Can blockchain technology awaken gold to become a means of payment again?

Celent recently released a research report investigating whether gold could become a means of redemption again if Bitcoin blockchain technology was used.

The report, ‘微黄金：评估分布式账本技术（DLT）和实体黄金的使用案例’, concludes that blockchain technology has the potential to transform gold into a form of currency, giving it the same advantages associated with Bitcoin.

According to John Dwyer, senior analyst at Celent Securities and Investments, a currency needs to have three characteristics: a store of value , a medium of exchange and a unit used to value goods and services .

Although gold has been used as a form of money in the past, it is not currently used as such in society. Furthermore, the cost of storing gold is too high for practicality.

However, blockchain technology can solve this problem.

Putting gold on a distributed ledger means that ownership of the metal can be broken down into many smaller pieces, Dwyer said. As an example, he pointed to financial technology company Goldmoney, which puts gold in a vault and gives users a MasterCard that they can use to make payments.

He said:

“In the case of Goldmoney, the smallest unit of gold is 0.001 grams. This gold ownership is stored on a digital ledger, facilitating the development of gold micropayments.”

Banks get rid of high-denomination notes

Dwyer cited the fact that fiat currencies are experiencing negative nominal interest rates (NNIR), which means that these currencies are no longer sufficient to function as a store of value.

According to Dwyer, Japan is responding to the NNIR by offering its consumers more safe deposit boxes, giving them a way to keep their money outside the financial system.

He said:

“Interestingly, on May 4 this year, the European Central Bank announced that it would stop producing 500-euro notes by 2018. This move will make it more difficult and more costly for financial institutions to hoard large amounts of physical cash.”

However, this is unlikely to shift people's attention to gold anytime soon.

Gresham's Law

According to Gresham's Law, digital currencies like Bitcoin are an attractive form of money for people due to their lack of intrinsic value. However, these digital currencies do not have the long track record of gold, so they do not have a high degree of trust.

Rus Newton, owner of Global Advisors, said:

“A lot of people are going to find it easier to use gold as a store of value than bitcoin as a store of value in some ways because gold has been around a lot longer than bitcoin.”

Not only that, the total value of physical gold exceeds 7 trillion US dollars, while the total value of digital currency is only about 12 billion US dollars, which shows that digital currency still has a long way to go before it can replace gold as a medium of exchange.

However, as CCN reported, Bitcoin trading volume has the ability to surpass gold.

However, it will depend on whether distributed ledger technology and gold will come together in the future to reawaken gold as a form of exchange.