Libertarian critics of bitcoin have often stated that the reason why peer-to-peer decentralized virtual currencies do not work is because they are not backed by anything tangible, like gold or silver. Instead, bitcoins and litecoins, peercoins and dogecoins, are only supported by a computer algorithm, which critics argue does not offer inherent value.
In recent months, there have been some cryptocurrency creators that are seeking to remedy this problem. One of them is precious metals dealer Anthem Vault, which launched the INNCoin, a virtual currency that is reportedly backed by bullion. The purpose of this newest digital currency is to make precious metals as a popular form of electronic money.
Based in Las Vegas, Nevada, Anthema initially launched 10 million INNCoins that are backed by 100 grams, or 3.5 ounces, of gold. All of the coins are scheduled to be in the open market by the same time next year.
“It should make gold more acceptable as a form of currency by combining its appeal as a store of value and a much more efficient medium of exchange,” said Anthem Blanchard, chief executive of Anthem Vault, who plans to offer an array of cryptocurrencies backed by a greater sum of gold and other precious metals by the end of September.
INNCoin operates on the same premise as bitcoin: it works on a peer-to-peer decentralized network without governments or central banks and the system rewards computers when they solve intricate mathematical problems.
Indeed, INNCoin isn’t the first cryptocurrency to claim to be backed by gold. Earlier this year, NoFiatCoin (XNF) was established, which works on the Ripple Network, but it did come with its own share of critics.
For instance, Michael Suede of Libertarian News posited that these companies permit their customers to trade in their alternative currencies for precious metals they have in stock. This means there isn’t any convertibility of gold or silver at a fixed rate. Also, some question as to how and where these businesses store precious metals.
Therefore, if the same logic is applied then bitcoin can also be swapped for gold at an array of bullion dealers.
Here is what Suede wrote in January:
“If XNFs were actually a “gold backed” currency, each XNF would have to represent a fixed unit of weight. For example, they could set an XNF to be worth .001 ounces of gold, and if you saved up 1000 XNFs, then you could always exchange them with NoFiatCoin for an ounce of bullion. Of course, under this system, it would be impossible to have a fixed limit of currency creation, and there would have to be a way to take XNFs out of circulation once they were redeemed for physical specie”.
“Further, if XNFs were a real gold backed currency, we would have to trust NoFiatCoin to maintain an accurate accounting of its gold reserves vs. its issuance of XNFs. There’s nothing that would physically prevent NoFiatCoin from issuing XNFs without actually having the gold to back them for redemption. This is how fractional reserve banking first came about. We can see that there are multiple trust issues that come into play when trying to tie a digital currency to physical bullion.”
