The creators of Minacoin want to create a gold standard cryptocurrency – but it’s not as easy as it may sound, critics say.
Usually, cryptocurrencies like Bitcoin and Dogecoin have no intrinsic value. Instead, prices are decided purely by demand at the moment, leading to often wild price fluctuations.
The creators of Minacoin are out to fix that. By pegging the value of their currency to a pair of 400oz gold bars, worth a total of $1 million, they hope that prices will stay consistent.
Each Minacoin is essentially worth 1mg of gold, giving the buyer ownership of that gold. They are not redeemable for physical material, however; Minacoins have to be traded for regular currencies or Bitcoins.
At least 90% of the coin’s value will be stored in physical gold, while up to 10% is expected to be held in exchange-traded funds (ETF), which would provide liquidity.
The gold ETF tendency to not fluctuate more than one percentage point is cited as evidence that it will be a stable currency.
Minacoin is not officially launching until June 1, 2014, but pre-orders can be placed now at $0.04 per coin.
Easy gold trading
The creators, Melvin Ng and David Gallo, hope that it will make it easier to trade gold and use it to pay for products and services.
Ideally Minacoin will combine the ease of transfer and anonymity afforded by cryptocurrencies with the security associated with gold.
Unlike Bitcoin, it will all be pre-mined, meaning that no new coins can be created. They can only be bought from the company, or other Minacoin owners.
But also unlike Bitcoin, it will use proof-of-stake instead of proof-of-work to validate transactions.
This essentially means that users will be rewarded for holding coins, and that miners won’t be able to suddenly dump a large amount of currency on the market. Bitcoin Magazine has a more detailed description.
Users who hold coins will be rewarded 1% interest annually, but there’s also a .08% monthly service fee for securing the gold and administering the ETFs.
More gold, more problems
Reactions to this new cryptocurrency have been quite polarized. While some see it as a great new way of solving the problem of fluctuating value in crypto, others have pointed out numerous issues, including:
- Not redeemable. If you can’t trade back for gold, is it really a gold-backed currency?
- Price drop. Some worry that the price will drop after the initial sale, and that the lack of redeemability means that everyone who invests loses money.
- Regulation. The creators are not sure whether Minacoin will be regulated as a currency, or as a way of trading gold, according to The Verge, which could lead to it being shut down.
- Centralization. In the same vein, one of the appeals of cryptocurrency is that it’s almost impossible to shut down once distributed. Minacoin, however, has a centralized store of value, and if that is shut down, it’s over.
- Criminals. Critics also mention how similar it is to eGold, an online currency backed by gold that was shut down in 2009 because of widespread adoption by criminals. If it doesn’t collect user identities, Minacoin could suffer the same fate.
Despite all these issues, Minacoin could yet prove to be a popular option for trading and using gold for online transactions.
It’s not the only company trying to help people use gold for simple transactions, however:
There’s also a dedicated currency – Notfiatcoin – that allows gold trading over Ripple (and it’s redeemable at values over $3,000).