The Gold Standard in Crypto Debate — Is XRP Backed by Gold Possible? (2024)

Contents

The gold-backed XRP debate saw the community of this Ripple-pioneered coin arguing for a while. Is XRP backed by gold inevitable if it were to be adopted by financial institutions? Should it be tied down to physical gold or can it offer more value? In this article, we will unpack this peculiar topic and take a look at the cryptocurrencies already backed by gold.

Key Takeaways

Cryptocurrencies and gold are closer than they seem to be. Bitcoin’s tokenomics emulate the gold standard, and it earned the nickname “digital gold” for it.
The XRP community at one point debated the possibility of it becoming gold-backed. The root of this discussion was the global banking standards, which prioritize digital assets that are backed by assets and commodities such as gold.
There are such assets in the crypto world but it is not XRP. Gold-backed stablecoins are backed by physical gold and can be redeemed, although they are better thought of as tokenized gold.

Crypto and Gold: A Brief History

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Rarely anyone needs an introduction to gold. This precious metal has been synonymous with wealth and value in many cultures since the dawn of civilization. Even today, it keeps this status primarily because the properties that define its value are unchanged. It is a rare tangible asset, which has its uses in some of the most vital industries, but most importantly, is widely recognized as a valuable commodity.

Traditionally, gold, silver, and some other valuable assets used to be the basis for national currencies. As the trading volumes and economies grew, the precious metal content in cash was reduced. At the same time, a new type of money started to circulate: fiat currency. Unlike hard currency, backed by another valuable asset, fiat currency’s value is attributed and essentially ensured by the government.

The gold standard dictated that a currency such as the US dollar must be equivalent to a certain amount of gold. This greatly slowed down both inflation and economic growth. The Great Depression of the 1930s, for example, was exacerbated by monetary compression, or more simply, deflation, the opposite of inflation. This factored into abandoning the gold standard for good in favor of the fiat system.

Nevertheless, high inflation is as problematic: the life of an average person is getting more expensive while income growth is not as fast. Cryptocurrencies and Bitcoin in particular were created to counteract surveillance and interference of privacy but they also showed promise for those who wanted to escape the current financial system. Bitcoin’s monetary model in particular has been intentionally modeled after gold and was received with open arms by those who believed abandoning the gold standard was a mistake.

Why XRP?

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As the largest crypto asset and a bearer of the “digital gold” nickname, Bitcoin (BTC) at first seems to be a more fitting candidate. However, surprisingly enough, it was the Ripple’s native crypto XRP community that latched onto the possibility of this digital asset becoming a gold-backed coin.

Where did the notion of XRP backed by gold come from? As is often the case, it can be tracked to social media. The inciting incident of the debate is the YouTube video by an influencer well-known in the XRP community, Lewis Jackson. In it, he claims that there is substantial evidence for two statements: XRP is going to be adopted by the banking system, and to qualify for this function, XRP has no choice but to be backed by gold. The video was enough to start a gold-backed XRP debate.

You can track gold by tokenising it on the XRP Ledger and creating a token such as XAU like companies have been doing for the past decade. But you can’t back XRP itself with gold.
— Matt Hamilton (@HammerToe) February 26, 2023

However, his arguments have been debunked by a former Ripple developer Matt Hamilton on Twitter (now X). As a decentralized cryptocurrency with a finite supply, XRP cannot be tied to physical gold in a way that would make it both pegged to its value and redeemable. He admitted that the only feasible way for two assets to interact is by tokenizing gold on the XRP Ledger.

After all, XRP Ledger is the backbone of the Ripple protocol, a currency exchange and remittance network created by Ripple Labs. The use case for its native cryptocurrency XRP is to serve as a common denominator unit of account in international settlements, among many other emerging scenarios enabled by the blockchain. From the very start, it was a project to be embedded into the existing financial system, so at least it was not entirely out of left field to expect it to conform to the standards of financial institutions.

More Cryptocurrencies Already Backed by Gold

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Great news for those who want their crypto to be backed by gold in the sense the institutions mean it! There are other cryptocurrencies and digital assets with value directly pegged to a piece of gold bullion and even redeemable. We are talking about gold-backed stablecoins.

An important notice would be that these tokens are better described as tokenized gold. They are pegged 1:1 to the price of an ounce or gram of gold and let anyone trade gold on a decentralized market.

Tether Gold (XAUt)

The largest crypto asset backed by physical gold is Tether’s XAUt. According to the official website, the custodian company TG Commodities Ltd. oversees 644 gold bars or 7,667.7 kg backing 246,524.33 XAUt in circulation.

Tether Gold is pegged to the price of one troy ounce of the precious metal. Although its trading volume is not as high as with other cryptocurrencies, it’s reasonable to suggest that these tokens would see more use for hedging or holding. XAUt is redeemable for gold, although the custodian can organize the delivery only to Switzerland.

Pax Gold (PAXG)

Coming in second is a gold-backed token of a similar design by another issuer company, Paxos. As the previous one, it follows the price of a troy ounce of gold but the redemptions are in USD only. Even so, they still technically meet the standards for digital currencies approved by banks worldwide.

Pax Gold outdoes Tether Gold in trading volumes and the number of markets. As far as gold-backed cryptocurrencies go, PAXG seems to have a better reputation with exchanges but less adoption by investors.

Comtech Gold (CGO)

Last but not least, an honorary mention of a smaller digital asset backed by gold. Comtech is a lot more local, working primarily from Dubai on the Middle Eastern market. Their token Comtech Gold (CGO) is pegged to the price of one gram of gold. It is also not an Ethereum token: the team opted to build their product on the XDC Blockchain instead.

If you want to read more facts and figures about these tokens and learn about more coins like these, check out our Beginner’s Guide to gold-backed cryptocurrencies.

Conclusion

Is XRP backed by gold? No but does it have to be, at the end of the day? The new financial system built to incorporate digital currencies has much more untapped potential than a single commodity, even as precious as gold.

Do you think making XRP a world reserve currency is a good idea? Join and discuss it on our Telegram, X (Twitter), Reddit, and Facebook. For more content to explore the crypto town, read the insightful content on our blog.

Frequently Asked Questions

What is XRP backed by?

As a digital currency, XRP is not backed by gold or other real-world assets. Its value is determined by public market trading and the utility of the XRP Ledger.

Which crypto is backed by gold?

There are currently no hard crypto currencies due to their decentralized and digital nature. However, there are tokens pegged to the value of gold. They include stablecoins Tether Gold (XAUt) and Pax Gold (PAXG), among others.

What is the XRP equivalent to gold?

At the time of writing, 1 gold troy ounce is worth 3,381 XRP or 1 XRP is equivalent to 0.00029577 XAU.

Will XRP be the world currency?

XRP is a utility token, although it can act like a unit of exchange on its own. Its primary use case is to bridge global currencies, not to replace them.

Disclaimer

This article is not a piece of financial or investment advice. When dealing with cryptocurrencies, remember that they are extremely volatile and thus, a high-risk investment. Always make sure to stay informed and be aware of those risks. Consider investing in cryptocurrencies only after careful consideration and analysis of your own research and at your own risk.