Gold has long been recognised as the safe haven for investors. Although this glittering metal maintains its value well over time, it can be costly to acquire. On top of the selling price, buyers are often levied a premium — sometimes up to 50 per cent — and taxed for the gold they purchase.
If buying this precious metal is costly, storing it for a long period is costlier. Storing gold at home can burn a hole in your pocket, because it requires a good insurance policy to cover potential theft. The other option is bank’s safe deposit box or to seek the service of a third-party storage company, but neither of these is cheap.
As a matter of fact, most of the major costs related to gold goes into storing it.
To avoid any such risks, the digital era is offering new options to gold lovers. Digital gold is one of them. In comparison with physical gold, digital gold costs next to nothing to acquire and store. The emergence and popularity of blockchain has further strengthened and boosted this industry.
This is what this Singapore-based Copernicus Gold aims to tap into.
“With digital gold, a buyer is also no longer restrained by the physicality of coins and bullions, the traditional unit of gold. You can buy just one gram at a time, saving in gold,” says Sergei Vozchikov, CEO of Copernicus Gold, a cloud-based, blockchain-powered digital gold transaction platform.
“The most important benefit of digital gold is its zero transaction fee. Unlike credit card companies that charge merchants fees to use their terminals, transactions involving Copernicus Gold’s digital money is free. If you’re buying coffee with a credit card and there’s a transaction fee, it’s not too bad. But when you’re paying someone US$100,000, transaction fees can make a huge difference. We are here to change democratise this,” he said with an air of confidence.
Copernicus was conceived in 2013 (and launched in August last year) by Russian economist and former banker Professor Vladmir Nikolaevich Frolov (Founder). He was assisted by Damir Gaynanov (Co-founder), Alexey Romanchuk (Co-founder and CTO) and Vozchikov.
Copernicus Gold is essentially a multi-currency platform built on proprietary private blockchain to enable secure, transparent and real-time transactions. In other words, Copernicus Gold enables anyone to acquire, save or pay with digital gold anywhere in the world.
“Our platform makes it possible, for the first time, to have an entire global payment ecosystem linked to gold because digital gold can be acquired without the limitations of purchasing a physical piece of gold,” Vozchikov shared.
Digital gold, a history
To understand Copernicus Gold’s business, you need to comprehend the difference between fiat currencies and money. Ever since it was first smelted more than 5,000 years ago, gold has played a key role in the world’s development and economy. Historically, the precious metal is the only monetary currency that has withstood the test of time across millennia — in stark contrast to more than 2,500 created cryptocurrencies that have disappeared in the past decade alone.
For a long time, money was based on the Gold Standard, a system by which the value of a country’s currency or paper money was directly linked to gold. By the late 19th century, many of the world’s major currencies were pegged to gold at a set price per ounce.
The Bretton Woods Agreement of 1944 further cemented the Gold Standard’s ubiquitous use. Under this agreement, exchange values for all currencies were set in terms of gold, and foreign official holdings by member countries converted currencies into gold at par values of US$35 per ounce.
“The strengthening of the US dollar, however, soon heralded the end of the Gold Standard. In 1971, President Richard Nixon announced the temporary suspension of dollar-to-gold conversions. In the wake of the initiative that was later dubbed to be the “Nixon shock,” people were forced to transition from gold coins to paper money. Gold, it seemed, had finally lost it shine,”Vozchikov explained.
“Fiat currencies rose to prominence after 1971, and today they continue to evolve, pushed forth by technology. The digital age, especially with blockchain technology, is changing the way we view and manage payment systems and monetary transactions,” Vozchikov added further.
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As we know, blockchain as a new technology has gained popularity in recent years and is now used in banking, cryptocurrency and even healthcare. It is often described as a type of ledger, where every transaction that occurs — such as transferring digital gold from one person to another — is verified for accuracy. Series of transactions are recorded as a block and linked together in a chain using mathematical algorithms.
“Blockchain is a like a ledger where financial transactions that occur — such as transferring digital gold from one person to another — are recorded as a block, then strung together in a chain using mathematical algorithms. With blockchain, you can’t replicate things. One unit spent is one unit spent, you can’t use it twice. It is very safe, and the chances of breaking it is 1 number with 249 zeros behind it. This is the very concept on which Copernicus is built,” said Vozchikov pointed out.
No more gold rush
On the Copernicus platform (web, Android and iOS), buyers can purchase digital gold in any measure. You can choose to store digital gold in virtual form to carry out transactions digitally, or you can exchange digital gold for a physical piece of the metal at one of its partner stores in Singapore.
