Last updated on May 6th, 2014 at 09:02 pm
Many in finance and economics have stated the big detracting factor from bitcoin is it lacks an actual physical backing, with values surging and crashing at the drop of a hat.
While prices may zig-zag, some believe an ideal digital currency needs a monetary backing, like gold or other precious metals.
Melvin Ng, who ran LibertyBit, and David Gallo, a bitcoin miner, are seeking to provide a solution with the introduction of a new cryptocurrency by the name of Minacoin. Minacoin is based heavily on bitcoin, but unlike bitcoin is backed by actual gold bullion.
The pair of entrepreneurs have purchased two 400 ounce bars of gold, an amount value at over 1 million dollars, to act as a reserve for their latest take on digital currency. The overall aim for minacoin seems to emphasize the need for easier online transactions with users able to freely trade and purchase with minimal hassle.
— Bitjuice (@BitjuiceNews) May 6, 2014
“Bitcoin is an amazing technology. It’s almost like the internet reinvented again with currency in it. But the currency can lose its value within a day. Gold has been around for the last 5,000 years,” Ng said in a statement given to The Verge. Minacoins will be topped out at 21 million individual coins, valued at about 5 cents a coin. Minacoin calls back to the infamous E-Gold, a digital currency centered around a similar concept of valuation through precious metals which were stored in bank vaults around London and Dubai. E-Gold’s fall came about due to adoption by credit card thieves. E-Gold’s founders were indicted in 2007 for facilitating money laundering, leaving the digital currency dead in the water. Minacoin hasn’t had a smooth go of things just yet, with Ng further stating, “The original concept was a currency that was not a currency, kind of an IOU backed by gold. In terms of technology, it’s there. In terms of gold, it’s there. But in the last three days we’ve had a lot of issues in terms of legality and dealing with the terminology we use.”
— Inside (@inside) May 6, 2014
With a gold backing, minacoin comes under intense scrutiny regarding its status as a currency or a method of trading gold, with money laundering and precious metal regulations coming into play.
So, with minacoin’s introduction, what is its true intended purpose?
Those involved in investing in gold and silver rarely use the metals as a means of payment, rather treating it as a long term investment.
Eli Durado, a research fellow at George Mason University, stated, “As an economist, I’m almost always skeptical of people that think gold is the one true answer to all of our problems, so that already raises flags. Just looking at it, these guys aren’t ready for the prime time.”