Blockchain technology or coding language continues to grow in popularity around the world. It broke into cultural consciousness with the emergence of Bitcoin. Since then other platforms like Ethereum, Litecoin, Ripple, and others. There are even smaller blockchain communities championed modest-sized groups of individuals.
One of the core principles that gives blockchain some real-world value comes in the form of virtual tokens. There are industries, and types of tangible investments, like diamonds that have indeed been tokenized in blockchain by various financial institutions.
Technological ecosystems like this heavily rely on active supply chains where various pieces of cargo pass-through ports and transfer or security stations before arriving at their intended destination. In this way, blockchain-backed system help with fraud prevention improved tracking and maintaining a clear chain of custody from the point of origination to the end user.
What Is Blockchain?
On a basic level blockchain is a distributive ledger that allows every user in the community or ecosystem to complete and track a transaction, without needing to go through a so-called middleman. It’s very beneficial for improving the overall value of an item or service, as every middleman involved in an item’s chain of custody or service provider collects some portion of the potential profit. This might also come in increasing the cost of that unit to the end user or provider.
Blockchain allows a group of collaborators, which are sometimes referred to as a community to develop a peer to peer tracking system. It helps to ensure that the majority of the value is held by the involved parties. Each contributor in creating a system like this has what is called a “Founders Token” which could be then be used within that blockchain ecosystem or it could be liquidated into US Dollars.
Can Blockchain Be Used To Help The Gold Industry?
The London Bullion Market Association acts as one of the world’s largest wholesalers for trading gold, silver, and other precious metals. In recent years, they have been working on plans to implement blockchain to help modernize their dealings, as well as improve transparency and security.
One of the blockchain’s biggest advantages in this application is to effectively exclude gold or other precious metals from being illegally mined or traded. While this might seem minor to the average layperson, there has been an increase in illegal precious metals injecting into the markets.
Case in point here, the London Bullion Market Association has reached out to a large number of its members to gauge interest in using some form of blockchain technology to track gold from the point it is mined to the final destination. This would effectively prevent illegal entities from doing things like producing counterfeit gold bars or altering gold bars with alternative metals.
In a short amount of time, they received a variety of proposals showing that there was indeed interest in such a system. However, the hard and fast points certainly need a lot more ironing out.
How Could Tokenization Be Implemented In The Gold Industry?
One proposed process that has gained a little traction in the debate would call for wrapping any gold bar entered into the system in a tamper-proof case that would then be electronically tagged. This would allow the community to essentially track the gold bar from the point where it entered the system from the mine it was extracted from, through each stage of the chain of custody to the wholesaler, retailer, or end user.
Tokenization essentially implies that the tagged physical asset is being actively tracked and monitored on distributed ledger within a private blockchain. A system like this offers superior security, as well as less cost passed on to middlemen, to also maximize value to brokers and investors.
Can Diamonds Provide A Proof Of Concept?
There are some people who are very skeptical of blockchain technology’s ability to preserve the value and transparency of tangible assets. To answer this concern, we could look to DeBeers Group, which is widely regarded as the largest diamond provider in the world.
Throughout the period from 2015 to 2018 they developed a prototype program that leveraged blockchain technology. It was able to provide an additional layer of assurance for industry participants as well as consumers. In the prototype test, every diamond registered on the platform was successfully tracked and monitored at a reduced cost, compared to the traditional system.
What Is A G-Coin?
Another take on a possible way to tokenize gold is something called a “G-Coin.” The idea originated from a concept that some referred to as “Responsible Gold” which was pioneered by an Emergent Technology Holdings based in the United States.
In loose terms, it is a blockchain version of the old “Gold Standard” where a digital “G-Token” or “G-Coin is directly backed by the appropriate amount of physical gold. That material would also need to meet set standards for being responsibly sourced.
This includes tracking and monitoring the physical gold from the point where it is entered into the system by the mining company, to the refinery, the secure vault, and the eventual end sure. It would be further ensured against tampering by a special type of cryptographic seal.
How Can I Get In Early On Blockchain?
At this point in the game, it’s hard to say who will be the front runner, when or if there is a primary blockchain ecosystem for transferring precious metals like gold, silver, and platinum or other tangible assets like diamonds.
In the coming years, there are sure to be financial institutions and major corporations who will attempt to take a commanding portion of their particular asset through their own blockchain system. Indeed, there has been a very strong rumor that JPMorgan is working on its own method of tokenizing gold. DeBeers Group will likely invest further in their own ecosystem for diamonds.
Knowing which blockchain is going to be the one that emerges as the dominant ecosystem is still too early to tell. It’s also entirely possible that there won’t be a single dominant blockchain ecosystem for tokenizing tangible assets in our lifetime.
Yet when we consider the growing amount of interest and demand for such systems, it seems likely that we will see more proof of concept systems emerging in the future.