The term ‘BullionCoin’ is starting to be used more and more frequently; as such, we have directed our attention to this ‘new’ form of money (I will return to why I positioned the word ‘new’ in inverted commas later), to explore what BullionCoin entails.
As a trusted and longstanding form of money, that has been used throughout multiple civilisations and lasting for over 5,000 years, gold and silver have proved themselves as being good, solid forms of money; therefore, it seems sensible to continue to use them.
However, it’s 2017, and we are well and truly immersed in a technological revolution, with latest technological advances being able to offer and do incredible things. To ignore the power and opportunity that technology could bring, arguably could be a disaster.
Digital currencies have reportedly surpassed $100bn USD in market capitalisation and are said to be doubling in size every 3 months.
Would it be a smart idea to mix the two?
The BullionCoin Exchange (BCX) and the Allocated Bullion Exchange (ABX) seem to think so, as they have made it their mission to unite physical precious metals and global financial markets, by using the latest digital blockchain technologies.
The result, BullionCoin!
To summarise, BullionCoin is what you get, when you back new digital currencies with physical gold and silver.
BullionCoin is not a fiat currency, but instead is a cryptocurrency that is fully backed by the precious metals.
Each BullionCoin is a redeemable electronic Bearer’s Title of Ownership to the precious metals that are backing BullionCoin. The investors that hold the redeemable BullionCoin can trade them with the Bearer Titles, in the exact same way that unpacked fiat currency is traded.
Below is a simple overview of the whole BCX and BullionCoin process taken from GoldVu Bullion:
1. Primary market participants buy physical precious metals at the wholesale contract rates & hold Title of Ownership.
2. Those participants then authorise BullionCoins to be created/minted against their precious metals
3. Minting / creating BullionCoins is just a process of digitisation of the Title of Ownership to that metal
4. Primary market participants then sell those digital coins into the secondary (retail) market
5. That sale, is the selling of the Title of Ownership from the primary market participant to multiple retail investors
6. The digital coins that those investors now hold, act as an electronic Bearer’s Title to the physical gold & silver that’s backing BullionCoin.
7. Coin holders can use them in transactions and trades, in the same way that you use fiat currency
8. As the coins are electronic Bearer’s Titles to the physical precious metals backing them, investors holding those coins can then redeem them at any time in exchange for the equivalent quantity of physical gold & silver that those coins represent
A Scary Prediction?
Wait, haven’t we seen this idea of BullionCoin somewhere before?
If you type into Google ‘The front page of the Economist 1988’, you will be greeted with the image of a Phoenix bird with a large round gold coin dangling from its neck. The year-date on the coin is 2018 (30 years after publication), with fiat currency on fire beneath its wings.
Is it possible that the economists of 1988 managed to achieve a rather accurate prediction for the future of money, or has this ‘new’ form of money been part of a larger long-term plan?
You can now see why I used the word ‘new’ in inverted commas earlier, as it is unclear just how ‘new’ the concept BullionCoin really is…
Advantages of BullionCoin
To invest time and money into BullionCoin, there must be advantages to doing so. We take a look at some of them:
- Transactions are to be performed using Peer to Peer networks, meaning that BullionCoin will not be reliant on banks and their opening times. A 24 hour service will be available.
- Building on bullet point 1, the setup of BullionCoin means that during public holidays, buying and selling of the precious metals can still take place.
- BullionCoin bypasses any banking system and allows investors to trade freely between one another.
- Should the financial markets and banks freeze entirely, BullionCoin will still operate. You can transfer your bullion into the BCX and continue with your everyday transactions.
- BullionCoin has the advantage of technology, which will allow it to evade any prevention of hoarding money.
- Today’s banking system is starting to look a little dated; however, the technological advancement of BullionCoin is that it can avoid slow transfer times, transfer feed, frozen accounts and international sanctions.
- If there is a huge financial collapse, the fact that BullionCoin is backed by real gold and silver, means that there may always be the option of obtaining a tangible asset.
Disadvantages of BullionCoin
- Reliance upon the internet for BullionCoin is problematic. The internet can experience disruptions. If the system was to go down or be abolished altogether, would records of ownership of the BullionCoin be lost forever? How could you prove you were owed the tangible asset?
- Digital currency tied in with gold may drive up costs. Automated systems could be expensive. Equally, manual labour to run the process of BullionCoin could also be expensive.
- Needs a lot of trust. It is a new concept; thus, scepticism is natural and no doubt high.
- Linking to bullet point 4, it needs to prove itself and stand the test of time. At this point, no-one really knows if the concept of BullionCoin will work properly.
- Much like the fiat currencies themselves, they act as a promise that you can use BullionCoin to get the physical asset. What happens if that promise was no longer honoured?
What do you make of BullionCoin? Is backing a cryptocurrency by gold and silver a clever move, or could it turn out to be a disaster?
Why not just buy the tangible precious metals yourself and know for sure that you have it under your own control and at your own disposal?
Is there something unnerving about placing so much control into BCX and ACX and the internet? Or should we have more faith in the power of technology and the possibilities that BullionCoin poses?
Let us know your thoughts in the comment section below.
This blog represents one person’s opinion only. Customers should conduct their own research and take advice before making an investment. We do not offer investment advice.