In my personal life, the example of tokenizing gold is one that I use commonly as a very simple use-case for friends and family to see how blockchain is solving real-world problems. I initially had meant to write this as a general overview of Tokenization but I think that gold warrants its own post.<\/p>\n\n\n\n
Major Issues in Buying Gold<\/strong><\/h2>\n\n\n\nInflation <\/strong>is over 8% <\/strong>in the U.S., and the USD is one of the strongest currencies in the world. Countless other worldwide countries have much worse currencies, such as Argentina where it\u2019s expected to hit 70% soon.<\/strong><\/p>\n\n\n\nGold has been valued throughout human history as is a popular hedge against inflation due to its limited scarcity, extraction difficulty, beauty, malleable properties, and general agreement as to it being valuable.<\/p>\n\n\n\n
That being said, significant issues exist in purchasing it which I\u2019ll review prior to explaining how tokenization of gold would work in practice.<\/p>\n\n\n\n
Greater Security<\/strong><\/h3>\n\n\n\nGold can be stolen in shipment or from one\u2019s place of safekeeping. Just a few weeks ago a story came out of police being involved in the theft of $400M of gold.<\/a><\/p>\n\n\n\nDigital gold uses blockchain security to safely purchase it from one\u2019s home.<\/p>\n\n\n\n
Intermediary Costs<\/strong><\/h3>\n\n\n\nUsually ~5% but it\u2019s many times higher as well. I\u2019ll demonstrate below, starting off by showing Bullion Vault\u2019s gold price of $1,695<\/a> on October 7th, 2022.<\/p>\n\n\n\n![\"\"\/](\"https:\/\/miro.medium.com\/v2\/resize:fit:1400\/1*AqYRz9V93EV4r9PC65euCQ.png\")
Official Gold Price on Oct 7th: $1,695 per Oz<\/figcaption><\/figure>\n\n\n\nFrom MoneyMetals.com<\/a>, their gold price is $1,702 per Oz and yet they charge $1,855 per 1 Oz coin, an upcharge of nearly 10%.<\/p>\n\n\n\n![\"\"\/](\"https:\/\/miro.medium.com\/v2\/resize:fit:1400\/1*BzgwWKmhzSHFVfBzbSLSZA.png\")
A 9.9% margin on buying a gold coin<\/figcaption><\/figure>\n\n\n\nGreater Liquidity<\/strong><\/h3>\n\n\n\nBuying and selling physical gold incurs liquidity issues for reasons such as restricting purchasing to geographical regions.<\/p>\n\n\n\n
Purchasing gold-tokens enables global liquidity for more efficient markets.<\/p>\n\n\n\n
Near Instantaneous<\/strong><\/h3>\n\n\n\nAnyone, anywhere, can instantaneously invest in gold through the blockchain. They\u2019d generally be required to pass KYC which could be an issue for some users, but in the future it\u2019s hoped that blockchain will help establish identities and banking information.<\/p>\n\n\n\n
Right now, buying physical gold takes 3\u201310 days to ship.<\/p>\n\n\n\n
Fractionalization<\/h3>\n\n\n\n
Physical gold generally only be purchased in significant values such as 1\/4 Oz which is out of reach for many users globally who could benefit the most from investing in gold. Through gold-backed tokens, they would be able to invest in any fraction of their desire while incurring minimal fees (unless using Ethereum\u2026.).<\/p>\n\n\n\n
Gold ETF\u2019s<\/h2>\n\n\n\n
Other solutions exist such as a gold ETF which are good enough for many investors, despite the 0.4% \u2014 0.8% expense ratios and trade fees that are usually less than 10$.<\/p>\n\n\n\n
There are also some other challenges such as not enabling fractionalization to the same extent as blockchain technologies, thereby forcing users to purchase minimum amounts of it.<\/p>\n\n\n\n
The bigger issue is that they are out of reach for billions worldwide, including 1.7 billion unbanked users<\/a>.<\/p>\n\n\n\nGold Tokenization In Practice<\/h2>\n\n\n\n
Gold has been valued throughout human history as is a popular hedge against inflation due to its limited scarcity, extraction difficulty, beauty, malleable properties, and general agreement as to it being valuable.<\/p>\n\n\n\n
That being said, significant issues exist in purchasing it which I\u2019ll review prior to explaining how tokenization of gold would work in practice.<\/p>\n\n\n\n
Greater Security<\/strong><\/h3>\n\n\n\nGold can be stolen in shipment or from one\u2019s place of safekeeping. Just a few weeks ago a story came out of police being involved in the theft of $400M of gold.<\/a><\/p>\n\n\n\nDigital gold uses blockchain security to safely purchase it from one\u2019s home.<\/p>\n\n\n\n
Intermediary Costs<\/strong><\/h3>\n\n\n\nUsually ~5% but it\u2019s many times higher as well. I\u2019ll demonstrate below, starting off by showing Bullion Vault\u2019s gold price of $1,695<\/a> on October 7th, 2022.<\/p>\n\n\n\nOfficial Gold Price on Oct 7th: $1,695 per Oz<\/figcaption><\/figure>\n\n\n\nFrom MoneyMetals.com<\/a>, their gold price is $1,702 per Oz and yet they charge $1,855 per 1 Oz coin, an upcharge of nearly 10%.<\/p>\n\n\n\nA 9.9% margin on buying a gold coin<\/figcaption><\/figure>\n\n\n\nGreater Liquidity<\/strong><\/h3>\n\n\n\nBuying and selling physical gold incurs liquidity issues for reasons such as restricting purchasing to geographical regions.<\/p>\n\n\n\n
Purchasing gold-tokens enables global liquidity for more efficient markets.<\/p>\n\n\n\n
