A new face has been introduced to the digital currency world: gold. Minacoin, a new crypto-currency that will fully launched by June, does everything Bitcoin is supposed to do i.e. peer-to-peer monetary transfers over a de-centralized network. Except Minacoin is going into unchartered digital waters by backing the currency with gold.
Minacoin founders Melvin Ng and David Gallo have backed up their upcoming crypto-currency with two 400 oz. of gold valued at US$1,050,000. Minacoins are also limited to 21 million in total and are pre-mined, placing the value of one minacoin at US$0.05. Furthermore, a .08 fee is charged every month to back the investment and users cannot exchange their minacoins for actual gold.
The company itself is finding itself in a pool of criticism even before the first minacoin is spent. Washington D.C. attorney Carol Van Cleef, who worked in compliance with the now defunct E-Gold digital currency, said of Minacoin:
"It’s hard to believe that the company will be able to launch in a month if it intends to target US residents. The Department of Justice set out its expectations that a gold-backed currency needed to [be] registered as a money-services business and licensed."
But separating the personal legal work the company may face as they look to launch, what can one make of a digital currency backed by something of value, in this case gold?
Senator Rand Paul of Kentucky, a self-professed libertarian, believes backing digital currency with real assets would create a believer out of him:
“And actually my theory, if I were setting it up, I'd make it exchangeable for stock. And then it'd have real value. And I'd have it pegged, and I'd have a basket of 10 big retailers… I think it would work, but I think, because I'm sort of a believer in currency having value, if you're going to create a currency, have it backed up by -- you know, Hayek used to talk about a basket of commodities? You could have a basket of stocks, and have some exchangeability, because it's hard for people like me who are a bit tangible. But you could have an average of stocks, I'm wondering if that's the next permutation."
Nathan Lewis, writing for Forbes, flirted with the idea of pegging digital currencies to gold one year ago, an idea he found feasible due to Bitcoin’s volatility and modifications paired with gold’s centuries old stability:
“Today, you could peg the bitcoin to the dollar. Of course, this is rather pointless, as we could just use dollars instead. Or you could peg the bitcoin to gold. That would be rather more interesting, as it would provide a genuine high-quality alternative to the U.S. dollar.”
But what about the whole “de-centralization” part of digital currencies? Essentially, by using the Minacoin, you’re buying stocks in gold. This gold has to be stored somewhere, a problem Ng and Gallo have yet to figure out. Couldn’t the two men sell the gold without telling Minacoiners? Does that come off as “de-centralized”?
As Minacoin remains under the regulatory and technical microscope, an idea in principle could hinder its success. Bitcoin itself is not subject to counterparty risk and is censorship resistant. Minacoin works on an IOU system, letting you never be in total control of your assets. As Victoria Turk put it, “for all the talk, I'm still a little unsure as to why you wouldn't just use bitcoin if that's your main goal. And if it's not, why not just go for gold?” Could the best of both worlds be found in Minacoin?