I’ve been a gold investor and technology enthusiast since the days of e-gold, and I still think their value proposition was a great one. Every gold investor knows the importance of owning physical metal, as opposed to paper, but also know its limitations when it comes to using gold as money. Unfortunately we are not yet back on official gold standard, and there are very few places where you can use physical gold for your day to day transactions, without having to change it to local currency. Of course if you try to do that, the tax laws and the retail gold dealer margins tend to eat up a disproportionate amount of the value, and make it practically impossible to transact using gold as currency.
Being a firm believer in the decreasing value of paper currencies, I got interested in bitcoin a few years ago. What cought my attention in the original bitcoin whitepaper, was the comparison of the characteristics of bitcoin to gold, as a form of money outside of the banking system. If you haven’t read the paper, here’s the link: https://bitcoin.org/bitcoin.pdf
One feature of bitcoin is transparency, a subject (or the lack thereof) every physical gold investor and researcher is well aware of, especially now that the gold repatriation movement has started in Europe. All the bitcoin transactions are recorded, without identifying the parties, on a worldwide public ledger, making it impossible to hide, fake or couterfeit transactions. It also creates an untamperable audit trail, that is not stored in any one place and thus cannot be destroyed or made secret either. Now, how much do you think the gold community today, or for example the German, Swiss or French gold repatriation movements, would like to have that kind of a public and traceable ledger of all physical gold transactions, dating back to WW2?
Now, after investing a lot of money to bitcoins in 2012, riding up the price from $30 to $1300 a year ago, and then again down to $350 today, I started to understand why some investors are worried of the price volatility and thus avoid bitcoins. That however, does not decrease in any way the value of the bitcoin as a method of transferring value from one user to another, without third parties like banks, in seconds, regardless of the geographical distance. With both bitcoins and physical metal in my vault, I thought, there should be a way to combine the best parts of the two. I wanted to save in gold, because of its historical record of keeping value, and transact in bitcoin, because of the instant, international peer to peer nature of it. The vision was to transition to a personal gold standard, using physical gold as a savings account, and whenever there would be a need to pay for something, the payment would be made in bitcoins, withdrawn and converted from my physical gold position.
We had read about some projects where people were creating entirely new cryptocurrencies, that worked somewhat like bitcoin in technical terms, but were backed by gold. We however, decided not to do that, because we thought that if someone wants to own physical metal, that’s what they should own, instead of a cryptocurrency.
We needed the following:
- Reputable gold vaults and dealers to store the metal with
- Good bitcoin exchanges to do the conversions on
- System for keeping records of fractional ownership of physical metal (not same gold sold to many people, but rather a way to own, buy and sell fractions, f.ex 4.32 % of a gold bar)
Living and running our business from Singapore, the first one was easy to do, and we found three solid dealers, who provide LBMA standard, individually numbered gold and silver bars, and high-class vaulting, with transparent auditing. Second one also became reality since Singapore, on top of being one of the fastest growing precious metals hubs in the world, decided to introduce a very friendly regulation towards bitcoin, which led to the country attracting serious bitcoin exchanges to operate here as well. For the third one, we decided to use the bitcoin’s own public ledger, called blockchain. Keeping the record on blockchain means that every time there is a transaction, where someone buys or sells a fractional amount of metal from a bar, the transaction amount, together with the serial number of the bar gets posted on the public ledger online, to create a proof of that transaction, without revealing the identity of the parties of the transaction. This way, our clients don’t have to trust on our records to tell them who owns what. Everyone can doublecheck their own transactions from the public ledger online, and everyone can count that there is no double ownership of any individual bar that’s in our system.
With this combination, we can offer the following:
- A client can buy physical metal with bitcoins. This you can do with some individual dealers already, but we wanted to give the customer more choice in products, countries and vaults, and not to be locked in to one dealer. So we were able to offer PAMP, Perth Mint, Metalor and Jianxi bars, and storage in Singapore, Hong Kong, Switzerland and Australia. I’m working on Dubai, Moskow, Guernsey and Luxembourg also.
Note that if you buy the bitcoins and use them quickly to buy gold, your exposure to the price volatility of bitcoin is minimal.
- When you have bought gold, you own gold, not bitcoins, nor any other cryptocurrency that is supposedly backed by gold. You have access to the audited bar lists of the vaults, just like dealing with the vaults directly. You can also get a delivery of the bars you own.
- Since we wanted to facilitate maximal exposure to gold (living on personal gold standard), we had to find a way to withdraw any amount from your gold position. Our platform would facilitate a withdrawal by selling a fraction of your metal, and converting it instantly to bitcoins, that are sent to your own bitcoin wallet.
- Because of the liquidity in the metals and bitcoin markets in Singapore, we could offer instant withdrawals from the metal to bitcoins. Then, the bitcoins could be used for shopping, or further converted to currency, to pay for a cup of coffee or a mobile phone bill for example.
So now all the technology is in place to get out of the banking system on a personal level. I can hold my money in metals, and buy something with bitcoins from some of the over 70 000 merchants who accept bitcoins today, by debiting the amount from my gold vault. If I need to pay my taxes or a parking ticket in some national currency, I can do the same by withdrawing bitcoins from the gold vault, and sending the bitcoins to a payment gateway, that converts them to national currency, and settles my bill. The bail-ins won’t apply to me anymore.
With the above technology in place, we decided to add also functionality for crowd-buying of precious metals. This means that we can pool many smaller buyers of metal together, and then buy one or more large bars for them at the same time, and get them the best possible price. This way the buyers can for example tag into one ounce in a kilobar with a price that you traditionally could only get for the whole kilobar. We think that since gold is the superior form of money, the smallest buyers should not be the ones paying the largest price for holding and using it.
We’ve noticed that we can take this even further, by gradually getting rid of bitcoins as the transaction currency, and letting our clients transact directly in gold. Since the transactions get posted on the blockchain, we could allow our clients to settle any trade transaction directly in gold, as long as the gold is in the form of a numbered bar in one of our partners‘ vaults. That’s called gold trade settlement, where a Chinese manufacturer of bicycles gets paid in gold or silver, loco Hong Kong, for the bikes he delivers to Netherlands, without the need to move any metal.
Go to https://quantified.com.sg to learn more about our service and to register your profile. Please give us also comments and suggestions. We want to develop the platform further to serve the needs of our customers, and we would be delighted to get your suggestions. If you want to join the dealer network or discuss some other form of partnership, please contact me directly. We are continuously looking for partners to build and expand the business with.