“Our team of world renowned mathematicians and economists worked for over two years to refine the algorithm for our proprietary blockchain technology. A priority in developing the algorithm was to consider how to counter inherent security risks such as hacking in blockchain technology. The blockchain had to be structured in such a way that it makes it impossible to tamper with transactions, one in which you don’t have to really trust the other party or the party in the middle; you can just trust the mathematics.
The algorithm determines the optimal amount of a physical asset a firm needs to hold in its reserves in order to fund a global payment system. The amount calculated is dependent on a wide range of variables, and the mathematical model accounts for the market price of gold, the bullions’ weight and other conditions. This ensures that the amount held in reserve is satisfactory for operational continuity, plus avoids the emission of unreasonably large or insufficient amounts of electronic gold, which means that you can reinstate the Gold Standard,” he elaborated on the concept.
To explain it in layman’s terms, let’s take this example. Assume a fork costs US$10. But you don’t want to buy the entire fork but just US$1 of fork. In such a case, the algorithm can work it out. If 10 people want to buy a fork, the algorithm will automatically calculate and learn when is the next time you can buy a fork. You never need to have more forks than what is needed, or less forks than what is needed.
“With the algorithm, a stored physical asset can be linked to a digital asset, potentially transforming a physical asset into a currency — a concept that could change the way transactions are made. While it is now possible to buy electronically-linked gold online, in future we could be buying land, crude oil, diamonds and even Omani palm trees,” he quipped.
In his view, the trend of investors flocking to precious metals in times of crises is unsurprising. Gold and silver have long been regarded as a safe investment. Michael Belkin, eminent advisor to sovereign wealth funds and hedge funds around the world, once famously commented, “Borrowers will default. Markets will collapse. Gold, the ultimate form of safe money, will skyrocket.” For years, astute investors have recognised the value of gold.
Early in 2017, China announced that it will move to block the US dollar’s global dominance by pricing oil in Yuan using a gold-backed futures contract, based in Shanghai. China has been strengthening its gold reserves in recent years. Breaking a six-year silence, in June 2015, China revealed it had 1,658 tons of gold in reserves. The last reported figure before this was 1,054 tons. In 2017, Chinese regulators began clamping down on cryptocurrencies and initial coin offerings (ICOs), which underscores their risk averseness for fiat currencies.
The year 2017 also saw the rise of another country that was bullish on gold. In June last year, Kyrgyzstan’s Prime Minister Sapar Isakov boldly announced that the nation was keen to create a national cryptocurrency backed by its sovereign stores of gold. “Potentially, Copernicus Gold can enable countries like China and Kyrgyzstan to monetise their physical stores of gold or facilitate transactions between physical commodities, such as oil and gold,” noted Vozchikov.
As for businesses, they can leverage Copernicus Gold’s technology to implement an electronic wallet; for example, a cell phone operator. Copernicus can also integrate with existing ecosystems that access people and can be used for payments, like Facebook, Telegram, WeChat or WhatsApp.
“Businesses, and businesses with applications, may soon choose to use their own cryptocurrencies or tokens, and these can be easily implemented as a payment system using Copernicus Gold’s technology. Companies that launch products or services using their own currency backed by their physical asset will become leaders,” he said.
Will digital gold enable gold to become the primary form of money again?
“While blockchain can help reinstate the Gold Standard, it’s unlikely to do so. Fiat currencies are so pervasive in the everyday system of consumerism that governments are unlikely to back away from paper currency. Still, digital currencies hold great potential to become more mainstream,” he observes.
For example, with a single gram of gold costing upwards of US$40, digital gold is good news for those who are unbanked or who want to save in gold but can’t, because the marketplace can only let them save in one gram of gold and above. The potential impact is vast, as estimates suggest that nearly four in 10 people worldwide, mostly in developing countries, do not have a bank account.
“These are the people who are going to turn to digital assets like Copernicus Gold. Because they can buy slowly online, in any grammage of digital gold, they can save up digital gold until they have enough to redeem physical gold or trade it for other goods and services — unencumbered by the need to save in cash, which can be stolen.” Vozchikov mentioned.
The startup claims it currently sells digital gold to over 4,000 customers across 40 countries.
“We are building an ecosystem where consumers can shop at merchants online and use gold to pay for their purchases, or save in digital gold for personal finance and expenditure. This not only reduces security risks associated with storing gold, but also transform the underbanked. We hope to gain great momentum in coming years,” he signed off.