A 1,000+ Year Old Idea is the Latest Cryptocurrency Trend – Silver Doctors

Why not simply personal bodily gold?

by Simon Black of Sovereign Man

Within the 12 months 1120, a French noble named Hugh of Payns took up residence in a former mosque on the Temple Mount in Jerusalem together with his brotherhood of knights.

The palace was a present from King Baldwin II, who dominated the Kingdom of Jerusalem, carved from lands conquered by the Catholics within the First Campaign twenty years earlier.

Hugh of Payns’ brotherhood would turn out to be an elite power of warrior monks sworn to defend the Holy Land. And since their first headquarters was known as the Temple of Solomon, they turned often known as the Knights Templar.

Increasing all through Europe and the Center East, the Knights Templar’s castles and convents turned recognized for impenetrable safety. Together with the order’s repute for honesty accountability, this made these fortresses the proper place to deal with valuables reminiscent of necessary paperwork, jewels, and gold.

By 1150, a Second Campaign was underway, and Catholic knights had been swarming into the Holy Land to struggle the Seljuk Turks.

Wars are costly, and the crusaders wanted to carry the wealth to fund their campaigns.

However that posed an issue. The journey to the Jerusalem was lengthy and unsure, and carrying huge treasures made crusaders a goal of thieves.

So the Knights Templar created an answer. Crusaders might deposit their gold in a Templar fortress close to house, and obtain a letter of credit score. This letter of credit score was good to withdraw the identical quantity of gold at another Templar department.

And to safe their letters of credit score towards forgery, the Knights Templar developed a coded writing which might solely be deciphered by different Knights Templar.

These encrypted, gold-backed letters of credit score had been primarily a really early type of gold tokenization.

At present there are greater than 100 gold-backed digital tokens within the market… although the cryptography used to encrypt the tokens is considerably extra advanced than what the Knights Templar used.

However the concept is principally the identical— every token distributed represents a set quantity of gold held in a vault.

It’s price asking the query— why not simply personal bodily gold?

Proudly owning gold can definitely make lots of sense. Bodily gold has lengthy been a superb hedge towards main systemic dangers. And, extra related to right now’s market surroundings, gold is closely undercorrelated to different main asset lessons.

In different phrases, there’s little or no correlation between the value of gold and, say, the efficiency of the US inventory market. Or the bond market. And even your entire US economic system.

This makes gold a superb option to diversify an funding portfolio, particularly in a time when there’s a lot uncertainty out there.

Proudly owning bodily gold, i.e. precise bars and cash which you can maintain in your hand, as a substitute of an ETF or mutual fund, means which you can entry your gold everytime you want it.

And in the event you retailer it at house, you turn out to be your individual custodian. There’s no banker, dealer, or another center man standing between you and your belongings. And this can be a fairly highly effective feeling.

You may additionally select to retailer gold in a personal, safe vault. And there are a number of corporations (together with distinguished safety corporations) who will gladly cost you a payment in alternate for safeguarding your gold.

It is a nice option to have peace of thoughts concerning the security and safety of your gold. And if you choose a storage facility that’s exterior of your property nation, you’ll obtain some asset safety profit as nicely.

However handing your gold over to a different firm does introduce some counterparty threat; in contrast to storing gold in your house, utilizing a safe storage firm means that there’s somebody standing between you and your asset. So clearly there must be lots of belief and transparency for that relationship to work.

Equally, it’s also possible to select to personal gold by way of numerous monetary devices, like ETFs or futures contracts. However these devices imply that there’s a dealer or banker concerned. YOU don’t really personal the asset. They do. And that relationship additionally requires a substantial amount of belief to work.

Including ‘tokenization’ to gold possession provides much more layers of complexity and threat.

First, it’s a must to belief that the group issuing the tokens really has the bodily gold to again it up.

(We’ve seen this belief violated lately with some stablecoins that had been supposedly backed by US {dollars}… after which it turned out they didn’t have as many US {dollars} as promised.)

Second, that you must have the arrogance that another person is prepared and capable of settle for your tokens, and to alternate your tokens for actual gold when the time involves redeem it.

Then there are dangers related to the token itself.

For instance, was the code correctly designed? Are there any safety holes that may be exploited by hackers? Can the underlying distributed ledger know-how (like blockchain) be compromised? Will a securities regulator just like the SEC ban the token, or deem it a ‘monetary safety’ topic to a laundry checklist of laws? Will there be loopy tax implications?

As you’ll be able to see, the additional away you get from being your individual custodian, the extra dangers and complexities are launched.

After all there are gold-backed tokens which have been audited to point out that the gold backing them actually does exist. And there are tokens with an open-source code which might be verified and examined.

But it surely’s additionally price asking— do you even want tokenized gold?

The Knights Templar got here up with their proto-tokenization concept greater than 1,000 years in the past to unravel a really particular want: eliminating the necessity for Crusaders to move massive quantities of gold.

Equally, right now’s gold tokens additionally resolve a selected want. They make it simpler for individuals to transact with each other, in gold.

However hardly anybody transacts with each other in gold. Or crypto for that matter. Few individuals purchase their groceries with an English sovereign gold coin, or with Bitcoin.

However similar to the Knights Templar’s encrypted letters, gold tokens make it very straightforward to move gold throughout borders. (There’s additionally some nice privateness and asset safety advantages as nicely).

Let’s say you might be transferring abroad and wish to carry your bodily gold with you. Most definitely you wouldn’t wish to pack a kilo of gold, about 32 troy ounces, in your carry-on.

To hold about $55,000 price of gold is dangerous— you can be robbed, misplace your bag, or run into hassle with customs officers.

You may ship gold by way of an organization like Brinks or Through Mat. However transport charges are outrageous, and the insurance coverage can also be costly.

However, you can deposit your kilo of gold in a vault in Texas, obtain gold-backed tokens, and redeem the tokens in Europe for a similar quantity of bodily gold.

There are just a few tokens that do that.

For instance, the identical firm that points the stablecoin Tether (which is pegged to the US greenback) additionally points Tether Gold. And every Tether Gold token is pegged to 1 troy ounce of gold.

Tether Gold might be redeemed for bodily gold, however there are restrictions. First, the minimal buy quantity is 50 tokens, i.e. 50 troy ounces. That’s almost $100,000. And also you would possibly have to redeem 430 troy ounces with a view to alternate your tokens for gold— almost $750,000.

The most important restriction, based on the mission’s web site, is that that you must take bodily supply in Switzerland.

One other mission referred to as CACHE Gold Tokens (CGT) pegs its tokens to 1 gram of gold. That is extra handy since a gram is a lot smaller than a troy ounce.

The CACHE tokens might be redeemed for bodily gold at three vault areas— in Dallas, Switzerland, and Singapore.

The corporate is wanting so as to add extra areas; a community which might show to be a helpful various to bodily gold transportation throughout oceans and borders.

It’s positively price understanding extra about gold tokens— there are definitely downsides, like the extra counterparty threat. However there’s loads of upside as nicely, together with privateness and asset safety advantages.

Just lately we despatched our premium subscribers some nice analysis about gold-backed tokens, and in the event you’re a member I’d encourage you to return and browse that report.

In case your’e not presently a member, you’ll be able to get hold of entry to that report, together with our full library of analysis in your Plan B, by becoming a member of Sovereign Man: Confidential right now.