Digitizing traditional securities and physical assets has become a new area of interest for investment-focused fintech startups. Turning physical assets into tradable digital assets creates more liquidity and lowers barriers to entry for private investors in asset classes that are traditionally dominated by institutional investors and high net worth individuals. One of these asset classes is the precious metal gold.
Gold has historically always been a popular store of wealth and is regularly added to investment portfolios for the purpose of diversification. However, it is not easy for private individuals to acquire gold bars and store them in a secure vault. Not only are gold bars usually sold at a premium but there is also a cost associated with storing physical gold.
The investment management industry has, therefore, created several gold-related investment products such as gold ETFs (exchange-traded funds), gold certificates and gold funds. These investment vehicles provide investors with indirect exposure to gold as an asset class.
To provide easier access to gold and at a lower cost, several fintech startups are leveraging blockchain technology to digitize gold to open the gold market up to private investors. Two of these startups include Vaultoro and the newly launched Orebits Corp.
London-based Vaultoro allows users to invest in physical gold using bitcoin. The startup, which was founded in 2015 by Philip Scigala and Joshua Scigala, offers a real-time exchange platform that uses bitcoin as the base currency to buy gold. Traders can trade in and out of both gold and bitcoin with other members of the marketplace 24 hours a day without the need of a bank account to conduct payments.
When a user purchases gold on the online platform, the gold is deposited in an insured gold bullion vault in Switzerland. Vaultoro uses encryption, multisignature storage and locked payout addresses to secure its vaults. It also maintains a transparent public audit both of bitcoin and gold holdings while preserving its customers’ anonymity.
Vaultoro’s intention is not only to provide a platform for gold investment but also to allow the underbanked population to make and receive digital payments using physical gold as a currency. Gold has stood the test of time as a store of wealth and makes for an excellent means of exchange due to its relatively low volatility.
Vaultoro is currently taking part in the 2017 Techstars Berlin Accelerator program, which has been a very beneficial experience for the startup so far.
Vaultoro Co-founder and CEO Joshua Scigala told Bitcoin Magazine: “I always thought that accelerators were just a way for VCs to filter out the good from the bad while earning some extra equity in the process but I was very wrong. Techstars has proven itself to be invaluable. We moved into their office in February, and things started to move very fast. Their network is so big, and the mentors they set you up with are really helpful. There are so many potholes you can trip over along the road to building a startup, having access to countless successful people that have walked the path before you is fantastic because they have torches to highlight the potholes.
“We started raising our seed round four days ago and have already got a quarter of the funding round committed,” he added.
Vaultoro’s mission has changed since joining the Techstars Accelerator, Scigala said. “It’s still to help as many people in the world to transition to private asset–based money (bitcoin, gold and silver) before their savings disappear through another banking crisis or inflation.”
Vaultoro has a lot in the pipeline, but its next step will be to open the bitcoin and gold market up to fiat currency holders. “The mainstream finds bitcoin too techy and scary, but they understand gold as a safe haven. We are building the easiest and most cost-effective way to save in physical gold and silver, then spend those savings directly using bitcoin or a gold-backed VISA debit card. We are also working to expand our glass books transparency protocol to insert every trade into the blockchain,” said Scigala.
The newest player in the blockchain-based gold investment space is Orebits. Orebits Corp, a provider of digitization services for unrefined commodities, has partnered up with smart contracts platform Symbiont to provide smart certificates called “orebits” to give private investors the opportunity to invest in digitized gold at a low cost.
“Orebits” certificates represent digital holdings of proven unrefined gold reserves that can be traded electronically on a peer-to-peer basis, thereby providing liquidity to a previously illiquid asset class. Orebits believes that this increase in liquidity may enable their smart certificates to be utilized for financing, private transactions, collateral or as a line item on a balance sheet.
CEO Scott Mehlman told Bitcoin Magazine, “The next steps for the Orebits platform, while we continue to digitize reserves, will be to create a vibrant market for the Orebits product. We are in initial conversations with several interested parties who are looking to either make a market in Orebits or even potentially to have Orebits listed on an exchange.”
Michael Zimits, President & COO of Orebits, added: “We [also] have the ability, through our technology provider Symbiont, to offer additional precious metals such as platinum, palladium and silver for digitization. This will depend on customer demand.”
The partnership between Orebits and Symbiont came about as both companies’ CEOs have had a longstanding relationship from their days in the FX market. They came to recognize that Symbiont’s private, permissioned, enterprise-ready distributed ledgers and their smart contracts and smart certificates solutions were ideal for creating new digitized commodity investment products.
Symbiont Co-founder and CEO Mark Smith stated, “We are excited to be working with Orebits Corp. to bring yet another distributed ledger project from prototype into production. Orebits Corp.’s innovation has created a new avenue for investors to gain exposure to gold, starting at the genesis moment for financial instruments that are tied to gold — namely, when the gold is still in the ground.”
Thanks to blockchain technology, private individuals are now able to have easy, low-cost access to gold as an investment, which has previously been reserved as a store of wealth only for the wealthy. As the digitization of traditional assets continues, we can expect more physical commodities to become investable digital assets that everyone with an internet connection will have access to in the near future.