Monday, February 1, 2016

Should Gold Be Linked with the Blockchain?

Thorsten Polleit has written a fascinating essay, How the Blockchain and Gold Can Work Together.

In it he discusses “colored bitcoin”  by which he means a situation where "You would buy, say, physical gold at a gold shop. The latter then issues a colored bitcoin, which represents the ownership of physical gold. The colored bitcoin is, economically speaking, a gold substitute (a money substitute, fully backed by physical gold). It can be used for making purchases and, upon the wish of its owner, it can be redeemed into physical gold at the gold shop at any time."

But what he does not do is discuss the elephant in the blockchain, that is, the fact that all transactions will be visible as part of the blockchain, which makes such transactions highly traceable.

There is an old Swiss proverb, "Gold has no smell." It can mean a couple of things, but one meaning is that gold can not be traced. It is one of the great beauties of gold, silver and a characteristic that even paper money has (Though paper  money has other defects that gold and silver don't).

Linking gold with a blockchain creates an odor that can not be washed away.

 The Australian Financial Review recently explained why governments and banksters are taking a liking to the blockchain:
This technology is offering regulators a bird's-eye view into activity in certain markets that they never had before. As such, distributed-ledger technology is actually an enhancement to transparency, rather than a mechanism for bypassing it.
When the next FDR comes along who decides to confiscate gold, do you want to be holding physical gold or a "colored bitcoin" that is on a  distributed-ledger that the next FDR can easily see?

Mixing gold and the blockcahin is a very bad idea.



  1. Living in a remote part of the world, I don't keep current with movies, TV shows, etc.
    On occasion (e.g. Christmas) I visit my family in California and catch up on some Netflix stuff. So we were watching "John Wick" and in the scene where he digs up his hoard of GOLD coins, to pay for certain extra-legal services, I got all gushy inside.

    1. Put "Looper" is your queue, it goes even a step further- it's a much better film that John Wick too IMO.

    2. I looked it up. Music by Richard and Linda Thompson! Winner right there! Thanks.

  2. Bitcoin was designed to be a trustless system, where you don't have to trust anyone. Introducing a promise to pay any asset (gold, FRNs, diamonds, etc) to the blockchain breaks the blockchain model. You have now introduced a trusted third party.

    There are better ways of keeping trusted third parties honest. It is called "good governance" with the use of trustees, public audits of reserves, etc. E-gold worked just fine for a decade without any blockchain.

    1. Right. Since all gold merchants must be trusted 100% in this scheme, the blockchain becomes a pointless technology. The gold merchants can just run an ordinary transaction processing database. = E-gold. = Govt shutdown at points of trust. Been there, tried that.

      Just do all your distance electronic transactions in bitcoin enjoying pseudonymity as suits your needs and then buy gold/sell gold using bitcoin for face-to-face payments with anonymity as suits your needs.