A UK based startup, Aurus, recently began a phased rollout of a crypto token that ultimately aims to restore a genuine gold backed currency standard, some 50 years after this was discontinued. Working with players in the gold industry, Aurus made the initial move when some 5 000 grams of the precious metal was on boarded in early November.
Direct Bullion, a reputable London based precious metal dealer is Aurus’ first partner to make use of its AWG Gold smart contract protocol. Aurus distinguishes itself from other gold-backed tokens through their unique approach of avoiding centralization. Aurus offers a tokenization-as-a-service (TaaS) solution to the gold market. The Aurus protocol interacts with an ecosystem of gold providers, vaults, and distribution channels that work in synergy to produce a decentralized gold-backed, AurusGOLD (AWG).
Gold possession made easier
Aurus says its objective is to make gold available to everyone, particularly those in economies ravaged by hyperinflation like Zimbabwe and Venezuela.
Often, countries have laws and regulations that curtail the purchase or possession of gold by ordinary people. However, through use of the blockchain technology, it is now possible for anyone to possess a fraction of the precious metal without being subjected to the unfair regulations.
In fact, it is now possible to possess gold worth a few cents via the AWG token and this means anyone (including those in countries like Zimbabwe or Venezuela) has chance of owning gold as long as they have an Aurus wallet.
Currency competition key
The blockchain technology has opened doors for privately owned players to join the currency markets, a long cherished dream of Austria economist and Nobel prize winner, Friedrich Hayek. Hayek began advocating for denationalization of money a few years after the gold standard was abandoned in favour of the fiat currency system that remains to this day.
Hayek asserted that competition between currencies issued by private banks or players would ensure that only currencies guaranteeing a stable purchasing power would continue to exist, as alternatives that failed to do so would be driven out of business.
Hayek essentially argued the fiat system was defective and it did not take long for the flaws of intrinsically valueless money to begin manifesting themselves and thus validate his assertions. History has demonstrated time and time again that a currency subject to inflation is not sustainable.
Several countries have seen their currencies collapse and some have had this experience more than once. In some cases, countries have had to abandon their own currencies in favour of supposedly stable ones, like the US dollar or the Euro.
A reliable currency is essential, especially in nations suffering prolonged bouts of hyperinflation and where entire societies have seen their wealth get decimated. Aurus believes a gold-backed cryptocurrency is the solution for not only the stability of one economy, but that of the global economy as well.
As Hayek might have envisioned, competing and private cryptocurrencies have emerged as confidence in governments’ ability to maintain purchasing power has fallen post 2008 financial crisis and quantitative easing.
There are thousands of privately issued tokens including those claiming to be backed by gold but not all of them are going to succeed as Hayek posited several decades ago.
Many of these seem to fail the decentralization test, let alone the gold backing test.
Challenges of backing a currency with gold
Gold is a sensitive and valuable commodity which must be stored at a secure facility. The storage of gold at one place naturally comes with risks, and these are especially heightened for privately owned currency issuers, who may not have the resources like those possessed by national governments.
For example, the US government is believed to store a significant quantity of that country’s national gold reserves at Fort Knox, one of the most heavily guarded and fortified places on earth. It is not easy even for a standing army to overrun this facility. This alone would ease nerves and thus sustain real confidence in the dollar had US government chosen to remain on the gold standard.
Of course, it was the United States which led the world away from the gold standard, and the precious metal at Fort Knox is not for currency backing purposes. Besides, the estimated quantities at Fort Knox are hardly enough to back today’s purported value of the US dollar.
While governments abandoned the gold standard, confidence in the precious metal has not waned and that is why some continue for a return to this standard. Some in the crypto community have gone as far as issuing tokens that are supposedly backed by gold.
However, a lot of these projects are not sustainable due to their centralized design. A centralized minting process automatically leaves the door open for internal exploitation, leaving users vulnerable.
A Self-Sustaining Ecosystem
Aurus says taking a distinctive approach as it attempts to ‘democratise’ gold properly. In a statement, Aurus states:
“We’re essentially replicating the traditional gold industry in a digital way, to create a system that everyone can benefit from. Aurus provides a technological infrastructure that interacts with an ecosystem of gold providers, vaults, and distribution channels. The protocol enables the gold market to autonomously tokenize gold into AurusGOLD (AWG).”
Unlike its peers, Aurus will not own the gold but will provide the technology that makes it possible for gold players to create gold backed tokens. According to Aurus, the ecosystem will remain functional even in its absence.
Meanwhile, Aurus also circulates a second revenue sharing token, the AurusCOIN (AWX). AWX distributes a portion of AWG’s generated transaction fees amongst Aurus minting partners (gold providers & vaults) as incentive.
AWG and AWX together allow a self-sustaining ecosystem to exist, one that produces a gold-backed cryptocurrency through a decentralized minting process.
Aurus’ goal is to have as many of these partnerships—similar to that it has with Direct Bullion—in place as possible and to eventually establish a widespread, semi-decentralized structure consisting of multiple providers, vaults and distribution channels spread across the globe.
This open system structure is much more reliable and actually makes sense to the user as they are not forced to be dependent on a single source. This is what sets Aurus apart from other gold-backed tokens and this maybe the startup’s trump card that will guarantee a success of the AWG token.