DIGITAL GOLD HANDBOOK A COMPILATION OF LATEST DEVELOPMENTS
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www.bullionbulletin.in Preface
Gold is one of the most ancient known elements. Back in time, humanity has always woven a history with Gold; it has been always precious to human race. Gold as an element never lost it properties, which made the metal so special. People initiated Gold as a form of saving and later sold it during rainy days. Earlier Gold was only accumulated in physical when it came to investment or saving; digital form was never a thought. But as the human race evolved there came an era of Digital. With the emergence of Digital Gold the complete scenario of Gold investment and savings changed.
What is Digital Gold? Digital Gold is a convenient and cost effective method to accumulate Gold either in the form of investment or getting delivered in physical form. Digital gold enables you to buy, sell and accumulate pure gold in fractions anytime and anywhere without worrying about its purity, safety and storage. The product is distributed through the digital platform of banks, broking and fintech companies.
In this handbook of Digital Gold, we have made our best efforts to ABHINAYA S compile the latest technologies on Digital Gold across the Globe and the Asst. Vice President future prospects? Our each article has touched all the areas of Gold from accumulation to investment when it comes to digital form. Starting from A special thanks to all the the purity of refining Gold, which operates at the epicenter of Bullion market and assumes critical responsibility to ensure the functional contributors who have made this compliance across the value chain to Technology with an efficient handbook possible. transaction method. I also thank Neelambari Dasgupta (Editor of Bullion Bulletin) The handbook has focused on the socio-economic behavior of the for editing and Radhika for customer when it comes to purchase of digital form of Gold as well as designing this handbook. storage. Along with this we have also focused on Blockchain which has now become an essential part of digitalization and regulatory compliance. And when it comes to yellow metal how is it beneficial?
The concept of accumulation of physical gold will fade over the time and Monetizing Gold will be the ultimate option. So the key to this is, integrating Gold as a saving and investment product in the financial system. Digital Gold will have multiple benefits in the Gold ecological community as it is the real future which is speeding its way.
We hope you will enjoy this new handbook on Digital Gold as it’s our first attempt to publish a compilation of views on this topic.
For any feedback and queries please write to [email protected]
July 2020
2 www.bullionbulletin.in CONTENT
Valcambi sa, on Secure Supply Chain through Bar Genesis Mr. Michael Mesaric, CEO, Valcambi sa:...... 4
Taking Gold to digital consumers will increase awareness on purity and responsible Gold & Digital Gold- A Practitioner’s Perspective MMTC PAMP India Private Limited:...... 7
Safeguarding the bullion market’s integrity By Mr. Vincent Mathier (Senior Product Manager, SICPA SA) Mr. Jonathan J. Jodry (Head of New Business Development, Metalor Technologies SA) & Mr. KL Yap (Refining BU General Manager, Metalor Technologies Singpore):...... 10
PhonePe driving the adoption of digital gold purchases in India Mr. Karthik Raghupathy, VP Strategy & Business Development, PhonePe:...... 12
Silver Bullion Gold Collateralization and Basel III Mr. Gregor Gregersen, Founder and CEO, Silver Bullion Pte Ltd:...... 14
Keeping up with the rapid move to online sales of gold Mr. Abhinav Ramesh, Founder, Chainflux:...... 17
Blockchain Technology: How the Bullion industry will benefit Mr. Joshua Rotbart, Founder and Managing Partner, J. Rotbart & Co.:...... 20
The Future is Digital Gold Ms. Nirupama Soundararajan, Senior Fellow, Pahle India Foundation Mr. Arindam Goswami, Fellow, Pahle India Foundation:...... 22
Digital Gold: PAX Gold is Allocated Gold on the Blockchain Mr. Kyle Libra, Product Director, Paxos:...... 24
Applying Blockchain Technology for the Benefit of the Global Precious Metal Industry Mr. Urs Röösli, CEO of aXedras Group:...... 26
Emerging Technology to Protect our Gold Mr. Matthew Keen, Emergent Technology:...... 28
Technology which improves transaction and vendor processes; Goldblocx in the precious metal segment Mr. Loh Mun Chun , Goldblocx:...... 30
Digital Gold: the Next Step Forward Ms. Rhea Chaterji, Vice President- Strategy & Partnerships at SafeGold:...... 33
The Future of Gold is Digital:...... 35 Valcambi sa, on Secure Supply Chain through Bar Genesis
Valcambi sa, based in south-eastern Switzerland is one of the world’s largest gold refiners and for nearly 60 years has been committed to delivering the very best in innovation, service and security to our global customer base. We and our peers in the industry operate in what has become today a fast-evolving and complex commercial and regulatory environment. This presents many challenges, especially around compliance issues and supply chain security both of which have appropriately taken on much greater importance in today’s global marketplace. In 2020 the gold refining industry shoulders many responsibilities for the physical product that inevitably underpins the market and we are expected to act as de facto gate keepers for this. Once upon a time gold was gold and in a geographically and commercially narrow market, business could be conducted largely on trust. That is no longer the case: not all gold is equal as market participants and users insist on understanding in greater detail the sources of the metal that they receive and the chain of supply through which it has passed in order to comply with a complex web of national and international rules and legislation.
