What is Digital Gold?
Digital gold is a virtual method of buying and investing in yellow metal without having to physically hold the gold.
Digital gold currency (or DGC) is a form of electronic money (or digital currency) based on mass units of gold. It is a kind of representative money, like a US paper gold certificate at the time (from 1873 to 1933) that these were exchangeable for gold on demand. The typical unit of account for such currency is linked to grams or Troy ounces of gold, although other units such as the gold dinar are sometimes used. DGCs are backed by gold through unallocated or allocated gold storage.
Digital gold currencies are issued by a number of companies, each of which provides a system that enables users to pay each other in units that hold the same value as gold bullion. These competing providers issue a type of independent currency.
Unlike the credit card industry, digital gold currency issuers generally do not have services to dispute or reverse charges. So, reversing transactions, even in case of a legitimate error, unauthorized use, or failure of a vendor to supply goods, is difficult, if not impossible. This means that using the digital gold currency is more akin to a cash transaction, while PayPal transfers, for example, could be considered more similar to credit card transactions.
The advantage of this agreement is that the operating costs of the digital currency system are significantly reduced because of the shortage of payment disputes to settle. Plus, it allows instant clearing of digital gold currency transactions, making the funds immediately available to the recipient. Unlike credit cards, checks, ACH, and other reversible payment methods, there are typically 72 hours or more to clear.
Why is this important?
Buying physical gold has certain downsides. Firstly, there is the issue of identifying its purity and legitimacy. And, secondly, there are challenges associated with safekeeping and storage.
On the other hand, digital gold is bought online and it is stored in insured vaults by the seller on behalf of the buyer.
Digital gold’s rise in popularity among millennials and Gen Zers is hugely credited to the flexibility of purchasing it in small amounts, easy access to delivery, and liquidity options.
When you buy digital gold from any app, you’re actually buying from mediators helping you access that gold from reputed companies.
Intermediaries charge a small percentage as investment charges as they are responsible for the safety of your digital gold holding.
How is digital gold better than the real thing?
Investment in the digital form of this yellow metal can bring in a host of advantages. These are as follows:
• Secure storage
The most significant advantage of digital gold is its hassle-free and safe storage. The company offering digital gold will store one’s purchased gold in secure vaults. As the buyer does not possess the gold, he also saves locker charges and does not need to worry about theft or loss of gold.
• No lower limit on investment
There is no lower limit on investment; an individual can invest in any amount of gold. The person will get possession of the quantity that he or she has invested. Gold worth one rupee can also be bought.
• Use as collateral
One can use digital or electronic gold as collateral for loans. Some lenders accept it as collateral since these come with 24K purity and are stored in secured vaults. It helps borrowers avoid the hassles related to the paperwork of collateral and reduces their chances of loan rejection.
• Ease of exchange
Another significant advantage of digital gold is that it can be easily exchanged anytime and anywhere for physical gold, coins, and bullion. This flexibility allows individuals to convert their digital assets into physical ones. Individuals wanting to access their physical gold can have it delivered to their doorsteps.
• Genuineness
Virtual gold is 24K and thus comes with 99.99% purity. Buyers do not have to worry about purity and genuineness. Chances of fraud are negated, and purchasers get the value that they have paid for.
Gold acts as a safety net during times of crisis
This essentially meant more money supply, which put more cash in the hands of the people. This oversupply reduces the purchasing power of the currency, and fears of rising inflation grow rampant.
But gold as an asset class preserves the purchasing power against falling currencies. As a result, the demand for Gold increases, and hence with that comes an increase in Gold prices. This vicious cycle of increased debt burdens leading to a need for stimulus packages always results in a weakening of the purchasing power of the currency or inflation. So during uncertain times, gold truly shines!
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