How gold-backed cryptocurrencies work ?

HOW STABLESCOINS WORK ?

Trading allows you to buy and sell assets, currencies or stocks. Cryptocurrencies are trading products. However, you must know how they work and their objective to invest correctly. Stablecoins have advantages that other cryptos do not have.

What is a stablecoin ?

Cryptocurrencies are digital assets derived from the blockchain. This computer protocol encrypts exchanges and data. You therefore need an encryption tool and a decryption key to acquire virtual currency. The advantage lies in the fluidity and speed of exchanges between people.

However, the currencies resulting from this system are not indexed to any tangible asset. The volatility of these cryptos is based on speculation and usage. Stablecoins, on the other hand, are based on real property. Unlike standard cryptocurrencies, the stablecoin follows the price of an asset. Thus, there are stablecoins which transcribe the American dollar, the euro or even the yen, indices or assets.

The value of stablecoins is guaranteed by:

• Silver, physical gold, and other tangible products;
• Cryptocurrencies.

Gold-backed stablecoins

Gold-backed stablecoins are the digital equivalent of a specified quantity of gold held by the company issuing the coin. Thus, investors can buy stablecoins according to the price of gold. The advantage lies in the simplicity of purchase and ownership. In fact, it is the company that manages the storage and not the investor.

In addition, resale is made easier, because the corners can be split. You can have the equivalent of a gold bar in stablecoin and split it to sell it better, which is impossible with a real bar. In fact, a gold stablecoin can therefore be the equivalent of one gram of gold, one troy ounce of gold or 100 grams. This value depends on the transmitter. However, some companies require a minimum initial purchase amount, which can vary from a few dollars to several dozen.

How to buy, sell and hold a gold-backed stablecoin

The purchase and sale of stablecoin is done via trading platforms. Once registered, you can deposit a certain amount of money with which you will buy coins, Pax Gold or Tether Gold for example. The diversity of platforms allows you to choose one that meets your needs and expectations. Indeed, not all structures offer all of the hundreds of corners.

You should pay attention to the safekeeping of your stablecoin. Indeed, like any digital transaction, you can be hacked. This is why it is advisable to secure your purchase of stablecoins, as well as your entire crypto portfolio, by opting for digital, online, disk or specific key safe solutions.

SHOULD WE INVEST ?

Investment in stablecoin corresponds to the indirect purchase of backed currencies. The part of purchasing cryptocurrency must be part of an investment and diversification objective.

Stability and security

Gold-backed stablecoins guarantee long-term security and stability. Indeed, the price of gold is regular, and plays a protective role against inflation. Unlike bitcoin BTC, stablecoins do not have high volatility. Furthermore, the price of gold does not depend on any market capitalization, which guarantees it complete autonomy. In fact, it is a way to limit the risk of loss in the event of an economic and financial crisis. Gold-backed stablecoins therefore have the same properties as physical gold, without having the main disadvantage: storage.

A way to diversify your investments

Financial investments require a minimum of knowledge and know-how. So, even if you have the possibility of creating an asset portfolio yourself, the crypto market contains subtleties. The advice of a wealth management professional can be useful to avoid certain pitfalls. Furthermore, an expert is able to tell you which crypto to choose, based on their needs and objectives.

Thus, your portfolio can include stablecoins to diversify your cryptocurrency wallet, already composed of bitcoin or raw materials.

RISKS ?

The main risk arises from the loss or theft of your wallet. In this case, you lose your entire investment, because it is impossible to recover the code which allows you to make sales and purchases on the exchange platforms.

On the other hand, stablecoins that are not backed by gold face the same risks as the original assets. If the US dollar falls, the corresponding stablecoin follows. There is therefore a risk of capital loss. In the case of bitcoin, the risk lies in market confidence in BTC. If investors sell en masse, the price collapses, and vice versa.

The risk of trading cryptocurrencies also lies in understanding the blockchain. Indeed, most active cryptos are based on real-world uses. The company developing the product may make the same mistakes as every other company, causing the value of the crypto to fall.