Today, the gold refining industry operates at the epicentre of the bullion market and has assumed critical responsibilities to ensure functional compliance across the value chain. The responsibilities of the refining community and the associated business risks linked to these responsibilities have expanded greatly in recent years with the risks seemingly far outpacing the rewards. New and innovative ways to improve accessibility to gold are proving transformational for the traditional bullion market and there is no doubt that 5 years from now Valcambi has been working on the market, its participants and the way that they function will be very different these issues for several years from what we see today. These changes will only serve to further increase the splitting the workflow into two importance of being able to prove that a gold bar is everything that it purports to distinct pieces. Firstly, and perhaps be in terms of weight, purity, manufacturing origin and supply chain. It has never more straightforward has been the been more important to be able to link together, with 100% certainty, a specific development of a secure supply chain physical gold bar to any and all sourcing, supply chain and other compliance and system to hold all relevant data from technical information that relate to it. sourcing through to bar genesis. Block chain-based systems lend themselves That linkage is made all the more significant given the growing threat from well to such a project and we have counterfeit and fake goods. The undermining of brand value and product trust partnered with local Swiss experts to is one side of the coin but for gold the issue is far wider given the potential develop such a system. to contaminate the entire market if elicit material is able to enter the supply chain. The refining industry and some other third parties have already The second workflow stream has responded, coming up with a range of solutions, generally on a player-by-player proved far more challenging and this basis. Many of these solutions have focussed on higher margin retail investor is the development of a system that products through the use of tamper proof packaging, additive processing such allows us to check the authenticity as holograms or incorporation of chemical finger printing. of a gold bar and by extension to
4 www.bullionbulletin.in (no tangible change to existing production process or change to the underlying product ie. no externally added security features such as barcodes, RFID tags) with minimal or no extra labour input 3. System must identify every bar as unique and allow for timely verification whenever and wherever may be required at any future date 4. Speed of operation high enough to avoid creating production bottlenecks 5. Low per unit costs (a few US cents per ounce)
To streamline development it was decided to focus the initial solution on cast, one-kilogram gold bars but with a view to being able to extend this to other cast bullion products as well as dore and ultimately large LGD bars in the future.
At its core, paira ACS combines computer visioning technologies and secure industrial systems. The combination of such systems meets the demands of users in terms of durability and reliability, to operate flawlessly with minimal user input at the heart of the production Mr. Michael Mesaric environment inside the plant. CEO, Valcambi sa Every newly cast gold kilobar at Valcambi is now automatically fed into the paira Industrial Acquisition be able to link that bar with 100% assurance to the supply chain information Unit (IAU). Inside the closed unit the created on that bar at its genesis. After assessing the must haves from such IAU captures information on each a system Valcambi initiated a search for possible vendors and has since 2017 bullion bar and creates a unique been working with paira suisse ag. In close collaboration we have supported digital fingerprint for the bar based paira in developing an industrial solution suitable for refiners and any handlers on its natural surfaces after cooling. of larger volumes of bars (such as shippers, customs agencies, exchanges and The digital fingerprint is further vaults). The system, called paira ACS (Anti-Counterfeiting System) has been in manipulated and incorporated with use at Valcambi since January 2019 and all cast one kilogram bars coming off the a range of additional data unique to end of our automated production lines have passed through the ACS machines that bar, some of which is drawn from and their fingerprint been added to the dedicated database for future reference Valcambi’s ERP system directly. The and checking. combined data is registered securely in an encrypted database located at Valcambi identified 5 key wants from the system: Valcambi. A cloud database operated 1. 100% security assurance by paira receives partial and encrypted 2. Simple to use and ease of integration with existing manufacturing process data passed to it from Valcambi and
