Gold has functioned as a store of value since being dethroned as a popular backer of currency during the 20th century. Today, gold bugs are optimistic that an inflationary dollar will richly reward them with record-breaking returns.

Figure 1: Gold bugs love the mass printing of fiat money, and 2020 dollar printing has gone vertical

Gold and Crypto, Complimentary Assets

The virtues of gold are well known to investors. It is a hedge against inflation. Circuit board manufacturers and jewelers all but guarantee there will always be *some* demand for gold. It has an established history of backing money and many people advocate a return to gold-backed currency.

However, gold also suffers from a number of issues that have plagued it throughout time, and remain problems today:

• It is a heavy metal, making transporting significant quantities a problem
• Its has been seized by governments throughout history
• Owning gold can include fees for storage, security, inventory, verification, etc. When these fees exceed the gains (or losses) gold makes in a year, the owner is losing value
• Liquidity, or turning gold into currency, is more difficult with precious metals than assets like stocks and crypto which can be instantly sold on exchanges

Now, consider the fact every outlined weakness of gold is a strength of cryptocurrency. Transporting cryptocurrency is extremely simple. National governments can outlaw crypto, but they have no means of directly seizing it. Owning, storing, and securing crypto costs nothing. Converting crypto to currency is as simple as selling it on an exchange and initiating a bank transfer. Clearly a hybrid asset that combines the physical properties of gold with the digital advantages of cryptocurrency would be a phenomenal offering.

Enter UPXAU, the gold-backed crypto from Uphold.

UPXAU is backed by 1 troy oz. of gold held at the Perth Mint in Australia. Owners can exchange one UPXAU token directly for an ounce of gold, though shipping charges and associated fees would apply. Uphold also offers a debit card for people who want to liquidate their “gold” into money at the point-of-sale.

With gold-backed cryptocurrencies, like UPXAU, investors can enjoy the benefits of gold and the strengths of cryptocurrencies in a single asset. It offers, for lack of a better phrase, the best of both worlds. Although UPXAU does not use blockchain to identify which specific bullion belongs to which crypto holder, the technology could be expanded to do so. This way, blockchain could further serve to identify lost or stolen bullion and return it to its rightful owner. Future advancements may one day allow people to tokenize their personal bullion and securely trade it online among each other.

All That Glitters

That settles it, UPXAU is the best investment a gold bug could possibly ask for, right? Well, not necessarily. As with all investments, there are some “fine print” details that can turn a great idea into merely a good one. In this case, Uphold charges a 3% transaction fee on metals. This fee is charged on top of the bid/ask spread of their supplier.

Figure 2: Ouch! Paying when you buy, paying when you sell, that’s an extra 6% total

For perspective, trading and owning actual, physical gold may incur the following fees:

Vault storage fees: ~1% - 2% annually

Buy/sell fees: ~0.5%

Shipping fees: variable

Bullion registration fee: variable

Is it worth paying 3%, plus the dealer spread, to buy and sell UPXAU? That depends entirely on how you would store, ship, protect, or trade your gold otherwise. When looking at a short turnaround time, two years or less, it seems UPXAU would likely cost more than simply dealing in physical gold. This indicates there is room for Uphold to improve their offering, or for a competitor to create a better gold-backed crypto.

Conversely, for long-term holders looking at a decade timeframe or more, the fees on UPXAU could be lower than those dealing in physical gold. Either way, the existence of a gold-backed cryptocurrency that can be directly exchanged for gold is a promising use of blockchain technology. Current offerings in this space certainly have room for improvement, but the field is ripe for game-changing innovations.