Using Blockchain Technology to Invest in Gold

By Michael FischerMarch 15, 20224 minutes read
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Using Blockchain Technology to Invest in Gold

Are you a blockchain enthusiast who’s interested in adding gold to your portfolio? Or maybe you’re a gold investor who’s interested in learning more about blockchain technology. Keep reading to get your head around using blockchain technology to invest in and store physical gold. 

Why use blockchain technology as a gold investor?

As a prospective investor in physical gold, you may be hesitant to take delivery of a precious metal and be responsible for securely storing it. Blockchain technology can enable you to add a physical metal to your investment portfolio, with the right—but not any requirement—to receive a delivery.

As a current investor in physical gold, you might be surprised to learn that blockchain technology can enable easier transactions, settlement, and ownership of the precious metal. Here’s why some investors are using blockchain tech to invest in gold:

  • Transparency: Blockchain technology supports electronic distributed ledgers, which are generally permissionless and can be viewed by anyone. Blockchain technology can provide ample information about physical gold supply chains, plus increase the transparency of physical gold transactions and ownership.

  • Security: The electronic ledgers enabled by blockchain tech are distributed, meaning that every participant in the blockchain network retains a copy. The distributed nature of electronic ledgers can make them secure. Blockchain-based ledgers can make buying, selling, and storing physical gold safer for individual investors. 

  • Efficiency: By enabling electronic ledgers, blockchain technology can support digital purchases and sales of physical metals. Investors can digitally buy and sell gold using blockchain technology, which may increase the efficiency of the physical gold market. Buying and selling gold on a blockchain may increase the market’s liquidity, and lowers the costs traditionally associated with physical gold transactions.

The potential benefits of blockchain technology for physical gold investors stand in sharp contrast to the challenges traditionally associated with owning physical gold. Many traditional gold brokers require investors to purchase limited mintage coins, which may fluctuate sharply in value or be difficult to sell at a favorable price.

How to use blockchain tech to invest in gold

You may be wondering exactly how blockchain technology works to enable investing in physical gold. Keep reading to understand all of the uses for blockchain technology as a physical gold investor:

  • Direct ownership without physical possession: Investors in physical gold can leverage blockchain technology to directly and fully own the physical metal without being obligated to personally take possession. Investors retain the titles to their gold holdings and can, at any time, independently verify ownership or instruct physical delivery if desired. The need for an intermediary trust or fund is eliminated with the use of blockchain technology.

  • Increased data accuracy: Blockchain technology is used to more accurately register the investment grade of the physical gold owned by an investor. Blockchain tech can also be used to increase the accuracy of the data collected and reported by the supply chain.

  • Real-time tracking: Blockchain technology can enable real-time updates that are widely distributed to every member of a blockchain network. Investors can use blockchain-enabled platforms to track in real time the movements of their physical gold.

  • Advanced security through encryption: Blockchain cryptography is used to secure investors’ titles to physical gold. Cryptographic signatures are required from all transaction participants to prove a transaction’s authenticity. Registration of physical gold must be cryptographically signed by the entity entrusted with physical storage, such as the Royal Canadian Mint. 

  • High-quality audits: Blockchain technology can be used to conduct transparent audits of physical stores of gold. The ability of blockchain technology to efficiently generate and distribute information can increase auditors’ abilities to monitor physical gold supplies.

  • Reduced fees: Physical gold investment platforms using blockchain technology can be cost efficient for investors. Blockchain-based platforms are generally more automated, which lowers the platform’s operational costs and eliminates any need for commission-driven sales representatives. While the fee structure of every platform is different, many do not charge management or storage fees.

  • Increased accessibility: Blockchain technology can make owning physical gold more accessible to more investors. Not only does blockchain tech eliminate the need to take physical ownership and can lower investors’ fees, but also the technology enables ownership of physical gold in any amount. Using KitCo’s VaultChain platform, for example, investors can directly own as little as 0.001 ounce of gold.

Pros and cons of blockchain technology for gold investors

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Using blockchain technology to invest in physical gold has both benefits and drawbacks. The main potential benefits include:

  • Increased access to information: Blockchain technology can increase the transparency of physical gold transactions, which increases investors’ access to relevant trading information.

  • Cryptographic security: Blockchain technology uses cryptography to create and maintain security. Blockchain tech, while not entirely invulnerable to hacking, is generally considered to be secure.

  • Low or no fees: Blockchain-based platforms that support physical gold investing are largely automated, which enables them to charge low or zero fees. Fee-conscious investors can benefit from using blockchain-based platforms.

And the primary drawbacks are:

  • Limited transaction privacy: Blockchains collect and distribute anonymized data, including transaction data. While personal information is not revealed, investors can typically view the transactions of all other participants in the blockchain network.

  • Physical custody is not automatic: Investors who prefer to take physical delivery of gold can still use a blockchain-based platform, but delivery of the gold is not automatic. An investor would need to specifically indicate that they wish to receive the precious metal.

  • Access is controlled by the blockchain platform: Investors who use a blockchain-based platform to invest in gold are relying on that platform for access to their precious metal investments. If you lose your log-in credentials or the platform ceases operating, then you may have difficulty with accessing or managing your investments.

What to consider before using blockchain tech as a gold investor

Before using blockchain technology to invest in physical gold, it’s important to understand how the blockchain platform that you’re using operates.  Investors need to understand how the transactions for the physical gold are executed, how ownership is recorded, and how and where the physical gold is stored. If you are using a digital platform, then it’s crucial to confirm that the digital assets are 100% backed by physical metals. As a responsible investor, conducting ample research is a necessary step before plunking down any money.

DISCLAIMER:

This article is for information purposes only.  It does not constitute investment advice in any way.  It does not constitute an offer to sell or a solicitation of an offer to buy or sell any cryptocurrency or security or to participate in any investment strategy.  

iTrust Capital, Inc. is not an exchange, funding portal, custodian, trust company, licensed broker, dealer, broker-dealer, investment advisor, investment manager, or adviser in the United States or elsewhere. iTrust Capital, Inc. is not affiliated with and does not endorse any particular cryptocurrency, precious metal, or investment strategy.  

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