Counterfeit Gold & Blockchain..

Fraud Exists In All Sectors..

Recently there was a particularly nefarious business in China called Wuhan Kingold Jewelry which took out loads exceeding 2 Billion dollars. Massive loans like this require collateral, and they posted 83 tonnes of fake gold to over a dozen different Chinese institutions. The amount outstanding was an effective exchange of at least 83 tonnes of gold for 20 Billion Yuan.

Someone Blew the Whistle

One of the institutions wanted to liquidate their precious metal supply to cover debts and margin calls. This specific company was Dongguan Trust, and their discovery started the domino falling in consecutively: many companies testing their own gold vaults. The data is still coming to light, but three other companies who did business with Kingold have found fake gold in their stores. What is more concerning is it is sending quakes throughout the industry: can any gold be trusted? The amount in question that was fraudulent equates to 4.2% of the States total reserve.

How can this be fixed?

The long list of fraudsters on planet earth is seemingly never ending. Humans are only finding more complex and convoluted ways to earn money which shouldn't be theirs. This trend doesn't seem likely to stop, so there must be a tangible end to this problem: illegitimate products sold to the unsuspecting customer.

  • First would be restricting who can buy, sell, and own gold. This seems impossible on a global scale because of gold's reputation as an investment, currency, and hedge against inflation. What else could work?
  • Second would performing legitimacy checks prior to sale. Random selection, analysis, and certification could remove some of the risk in large volume sales. If this isn't happening already, I would be surprised.
  • Lastly is integrating new technology to facilitate the transaction and verification process. I think that Blockchain brings a lot of value from this perspective, and I want to explain why. 

Specific Value that Blockchain Brings in this Scenario:

Decentralized Trust.. Tokenizng, or assigning specific identifications to gold allows for traceable and transparent histories. Lets explore an example to make this crystal clear! First, lets say that a gold bar gets confirmed pure/legitimate, and then assigned a unique ID. It is bought by a customer, and that same customer now has access to the "certificate" proving its legit. Should they chose to sell, its simple - you don't need to prove its legit yourself, the data shows itself! Not only could one verify that gold is legit with a simple QR scanner, but it removes empowers the consumer to make informed and safe choices.
Back to the Golden Age..? One of the fundamental problem with precious metals as currencies is that they are really heavy, hard to divide, and not an efficient means of exchange. Gold backed cryptocurrencies already exist. These projects are designed to follow the price of the asset and are backed in a similar manner. These clever workaround allow for distributed and decentralized access to assets without physically having to own the gold iteself - clever!

Why though?

If you've been following Performante for a while, you will know that we love Crypto and Precious Metals. Fiat is the worst position to be involved in, and we stick by that! Crypto backed by precious metals solves the age old problem of exchange, storage, and safety which has plagued humans for years. Introducing hybrid models between them allows for global exchange without having to lift a finger, and greatly lessens the risk of being scammed with illegitimate gold!


Leave a comment