s range.

Revolutionizing the gold market

Greater blockchain adoption within precious metal activities means that GoldMint is not without competition. Firms vie to increase transparency and improve price discovery in a market that regularly experiences approximately US$27 billion in daily turnover. GoldMint will face challenges from companies like Royal Mint Gold and TradeWind, which are working to lower the costs of trading and storage for gold-backed crypto-assets.

Can GOLD work in the crypto-market?