Tuesday, June 2, 2015

More on Bitgold and Some 'Future World' Speculation

Recently BitGold merged with GoldMoney to create a new entity that intends to allow people to both own gold and be able to use it to buy things in every day life. This article in the Guardian provides some more details about it. It appears a full featured version of this concept will not be available yet in the US, but perhaps later on. 

This may be a way that those who want to hedge against their own local currency can use gold to do that and also have it available to use like cash. Of course any digital currency is vulnerable to the problem of a systemic failure due to a cyber attack or some other failure of the internet. But it could be something that would appeal to those who like gold as a hedge and also want to have liquidity available (click here to see James Turk defend the concept to critics)

Interestingly, BitGold has backing from both a high profile gold and silver advocate (Eric Sprott) and the Soros Brothers Investments group. Soros Brothers Investments is run by George Soros son Alex

Below are some quotes from the article and then some added comments

"When Josh Crumb and his colleague started out, they just wanted to figure out a way to allow people to pay for a cup of coffee with gold. Yes, you read that correctly. With gold.
In the more than four decades since president Richard Nixon abolished the gold standard – the pledge that a dollar was worth 1/35th of an ounce of gold – there has been no formal link between the value of the precious metal and that of the dollar or any other of the world’s other chief currencies. That has driven a group of economists and policymakers crazy; they argue that the demise of the gold standard lies behind all of America’s economic woes since Nixon’s 1971 edict. Rand Paul, one of the current crop of Republican candidates for president, is among those arguing that it’s time to at least study the idea of linking the dollar to gold.
For Crumb and Roy Sebag, the founders of BitGold Inc, whatever the world’s politicians and central bankers choose to do about gold and the dollar (or gold and the Euro, or gold and the yen) is interesting, but irrelevant to their own business plans. They’ve already married gold and the dollar, in what Crumb describes as “a personal gold standard”. The Toronto-based company’s product is simple: it offers clients the ability to deposit gold in their BitGold accounts, and then use those funds (or their value in their local currency) to make mortgage or car payments – or simply to pay for a coffee.
Essentially, in BitGold, one of the financial world’s newest innovations – digital currency – has run full tilt into one of its oldest concepts, gold as a medium of exchange. The idea for the latter probably predates recorded history, while digital currencies are in the midst of radically redefining the very meaning of the concept, and in the very earliest stages of what could prove to be an enormous shakeout in the way global financial systems function today."
. . . .

"Crumb is imperturbable. For starters, he has some powerful friends and allies – including veteran gold bugs such as Eric Sprott, a Canadian asset manager, and Alex Soros, son of famed hedge fund manager George Soros, whose Soros Brothers Investments is among BitGold’s investors. Then, there’s his conviction that the public is itching for a product just like this – especially those with only a few thousand dollars in savings, being offered accounts that pay little or no interest by conventional banks. BitGold, in contrast, will allow them to store their gold for free (an instant savings) and – or so Crumb argues – give them a hedge against inflation that might eat away at the value of those savings".

My added comments:

By now it should be clear that the world is moving towards a digital currency environment. We can expect competition in this area as there would be in any type of banking or payments system. Digital currencies will have their pros and cons. Certainly, not all of them will not be wise places to put money (some will fail). All of them would have vulnerability to a systemic failure of the internet or a cyber attack (just as current digital accounts do). Also, as we have noted here, those who try to bypass the present banking system will likely encounter all kinds of problems like Bitcoin has had to endure. BitGold looks like they will not try that.

While BitGold is not the digital currency we have talked about here on the blog that might someday tie in to the SDR used at the IMF, it does show us that in the future we could see a new system backed digital currency some day. 

Those who believe that there are no tools or solutions left if and when the next crisis arrives may be surprised. It's not hard to imagine a future world where all the unsustainable bad debt left in the world is rolled up into one giant "bad bank" and written off. The remaining debt that could actually be sustained could be restructured over longer time periods. The IMF does have guidelines on this. Debt restructuring has been done before many times on a smaller scale. If we get a global crisis, it might happen at a global level.

Along with this we could see a new digital asset backed currency (backed with gold and other assets) that people could use both as a store of value and for every day transactions (somewhat like BitGold intends to do using only gold). This new currency might some day tie into the SDR used at the IMF so that every day citizens and central banks had the same standard currency unit available to hold and use. The IMF rules would have to be changed to do this, but who is to say that can never happen? And it does not have to be something people are forced to use. Rather, it might simply be offered as a superior alternative to their own currency in places with currency problems. It could add stability and more convenience to the global financial system. It could also promote financial inclusion for the unbanked around the world.

The inclusion of the Yuan into the SDR basket might be just a step along the way to this new type of system. It could evolve from a regional basis to a global basis over time. The gold held in the current system could be part of the assets behind this new digital currency. This new currency would then provide people a way to hedge against their own local national currency if they felt a need to do so. For people who travel a lot, it might also provide a convenient currency to use worldwide without the hassle of currency conversions every time they changed locations (this is one goal BitGold is trying to achieve).

All this is future world speculation of course. But it's not unrealistic speculation as we can see from things like BitGold already coming into view. The point is that we should not assume that there are no tools left to reset the system if that becomes necessary. Many who have made that assumption have been surprised to find out they were wrong. None of us can know the future for sure and time will surely tell. We will follow it here.

Added note: 

A reader posted a link in the comments below. This makes it a clickable link:



  1. I will assume that "storing the gold for free" is essentially a non-interst bearing deposit of gold. In other words, instead of paying a meager interest to depositors, they will just not charge them storage fees as a wash. I wonder if that moves away from allocated metals and toward unallocated metals. I'll see if I can find out.

  2. I found this article from Bitgold. They hold everything as allocated metals. I'll try to find out how they pay the allocated vault storage fees and offer free storage of metals to the customer.

    1. http://support.bitgold.com/customer/portal/articles/1939439-allocated-gold-vs-unallocated-gold

  3. I emailed Bitgold and asked them specific questions, but all I got in return was a generic "thank you for contacting us, and we have exciting plans in the future" email. No questions answered. :(