www.bullionbulletin.in 5 against this cloud database it is possible to conduct bar verification on a bulk risky to add new businesses lines. basis with the Industrial Checking Unit (ICU) or IAU switched to run in checking This might for example include issuing mode. Valcambi is already in the process of testing version 2 of the IAU which gold certificates or provision of short- now incorporates full robotic functionality enabling boxes of kilobars tobe term loan facilities against gold given loaded into the system for checking and then reloading of the boxes without that the system allows the underlying human intervention. The system design incorporates multiple security levels. physical to be verified at any time and location. It could also enable banks What has become very clear over the years spent supporting the development and exchanges to outsource vaulting of this system is that what superficially may seem to be rather straightforward facilities to approved transport can prove extremely challenging. paira has benefitted hugely from being able to companies, dramatically improving conduct much of its testing and trials in an operating environment. A variety of the efficiency of operations and use of stress tests using bulk samples of bars (running in to many tens of thousands), capital thereby helping to make bank followed by detailed statistical analysis have enabled fine tuning of the system activities in bullion more efficient, in a way that could never have been possible in a laboratory. We are delighted cheaper and flexible and improve that all of this effort has delivered a solution that allows us to verify and re-verify compatibility with other financial any of our bars in the system at any point in their future life cycle in a matter of platforms such as ETFs and exchange seconds. Most importantly, it can be done at minimal cost and with no change traded products. required to our product or our pre-existing manufacturing processes, with no impact on bar assay or bar weight in what is a totally non-additive solution.
As for the next steps it is clear that a way needs to be developed to enable the wider market access to the system to be able to check our bars. Perhaps other refiners may take an interest in adopting the paira system. In terms of users we can perceive a scenario where governments may have an interest with Customs adopting the system to check through all bars arriving from abroad. Sucha system as that developed by paira, which incorporated multiple refineries could be used by the authorities to address smuggling by allowing only bars recognised in the system to be imported and to be in domestic market circulation. Logistics companies may also have an interest either for themselves or as a service provider in offering out-sourcing facilities to other market users to run checks on bars at the request of clients. Trading volumes will certainly increase and such a system would for example benefit banks by making it easier and less
6 www.bullionbulletin.in Taking Gold to digital consumers will increase awareness on purity and responsible Gold
MMTC PAMP India Private Limited
Digital Gold is different from the OTC and responsible Gold, which have until now been a black box for the Indian consumer. This in turn should market: drive Gold producers in India, if they want a piece of • Digital Gold is not a trading platform but is only a the Digital pie, to move towards an organised sector mechanism to make Gold more accessible and easy and comply with global quality standards. for consumers to buy and sell India • A consumer has access to a live buy sell price 365 days a year, 24 hours a day. • It is always going to attract retail customers and not institutional buyers owing to the bid ask spread. • The minimum quantity sold and bought is also not a constraint in Digital Gold. Minimum purchase value is Re 1. • You could compare our Digital Gold offering more with Gold accumulation plans running successfully in countries like Turkey and Malaysia. • After MMTC-PAMP launched Digital Gold with Paytm in October 2016, the market has seen a few more entrants along with exits in a short span of 2 years. • The main thing a digital Gold provider will need to ensure is the ability to manage liquidity throughout. Else, we will see players exit. • Today there are 3 major providers of Digital Gold who have partnered with over 30 platforms including Paytm, Google Pay, Phonepe, Motilal Oswal etc. • We are hopeful that taking Gold to digital consumers will increase awareness about aspects like purity www.bullionbulletin.in 7 into the transaction; allowing customers to reliably assess the purity of the gold they hold and sell it back Digital Gold- at a fair price. Without the guarantee of security and quality, customers will revert to old buying channels or leave A Practitioner’s the gold ecosystem, resulting in the failure of the product.
