1. The main problem of fiat based cryptos
The most famous and popular cryptos (btc, eth, etc.) are based on fiat money (see [1]). Even the title of the famous paper has the following meaning: “bitcoin is a digitized on blockchain fiat currency”.
Here is the famous paper https://bitcoin.org/bitcoin.pdf"
Let us look on the title “Bitcoin: A Peer-to-Peer Electronic Cash System”. Cash means -fiat currency. Electronic cash means -digitized fiat currency. Peer-to-peer system means -blockchain. If we put all pieces of the puzzle together then we get that bitcoin is a digitized on blockchain fiat currency.
In other words, all cryptos (over 27 thousands), which are not backed by hard assets (gold, etc.) are FIAT money in a digital form. For this reason, they can not be a hedge against inflation of other fiat money (in variety of different forms).
People buy cryptocurrencies using fiat currencies and wait for their price to rise. They will be disappointed, because when cryptos reach millions in fiat money these millions will be worthless, like in Germany during hyperinflation on in Zimbabwe (when many people had useless millions). Think about a crypto coin as a bag with fiat money. The amount of money in the bag is equal to the price of this coin. The higher the price, the more fiat money is in the bag. But, when fiat money are useless (hyper inflated) it does not matter what amount of useless fiat money is in the bag. Therefore, it does not matter if bitcoin price will be million or billion in fiat money if fiat money will be useless.
Only cryptos backed by hard assets (gold, etc.) will preserve wealth, because if you redeem gold backed crypto on physical gold you will have the physical entity (gold) with intrinsic value, which can not be inflated to zero as fiat currencies. See [7] on historical performance of gold during long periods of inflation.
2. Advantages of gold backed cryptos over physical gold
The first obvious advantage of gold backed cryptos over physical gold is portability/transportability. You do not need to take with you bags with gold when you are moving, relocating, or traveling.
The second obvious advantage of gold backed cryptos over physical gold is a speed of conversion to fiat or other crypto currencies.
The third advantage of gold backed cryptos over physical gold is availability of two ways to increase wealth. The first way is from appreciation of gold over inflated fiat currencies. The second way is from profitable trading during speculative bursts (see [2]).
3. Disadvantages of gold backed cryptos over physical gold
The first disadvantage is a counter party risk. This is a risk that the counter party will not deliver gold to you.
The second disadvantage is a technological risk. This is a risk that due to an error, malfunction, etc. some or all of your cryptos will disappear and then you will not be able to redeem them to real physical gold.
4. Pax gold crypto
In this post we look at PAX GOLD. In the official white paper, Pax Gold CEO Charles Cascarilla explains that the PAXG protocol is created entirely on the Ethereum blockchain and is secured by the proof-of-work (PoW) model. Each PAXG token is backed by a fraction of a piece of London Good Delivery gold bar, stored in Brink’s gold vaults, which is the approved storage company by the London Bullion Market Association. Through combining the security and liquidity offered by blockchain-based cryptocurrency, and the established name of gold as a physical commodity, Pax Gold brings a new investment opportunity to traders. PAXG has inspired other cryptocurrency developers to create gold-backed tokens as well.
5. Red flags
A) High fees and charges
If we look on charts and prices of gold, PAXG, other gold backed cryptos (see [2]) we will find that PAXG prices are lower, which indicates that fees and charges for PAXG are higher than in gold backed currencies of competitors.
B) Failed attempt to contact
On their website it was listed this e-mail address for general enquirers [email protected]. When I sent my questions to this e-mail address I received a message that my e-mail can not be delivered.
Then, this e-mail was removed from the website and a web form was introduced https://paxos.com/contact/.
It is not possible to ask arbitrary questions via this form, only to request specific info about “How can Paxos help your business?”
This rises the following questions:
1) If they can not keep operational such simple system as e-mail then how they will be able to keep operational such complex systems and processes as conversions to physical gold, logistics, delivery, security, etc.?
2) Why they put such restrictions on simple inquiries?
C) Not ready for post quantum era
The majority of credible experts made public statements that the Q-day is very close (see [3-5]).
I have not found on paxos.com site any document which gives answers on the following important questions:
1) Which post-quantum encryption algorithms will be used to secure their post-quantum blockchain?
2) When the post-quantum blockchain will be operational?
Except Vitalik Buterin's proposal (see [6]), there is no any publicly available document which addresses the Q-day problem. There are no answers on these questions on Pax Gold and Ethereum Foundation websites. All blockchains which will not be ready for post quantum era before the Q-day will disappear after the Q-day.
D) Many negative reviews on internet
Scamadviser.com found many negative reviews on internet.
6. Future plans
In the white paper there is a statement that they plan to pay interest on Pax Gold, but I have not found information about how they will be able to do it and where money come from to pay the interest.
References:
[5] https://dynpass.online/pqc.html
[6] https://blockchain.news/news/vitalik-buterin-proposes-a-quantum-resistant-hard-fork-for-ethereum-
[7] https://www.youtube.com/watch?v=NpNhXl714gk
