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What Is Gold-Backed Stablecoin and How It Works

What Is Gold-Backed Stablecoin and How It Works

What is a Gold-Backed Stablecoin?

A gold-backed stablecoin is an electronic form of money backed by gold reserves held in secure vaults by private agencies. Owners of gold-backed stablecoins can exchange with one another in the gold held by the issuing entity. Each issuing entity maintains a physical reserve reflecting 100 percent of client accounts. The concept dates back to the mid-1990s with E-Gold, and although many similar currencies have emerged and failed since then, the idea has evolved significantly.

How a Gold-Backed Stablecoin Works

As an electronic currency maintained by private entities, gold-backed stablecoins carry inherent risks. The funds are secured by physical gold reserves. However, being operated by independent private entities introduces additional risks, such as management risk, which includes ineffective administration, lack of transparency, poor oversight, slack security practices, or even outright theft.

The acceptance of digital currencies is not universal, adding complexity. Exchange rate risk is a significant concern, as the value of gold fluctuates in relation to global and national currencies. Not all countries allow the conversion of digital holdings into cash, and the resulting currency may not always provide the desired buying power.

Despite these challenges, supporters highlight the universality and resilience of gold, asserting that gold-backed stablecoins are well-suited to withstand economic turmoil. These stablecoins, being linked to a physical asset, are not tied to the monetary policy or economic system of any single country, thereby avoiding the risk of political upheaval.

Critics, however, argue that gold-backed currencies are too independent of national financial systems and cannot be managed by governments during financial crises.

Gold-Backed Stablecoins and Bitcoin

E-Gold, the first gold-backed stablecoin, eventually succumbed to the founders’ unfamiliarity with online fraud risks and regulatory responses. The U.S. Department of Justice classified E-Gold as a money transmitter rather than a payment platform, which led to its inability to obtain an operating license. Other firms have failed due to embezzlement, money laundering by executives, or their appeal to online identity thieves and other digital criminals.

Following the failures of many gold-backed stablecoins, Bitcoin has risen to prominence. Bitcoin users have learned from the mistakes of their predecessors and now comply with regulatory frameworks. Businesses in the Bitcoin marketplace recognize the importance of tracking transactions meticulously, and regulatory authorities demand transparency in identifying the origin and destination of Bitcoin transactions. The closure of the Silk Road marketplace in 2013 marked a significant step in Bitcoin’s path to legitimacy.

Introducing PAX Gold (PAXG)

At Alpha Bullion, we offer a modern and reliable way to redeem gold-backed stablecoin through PAX Gold (PAXG). PAX Gold is a digital asset backed by physical gold stored in some of London’s safest vaults. Each PAXG token represents one ounce of physical gold, guaranteeing that your digital holdings are backed by real, tangible assets. As the legal owner of the gold backing your PAX Gold account, you have the assurance that your investment is secure.

PAX Gold combines the stability of physical gold with the convenience of digital transactions. You can redeem your PAXG tokens for physical gold at any time. When you redeem PAXG tokens on Alpha Bullion, our partners at Bullion Exchanges will package your order discreetly and provide a tracking number for your shipment.

Alpha Bullion maintains transparent pricing with up-to-the-minute charts to keep you informed about the current price of gold/PAX Gold and how it compares to other popular cryptocurrencies like Bitcoin and Ethereum. Additionally, our partners at Bullion Exchanges offer a robust learning center to help answer any precious metals questions you might have.

For more information, please reach out to our customer service agents at or visit our FAQ Center, Privacy Policy, and Shipping Policy for answers to common questions.


Alpha Bullion is an innovative service for redeeming PAX Gold tokens for real, physical gold. Each token acts as proof of ownership for 1 oz of gold stored at no additional cost in bar form in some of the most secure vaults in London. This provides all the stability benefits offered by precious metals without the burden of storage or shipping. It also allows for a market first feature, as the potential for cryptocurrency loans using PAX Gold would allow customers to essentially earn dividends on precious metals. This unique bridge between the ancient and the innovative has already drawn attention from press such as Coindesk and Jim Cramer of Mad Money. Learn more by following select external articles on our blog, and stay tuned for more original content from Alpha Bullion.