18.12.2019Read Time: 6 min

A Gold-Backed Crypto That Aims To Restore Confidence in Currency

UK startup, Aurus, recently began a phased rollout of a gold-backed crypto token

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UK startup, Aurus, recently began a phased rollout of a gold-backed crypto token that ultimately aims to establish a genuine gold-backed currency standard, some 50 years after the gold standard ended.

Working with players in the gold industry, Aurus made the initial move when some kgs of Gold with the onboarding of Direct Bullion, a reputable precious metals broker in early November.

Direct Bullion is Aurus' first partner to tokenize gold on its metal-backed blockchain protocol. Aurus distinguishes itself from other gold standard tokens through its unique approach to avoiding centralization. Instead, Aurus offers a Tokenization-as-a-Service (TaaS) solution to the gold market. The Aurus protocol interacts with an ecosystem of gold providers, vaults, and distribution channels that synergize to produce AurusGOLD (AWG), a gold-backed crypto token called AurusGOLD, in a decentralized manner. 

Owning Crypto Backed By Gold Has Never Been Easier

Aurus says its objective is to make owning crypto backed by gold available to everyone, particularly those in economies ravaged by hyperinflation like Zimbabwe and Venezuela.

In some cases, countries have imposed laws and regulations that curtail ordinary people's purchasing or possessing gold. However, now with blockchain technology, anyone can possess precious metals through fractional ownership without being subjected to unfair regulations.

In fact, it is now possible to possess gold worth a few cents via the AurusGOLD (AWG) token, and this means anyone (including those in countries like Zimbabwe or Venezuela) has a chance of owning gold cryptocurrency as long as they have an Aurus wallet.

Currency Competition Drives New Technologies

Blockchain technology has opened doors for privately owned players to join the currency markets, a long cherished dream of Austria economist and Nobel prize winner Friedrich Hayek. Hayek began advocating for the denationalization of money a few years after the gold standard ended in favor of the fiat currency system that remains to this day.

Hayek asserted that competition between currencies issued by private banks or players would ensure that only coins guaranteeing a stable purchasing power would continue to exist, as alternatives that failed would be forced out of business.

Hayek argued that the fiat system was defective, and it did not take long for the flaws of intrinsically valueless money to manifest themselves and thus validate his assertions. History has demonstrated time and time again that a currency subject to inflation is not sustainable.

Several countries have witnessed their currencies collapse, and some have had this experience more than once. In some cases, governments have had to abandon their own currencies in favor of supposedly stable ones, like the US dollar or the Euro.

A reliable currency is essential, especially in nations suffering prolonged hyperinflation and where entire societies have seen their wealth get decimated. Aurus believes a gold-backed cryptocurrency is a solution for not only the stability of one economy but that of the global economy as well.

As Hayek might have envisioned, competing and private cryptocurrencies have emerged as confidence in the government's ability to maintain purchasing power has fallen after the 2008 financial crisis and quantitative easing.

There are thousands of privately issued tokens, including those claiming to be backed by gold, but not all of them will succeed, as Hayek posited several decades ago. Many of these fail the decentralization test, let alone the gold backing test.

Challenges of a Gold-Backed Cryptocurrency

Gold is a sensitive and valuable commodity that must be stored at one of the most secure vaults in the world. The storage of gold at one place naturally comes with risks, especially for privately owned currency issuers, who may not have the resources like those possessed by national governments.

For example, the US government is believed to store a significant quantity of that country's national gold reserves at Fort Knox, one of the most heavily guarded and fortified places on earth. It is not easy even for a standing army to overrun this facility. This alone would ease nerves and thus sustain absolute confidence in the dollar had the US government chosen to remain on the gold standard.

Of course, the United States led the world away from the gold standard, and the precious metal at Fort Knox is not for currency backing purposes. Besides, the estimated quantities at Fort Knox are hardly enough to back today's purported US dollar value.

While governments abandoned the gold standard, confidence in the precious metal has not waned, and that is why some continue pushing for a return to this standard. Some in the crypto community have gone as far as issuing tokens that are supposedly backed by gold.

However, many of these projects are not sustainable due to their centralized design. A centralized minting process automatically leaves the door open for internal exploitation, leaving users vulnerable.

A Self-Sustaining Ecosystem With Aurus Gold-Backed Crypto

Aurus takes a distinctive approach as it attempts to 'democratize' gold properly. In a statement, Aurus states:

"We're essentially digitally replicating the traditional gold industry to create a system that everyone can benefit from. Aurus provides a technological infrastructure that interacts with an ecosystem of gold providers, vaults, and distribution channels. The protocol enables the gold market to autonomously create golden tokens or AurusGOLD (AWG)."

Unlike its peers, Aurus will not own the gold but will provide the technology that makes it possible for gold players to create a gold-backed cryptocurrency. According to Aurus, the ecosystem will remain functional even in its absence.

Meanwhile, Aurus also circulates a second revenue sharing token, the AurusDeFi (AWX). AurusDeFi distributes a portion of AurusGOLD's generated transaction fees amongst Aurus minting partners (gold providers & vaults) as an incentive.

AWG and AWX together allow a self-sustaining ecosystem to exist, one that produces a gold-backed cryptocurrency through a decentralized mining process.

Scaling Gold-Based Cryptocurrency

Aurus’s goal is to have as many of these partnerships—similar to that it has with Direct Bullion—in place as possible and to eventually establish a widespread, semi-decentralized structure consisting of multiple providers, vaults, and distribution channels spread across the globe.

This open system structure is much more reliable and actually makes sense to the user as they are not forced to be dependent on a single source. This is what sets Aurus apart from other gold-based cryptocurrencies, and this may be the startup's trump card that will guarantee the success of the AurusGOLD (AWG) token.

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