Perspective In an opaque and unreliable digital gold ecosystem, consumers may MMTC PAMP India receive gold of a lower quality than promised. Such early stage failures can Private Limited sour a whole customer base, killing entire product lines and categories before they’re even born. Inevitably, as customers become more aware, Indian customers are famously fond of gold, but face a multitude of challenges they will look past the immediate while buying it. Gold is a versatile product, with the potential to service customer distributor (whether a bank, wallet or needs as diverse as consumption, savings and even insurance. Jewellery, with its broker) to question the provenance aesthetic and cultural value, satisfies consumption needs. But it is increasingly of their gold and how its quality is evident that it is an expensive and inefficient way for customers to meet their assured. savings and insurance needs. To further compound matters, India’s demographic shift means that customers are increasingly tech-savvy, financially literate and However, if players are successful creative in their use of gold. in gaining customer trust, customer retention and customer awareness As a new innovation in a mature market, and a habit-changer for people, digital will both increase. For this to gold has generated much excitement and chatter. But of course, it is still nascent happen, improved quality testing and and while novelty and its attendant curiosity will take it some distance, the accreditation will be the need of the question remains- Will customers embrace it? There is good reason to believe hour, which in turn necessitates an they will. In theory, the ability to freely transact online in gold while retaining independent Indian Good Delivery physical title is the ideal solution to the issues of the modern gold consumer. standard and significant upgradation of the quality of hallmarking centres. But that is not enough to guarantee the success of Digital gold. Pioneers in the market have successfully taken the first step: companies are If we meet the critical success factor now building simple and easy-to-use technology platforms for gold transactions. of being able to satisfy customers These platforms need to be transparent and free of glitches, allowing for around quality, then we can progress convenient buy-sell. Simultaneously, banks, brokers and mobile wallets are towards a much greater future for investing in marketing the product, targeting the early adopters in the product digital gold. The same system that lifecycle with well-managed campaigns targeted at early adopters in the product can allow a customer to transact lifecycle. This is increasing customer awareness and acceptance of digital gold. digitally and also assess purity physically, can be deployed for a In our industry, as in others, building customer-friendly front-end UI/ UX and platform for integrating into the Gold spending heavy marketing dollars are the easy part. However, this short-term monetization scheme, where it would success belies the unresolved concerns that continue to plague the customer. reduce transaction costs and import As purveyors of digital gold mushroom in increasing numbers in response dependence; functioning as an easy to the demand, consumers will have no clear way to assess the quality and household savings choice; providing trustworthiness of the gold they buy. Furthermore, there are no mechanisms the risk hedge portfolio investors that allow customers to sell their physical gold back to digital gold players. need amongst others. This of course requires regulatory changes to create Digital gold will become a sustainable proposition only when players invest a more conducive environment for the heavily in the physical infrastructure that will bring much-needed transparency unimpeded flow of gold through the
8 www.bullionbulletin.in system of financial players, gold refineries, and end customers. As India’s first LBMA accredited gold and silver refinery, MMTC-PAMP has been at The great challenge of this trajectory will be timing. Given that the product the forefront of bringing global standards entails a huge shift in perceptions and buying behaviour, each step of this journey and breakthrough innovation to the Indian will be subjected to the Goldilocks test- not too soon, and not too late. Digital precious metals business. gold will need to pique the interest of customers and meet their ever-growing needs, while not driving them away with the extent of change that the product In line with its commitment to developing demands. Move too fast, and we risk destroying the category in its infancy– world class products for Indian consumers, witness the long gestation period of ETFs, SGB and GMS to become meaningful MMTC-PAMP pioneered digital gold alternate products for the Indian customer. Move too slowly, and the customer products for the jewellery industry in will change over to other substitutes for gold, most notably financial institutions 2016. for savings and platinum for jewellery.
The symbiosis between customer awareness and product development will be a delicate balance, and one that needs to be perfected to ensure the continued success of Digital gold.
www.bullionbulletin.in 9 Safeguarding the bullion market’s integrity
SICPA & Metalor Technologies explain the latest innovation to protect the integrity of bars on the bullion market.
