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Digix combines the security of gold and accessibility of cryptocurrency

Tony Zerucha

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Gold has often been used as a safe haven by investors during market turbulence. Well, for those investors who can get ahold of it. Cryptocurrencies are available to most investors but their markets are far from stable.

What if you blended the best of both of these asset classes, taking the stability of gold and the accessibility of cryptocurrencies? Shaun Djie has and he’s doing quite well with the results. Mr. Djie is the co-founder and COO of Digix, a company making gold bars divisible on the blockchain. Physical gold is represented by DGX tokens, where one DGX represents one gram of gold on the Ethereum blockchain.

Given his background, it’s not surprising Mr. Djie is blending the traditional and the novel. Earlier in his career he was a gold arbitrager, trading contracts between Japan and the United States. His introduction to Bitcoin was more from the currency side than the technological, but once he looked under the hood the possibilities became clear.

“Some see distributed ledgers as a store of data, where you can store the transaction history of an asset,” Mr. Djie said. “The transaction capability of digital currencies easily crosses borders. Banking and financial systems are not 24-7 and there’s friction when transferring value across borders.

“This is available to anyone with a freely available internet connection.” 

Yes, cryptocurrencies are easily transferable and one can maintain an asset’s transaction history. But many serious investors and most institutions stay away because of the volatility and the lack of a hedge for them to combat that risk. Add that option to a growing ecosystem of financial products that is slowly beginning to mirror traditional ones and that hesitancy begins to erode.

“The DGX tokens give security to an underlying physical asset,” Mr. Djie said. “Their value is pegged to one gram of gold, and it’s a stable store of value for tokens. Having an asset-backed token gives investors the confidence to participate and manage risk.”

Shaun Djie

Near-term investor sentiment has been poor thanks to the trade war between America and China, interest rate hikes and an 80 percent chance of a recession hitting us by 2021 (according to JPMorgan Chase). How might these factors affect the delicate cryptocurrency market?

Cryptocurrencies will likely see little effect, Mr. Djie said, as they have already had their recession. But there will be some change, as higher borrowing costs dampen investors’ moods to take risk outside of traditional markets.

The sharp cryptocurrency valuation drops have caused most speculators to leave the space, leaving true adherents to develop a thriving ecosystem under less scrutiny.

“Many cryptocurrency investors (who are left) got involved in 2012 or even before 2010,” Mr. Djie said. “They’ve been holding their cryptocurrency for six to nine years, so any further falls are unlikely to drive them out of the market.”

With fundamentals replacing speculation, it looks like the market is recalibrating, Mr. Djie added.

As asset tokenization becomes more popular, Mr. Djie believes the best opportunities will be with fungible commodities with universal market prices and active markets – gold, silver, diamonds, crude oil, wheat and corn. Intellectual property rights are more opaque in value and are much more speculative. Conversely, adding physical assets to the blockchain add value by providing proof of provenance for participants at every stage of the value chain.

It’s beginning to dawn on the techie side of the industry that, while they get blockchain technology, they cannot expect everyone else to have the same zeal for something they don’t understand. If you want the blockchain to spread improve the user experience without forcing that user to learn new behaviors.

“Creating a wallet and storing private keys impedes people learning,” Mr. Djie explained. “That brings friction and is more of a tech product for a tech crowd. The user experience is shifting away into more of a mass market approach.

“The whole space needs to dumb down the entire technology.”

 

Follow Mr. Djie on Medium.

Tony Zerucha

Tony Zerucha is an alternative finance journalist with more than seven years experience in the space. The author of more than 1,000 articles, Tony was named LendIt's 2018 Journalist of the Year.

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