What first comes to your mind when you think of gold? Do you picture a vault with gold bars piled one on top of the other, or a plethora of gold coins and jewelry? Do you picture a blockchain with digital gold transactions there? To each their own, but the question of whether owning digital gold is the same as having a physical one bothers many investors.
So, let’s discuss the pros and cons of investing in physical gold as well as digital gold.
While blockchain can account for the security shield for the cryptocurrency backed by gold, the security of the physical gold is still doubtful. There are three ways to store your physical gold: keep it at home, use a bank’s safe deposit box, or use the service of a third-party storage firm. Keeping your gold at home poses the greatest security risk of robbery or some natural disaster.
Though using a bank’s safe deposit box or relying on a third-party service is safer than keeping physical gold at home, it is for sure a more costly option than storing digital gold on the blockchain. Also, there is a matter of insurance and access. The bank doesn’t insure the safe deposit box’s contents. The option may be to buy separate insurance, which can be quite expensive and difficult to get. The last option for storing gold is using a private firm, called a depository. This is the most expensive option for storing physical gold, which is still not the safest one. For example, in case of the company’s bankruptcy or failure, you’ll lose all your gold.
Obviously, buying physical gold is not as easy as going to the nearest supermarket and ordering some grams of gold. Purchasing physical gold comes with a higher cost that emerges from production, shipment, and storage costs. On the other hand, if you decide to buy digital gold, it lets you buy and store your bullion with the guaranteed transparency of immutable distributed ledgers like the blockchain.
Another problem with storing physical gold, especially at home, is the illiquidity factor. It’s quite a bother to return physical gold to dealers every time you want to make it liquid. Dealers sometimes may need to refine it before accepting, which is quite costly and time-consuming. On the other hand, trading your gold-backed digital gold is much easier. For instance, Novem Gold’s NNN token integrates blockchain technology to the gold trade. Thus, it re-invents the gold trade by eliminating inefficiencies of the traditional gold warehousing companies. Having digitally linked ownership to your physical gold makes it easy to trade with anyone even through your mobile without having to deal with security and transportation issues.
To conclude, owning digital gold is still a better option than having physical gold. It is a borderless global currency system, free from manipulations and exchange rate variation. Digital gold-backed tokens bypass the banking system and allow investors to freely trade worldwide without touching physical gold. Apart from that, digital gold eliminates the friction involved storing, holding or transferring the physical gold. Utilizing blockchain, digital gold offers protection against risks and frauds.