Near Instantaneous<\/strong><\/h3>\n\n\n\nAnyone, anywhere, can instantaneously invest in gold through the blockchain. They\u2019d generally be required to pass KYC which could be an issue for some users, but in the future it\u2019s hoped that blockchain will help establish identities and banking information.<\/p>\n\n\n\n
Right now, buying physical gold takes 3\u201310 days to ship.<\/p>\n\n\n\n
Fractionalization<\/h3>\n\n\n\n
Physical gold generally only be purchased in significant values such as 1\/4 Oz which is out of reach for many users globally who could benefit the most from investing in gold. Through gold-backed tokens, they would be able to invest in any fraction of their desire while incurring minimal fees (unless using Ethereum\u2026.).<\/p>\n\n\n\n
Gold ETF\u2019s<\/h2>\n\n\n\n
Other solutions exist such as a gold ETF which are good enough for many investors, despite the 0.4% \u2014 0.8% expense ratios and trade fees that are usually less than 10$.<\/p>\n\n\n\n
There are also some other challenges such as not enabling fractionalization to the same extent as blockchain technologies, thereby forcing users to purchase minimum amounts of it.<\/p>\n\n\n\n
The bigger issue is that they are out of reach for billions worldwide, including 1.7 billion unbanked users<\/a>.<\/p>\n\n\n\nGold Tokenization In Practice<\/h2>\n\n\n\n
Digital gold uses blockchain security to safely purchase it from one\u2019s home.<\/p>\n\n\n\n
Intermediary Costs<\/strong><\/h3>\n\n\n\nUsually ~5% but it\u2019s many times higher as well. I\u2019ll demonstrate below, starting off by showing Bullion Vault\u2019s gold price of $1,695<\/a> on October 7th, 2022.<\/p>\n\n\n\nOfficial Gold Price on Oct 7th: $1,695 per Oz<\/figcaption><\/figure>\n\n\n\nFrom MoneyMetals.com<\/a>, their gold price is $1,702 per Oz and yet they charge $1,855 per 1 Oz coin, an upcharge of nearly 10%.<\/p>\n\n\n\nA 9.9% margin on buying a gold coin<\/figcaption><\/figure>\n\n\n\nGreater Liquidity<\/strong><\/h3>\n\n\n\nBuying and selling physical gold incurs liquidity issues for reasons such as restricting purchasing to geographical regions.<\/p>\n\n\n\n
Purchasing gold-tokens enables global liquidity for more efficient markets.<\/p>\n\n\n\n
Near Instantaneous<\/strong><\/h3>\n\n\n\nAnyone, anywhere, can instantaneously invest in gold through the blockchain. They\u2019d generally be required to pass KYC which could be an issue for some users, but in the future it\u2019s hoped that blockchain will help establish identities and banking information.<\/p>\n\n\n\n
Right now, buying physical gold takes 3\u201310 days to ship.<\/p>\n\n\n\n
Fractionalization<\/h3>\n\n\n\n
Physical gold generally only be purchased in significant values such as 1\/4 Oz which is out of reach for many users globally who could benefit the most from investing in gold. Through gold-backed tokens, they would be able to invest in any fraction of their desire while incurring minimal fees (unless using Ethereum\u2026.).<\/p>\n\n\n\n
Gold ETF\u2019s<\/h2>\n\n\n\n
Other solutions exist such as a gold ETF which are good enough for many investors, despite the 0.4% \u2014 0.8% expense ratios and trade fees that are usually less than 10$.<\/p>\n\n\n\n
There are also some other challenges such as not enabling fractionalization to the same extent as blockchain technologies, thereby forcing users to purchase minimum amounts of it.<\/p>\n\n\n\n
The bigger issue is that they are out of reach for billions worldwide, including 1.7 billion unbanked users<\/a>.<\/p>\n\n\n\nGold Tokenization In Practice<\/h2>\n\n\n\n
From MoneyMetals.com<\/a>, their gold price is $1,702 per Oz and yet they charge $1,855 per 1 Oz coin, an upcharge of nearly 10%.<\/p>\n\n\n\n Buying and selling physical gold incurs liquidity issues for reasons such as restricting purchasing to geographical regions.<\/p>\n\n\n\n Purchasing gold-tokens enables global liquidity for more efficient markets.<\/p>\n\n\n\n Anyone, anywhere, can instantaneously invest in gold through the blockchain. They\u2019d generally be required to pass KYC which could be an issue for some users, but in the future it\u2019s hoped that blockchain will help establish identities and banking information.<\/p>\n\n\n\n Right now, buying physical gold takes 3\u201310 days to ship.<\/p>\n\n\n\n Physical gold generally only be purchased in significant values such as 1\/4 Oz which is out of reach for many users globally who could benefit the most from investing in gold. Through gold-backed tokens, they would be able to invest in any fraction of their desire while incurring minimal fees (unless using Ethereum\u2026.).<\/p>\n\n\n\n Other solutions exist such as a gold ETF which are good enough for many investors, despite the 0.4% \u2014 0.8% expense ratios and trade fees that are usually less than 10$.<\/p>\n\n\n\n There are also some other challenges such as not enabling fractionalization to the same extent as blockchain technologies, thereby forcing users to purchase minimum amounts of it.<\/p>\n\n\n\n The bigger issue is that they are out of reach for billions worldwide, including 1.7 billion unbanked users<\/a>.<\/p>\n\n\n\nGreater Liquidity<\/strong><\/h3>\n\n\n\n
Near Instantaneous<\/strong><\/h3>\n\n\n\n
Fractionalization<\/h3>\n\n\n\n
Gold ETF\u2019s<\/h2>\n\n\n\n
Gold Tokenization In Practice<\/h2>\n\n\n\n