THE BLOCKCHAIN REVOLUTION IN THE MARKET OF GOLD
Gold is a fairly interesting asset to save in. Although it is discriminated in a range of countries, for example, in Russia (with VAT imposed on it), people use it as a saving instrument in many countries.
In Southeast Asia, a widespread tradition is to buy gold as a wedding present for a bride. The greatest demand for gold is characteristic of exactly that region.
But even here certain problems occur. It is simple enough to organize sales of standard bullions weighing a kilogram or more. But in case of retail sales – such of grams or weights less than a gram – traditional technologies incur organizational and technical troubles and, most importantly, high costs.
This is why today new Internet systems allowing to effectively organize retail gold trade appear here and there.
Yet they are all relatively young and often far from perfection. So we get a wish to draw a picture of the perfect retail gold trade system.
Unsophisticated readers would say they already buy products and pay online. As a proof of that, they would set examples of how the price of a coffee they buy gets instantly withdrawn from their card, even far away from their nativeland.
Let us analyze such an example more thoroughly. You have an account in a bank in your country. It is where your money is kept. The cafe has a bank account in another bank in another country. Does the transfer of the money from your bank to the cafe’s one happen instantly? Does the cafe immediately get the money put into its account? Unfortunately, no.
Reasonably, you’re going to say these are not your problems and you are not anyhow interested in how the creaking rotaries of the global banking system work.
The mode you’re charged the cost of the coffee in is called the informational online. There are certain risks of that the account will be empty at the moment of the real money transfer. Let’s say, a bank got bankrupt or your debt was withheld by authorities. There sure may be more reasons why a bank’s client may become insolvent.
This is why a system of reserving monetary funds by banks exists for such cases. Besides, a cross-border payment may be processed for several days, which leads to increases in reserves and costs of transactions. Banks never want to lose their profit and will sure charge their fees to cover all the expenses. Nobody works for losses.
Blockchain is able to ensure operation of the entire global payment system in the physical online. You pay for a coffee and the cafe gets the money put into its account right away. All the risks of failure of payment are avoided, the payment’s cost becomes significantly lower.
Let’s turn back from coffee to gold. Suppose that all the gold traded in the world amounts to 100 trillion dollars. If monetary funds are transferred from a payer to a recipient for a year, the same 100 trillion dollars of turnover funds will be needed. If a transfer takes 5 days, this amout decreases significantly to a little over a trillion dollars. In case of payments in the physical online, the turnover funds are nearly nil. Well, let’s be more careful – they’re substantially lower. Besides, there are no more risks of failure of payments. This is undoubtedly a revolution in the field of payments, providing for the turnover of gold.
The idea of issuing electronic gold fully backed by gold bullions is fairly simple. You purchase a bullion of 1000 grams and 1000 units of the electronic currency backed by gold are created in the system simultaneously. Of course, the electronic currency must circulate in a/the blockchain network, which makes it both protected and convenient in use.
Electronic gold is attractive not only to the investors willing to speculate in changes of its price. The people saving up to buy jewelry have to either save up it usual currencies or buy small pieces to later sell them. Both of these ways are expensive – the gold price may change dramatically and returning the purchased gold pieces may incur considerable losses.
Saving in electronic gold solves both problems because the cost of an electronic gram is always equal to the market gold gram price. In fact, one may save $100 every month, turning them into grams, and not be afraid of changes of the price in the future.
It is important that an entire ecosystem of gold circulation may be created with use of electronic gold – it is enough to just connect jewelry stores, pawn shops and jewelry factories to it. Buyers will be able to pay for the jewelry pieces by the electronic gold saved up by the moment.
A store’s profit is also obvious – it may attract additional clients, those who used to be unable to save up for buying jewelry. Other participants of the system will find their convenience in being able to carry out settlements in electronic gold. Besides, electronic gold may be used by the jewelry industry for insuring the mentioned risks related to price changes.
Today, several systems focused on working with electronic gold operate. Yet they, as a rule, do not have a developed API (Application Programming Interface). This leads to difficulties in terms of attracting clients. And sure no ecosystem.
When there is a developed API, not only usual people but companies with existing clienteles may be connected to the system. Such companies are the mentioned jewelry stores, pawn shops and other participants of the market.
An API will lead new players to the market of gold. This will become a new fintech which will create greatly designed and convenient applications for saving in gold, carrying out payments and making purchses, giving loans in gold, providing guarantees, bonus points for purchases of jewelry, etc.
If we combine it with the physical online mode on the basis of blockchain, this brings unprecedented benefits to all the participants of this payment environment.
SUPPORT OF MULTIPLE CURRENCIES
Usually, the existing systems of retail trade work with the gold itself only (they’re mono-currency ones). You may only buy grams of gold there. However, in case you decide to sell gold, you’ll need to withdraw money from the system, converting it into usual currencies, for example, the US dollar. This situation incurs quite a lot of client’s losses: the fees for depositing of money into the system, withdrawing from it and conversion. The overall losses may amount to several per cent, depending of which intermediary you choose for all that. Sometimes, they may get over 5%.
This situation casts out the speculation market. Those willing to earn from the changing gold price will suffer massive losses because of fees, so they do not consider such systems instruments for earning.
The situation dramatically changes if the system supports several currencies simultaneously (being a multi-currency one). It is possible to turn from gold to, let’s say, euros, dollars or any traditional currency directly in the system. Besides, you do not have to withdraw money from the system, so the costs of such operations are symbolic.
The financial system is on the edge of revolutionary changes. And, as usual, the main profits will be received by those who start following this innovative trend sooner than others.
About the Authors:
Vladimir Frolov is the founder and Alexey Romanchuk is the CTO of Copernicus Gold, where Blockchain meets Gold!