Bitcoin is often referred to as “digital gold”, but some companies are turning actual gold into a digital token...or into two digital tokens, in the case of Emergent Technology.
The motives behind these ventures vary, but one thing looks clear: digital technology, especially blockchain, is going to transform the way gold is held, traded and valued. This should bolster gold’s popularity and utility as a store of value or investible asset, both at a retail and institutional level, and sets a precedent for other real assets.
Although other companies want digitized gold to support a platform for broader financial services, such as HelloGold's eyeing lending and Mobile Assets's view on money in general, Emerging Technology has a specific vision about payments. We conclude this series tomorrow with Tradewind Markets.
Emergent Technology: from payments to gold...
Santa Clara, California-based Emergent Technology is a digital payments company that is attempting to build an entire ecosystem of gold-related activity on a blockchain.
Its chief commercial officer, Mitch Davis, set up the payments side, in which Emergent collects payments on behalf of big U.S. technology companies operating in emerging markets: it connects with local card issuers and wallets to handle payments for, say, a social media company selling ads in markets where few people have international credit cards.
Now the company has launched a pair of businesses, Responsible Gold and G-Coin. Responsible Gold is a blockchain-based supply chain that tracks responsibly sourced gold, from where it is mined, to where it is refined, to where it gets stored. It is using this source of gold to back a digital token, G-Coin, in which one G-Coin equals one gram of gold, and which can be redeemed for the physical.
To make Responsible Gold a reality has entailed working with a variety of players – miners, refiners, minters, logistics companies, investors – in order to tag newly smelted bars with sensors, recorded via a smartphone app, so the bars’ journey can be chronicled. The company is working with partners that meet international standards around environmental protection and avoiding gold derived from political conflict zones.
This isn’t new, but putting it on a blockchain is, which should appeal to pension funds that follow rules for ESG (environment, social and governance). It also has resonance for companies that want to be seen as good citizens, including jewelers and tech companies that use gold in making chips or cell phones. In some countries, such as India, retail investors also fear gold tainted by radioactivity.
Emergent is doing this using Quorum, the J.P. Morgan-backed blockchain company. But its use of distributed ledger tech is not just about affirming provenance.
...and back again
Emergent is starting to issue Ethereum-based G-Coins that are physically backed by a bar of gold and are available in a company wallet. It makes a market to support their value from a recently established trading desk in Dubai run by Matt Keen that trades in fiat money. By fixing G-Coin to the value of gold, the company hopes crypto traders will use it as a base coin. Of course, G-Coin’s stability will depend on the volatility in the price of gold to fiat currencies as well as the company’s ability to support its value.
Crypto traders aren’t the targeted end user, though. The app has a mass market goal: “The greater benefit is the democratization of the gold market,” said Jason Toussaint, Singapore-based managing director for Asia Pacific.
An Indian retail customer pays a big spread to buy a gram of gold. “But why?” Toussaint wondered. “If I buy one share of Apple stock, it’s the the same price per unit as if I buy 100,000 shares. It’s a level playing field. G-Coin can fractionalize kilobars and give retail customers the same spread as wholesale.”
The greater benefit is the democratization of the gold market
Emergent is setting its sights on India, where it is working out what kind of licenses it might need to operate there. India’s Aadhaar digital identity system should also make KYC and customer onboarding more straightforward. And India is a huge retail market for gold.
For this to work, Responsible Gold needs to tag enough virgin gold to generate a meaningful supply. It needs some kind of regulatory blessing, preferably from the Reserve Bank of India. And the company needs to market G-Coin so that people find it valuable for savings and gifting, as well as get retailers interested in it as a payment method, if it can offer sufficiently attractive terms.
Which brings G-Coin back to Emergent Technology’s roots as a digital payments company. Could G-Coin be used in cross-border payments? Toussaint says if it becomes a stable coin linked to gold, it should be a better store of value than many emerging-market currencies, while enabling transactions to settle quickly and without some of the problems of Bitcoin, such as its environmental cost.
“I think multinational corporate treasurers will be interested in G-Coin as a payments tool in emerging markets,” Toussaint said.