By Mr. Vincent Mathier To overcome those issues and safeguard the bullion market integrity, (Senior Product Manager, SICPA SA) SICPA, the Swiss leading provider Mr. Jonathan J. Jodry of global security solutions for currencies, and Metalor Technologies (Head of New Business Development, have jointly developed a technology- Metalor Technologies SA) & based security feature in line with LBMA guidance, known as Bullion Mr. KL Yap Protect. (Refining BU General Manager, Metalor BullionProtect is based on a security Technologies Singapore) feature transferred directly on the ...... surface of the bullion, leading to such a marginal weight increase (ca. 10 mg) In recent years, the precious metals market has seen an increasingly worrying that it is not detectable by scales used number of fake and counterfeit kilobars. for kilobar verification. Its security is built on proven technologies with high Fake bars are ingots that do not contain the expected amount of gold – either counterfeit robustness, which have because they are not in gold at all, or because they include other metals. A been successfully used in specialised typical example encountered in the market is gold bars containing tungsten markets like identity documents for rods, which are very difficult to detect without advanced equipment as tungsten more than a decade. and gold have the same density. BullionProtect allows all actors Counterfeit bars are made of real gold, but they carry reproductions of hallmarks within the supply chain to validate of renowned manufacturers and forged serial numbers. Such ingots are typically the authenticity of precious metal generated by illegal activities and hence, are highly problematic as they damage products at three levels: the reputation of companies and compromise the integrity of the international • Visual check of security seal gold market. The integrity of the gold bullion market relies on gold market • Quick verification using a blinking stakeholders working together against all types of counterfeiting activities. light system or validator • Machine-assisted detection using Detecting fake or counterfeit bars is not easy. There is equipment available in the a hand-held device market to do so based on electrical conductivity or ultrasound measurements, but their usage is complex and small defect in the bar can prevent a clear Simple and immediate verification reading from being obtained. Some refiners have developed procedures to scan of security seals can be performed or take picture of the surface of their bars to identify them later. These methods with high throughput even in limited require relatively sophisticated tools and may be deemed impractical when a space, without adequate lighting and single transaction can comprise hundreds of bars. without an internet connection – 100
10 www.bullionbulletin.in kilobars can be checked in less than 1 minute.
It is compatible with existing and potential security measures without impairing gold purity at all stages of production, delivery, transaction and recycling – the inks burn upon melting without adding any impurity in the gold. It iscost- effective and time-effective - no change on production procedures is required, and there are minor cost adjustments, with no or minimal investment. The seal is very robust, but is destroyed upon removal. Additionally, BullionProtect is compatible with any bullion and is customisable and scalable to different market needs and evolving demands. Visual verification of the seal’s polarisation properties using a Furthermore, the same technology can be applied on the boxes containing validator kilobars, which allows the same detection devices to be used for the bars and the containers.
Metalor is already adding the BullionProtect security feature on some of its newly produced kilobars in its fine LBMA gold accredited refineries (Switzerland, USA, Hong Kong, Singapore, China).
BullionProtect solution is open to any producer on the LBMA Good Delivery list, and its adoption is currently discussed by several refiners.
For more details, please visit the fully updated web site www.BullionProtect. com, or contact BullionProtect@ sicpa.com.
For more details, please visit the fully updated web site www.BullionProtect. com, or contact BullionProtect@ sicpa.com. Verification using a flashlight
Machine-assisted verification.
www.bullionbulletin.in 11 PhonePe driving the adoption of digital gold purchases in India
Gold is a very interesting commodity. We think of gold as an alternative to currency. If you think of how money is used in the country, it is largely centered on spending in the market, sending money to someone, managing money through loans or insurance and growing money by investing. Gold can play the same role in the Indian market. A person can send gold to another person by gifting, spend in gold at a jeweller’s shop for making jewellery, manage gold so that it can be used to take a loan against or earn interest on the gold balance. Our view as a digital payment player is that gold can be used across the multiple use cases described above. Digital players like us have tremendous opportunities, and we are growing the market working with companies like MMTC- PAMP and SafeGold. This is happening in multiple ways. Firstly, we have millions of customers already on our platform transacting in other categories. So, we give our partners the opportunity to distribute their offering to a vast base of over 200 million registered users. Secondly, we can target our customers with Mr. Karthik Raghupathy precision based on their transactional behavior on our platform. Third, what VP Strategy & Business we offer to our partners is the speed Development, PhonePe of innovation. We can innovate things at a much faster speed. So, broadly, we would say that when it comes to distribution, customization, speed and innovation, PhonePe is driving the adoption of digital gold purchases in India.
12 www.bullionbulletin.in We launched Gold on our platform in December 2017. Over the past 2.5 years, we have been pleasantly surprised by the penetration of digital gold for which we have partnered with SafeGold and MMTC-PAMP. With this offering, we have managed to attract customers from across segments which include the lower- income segment who just save a little cash and buy gold in small ticket sizes. We have also seen high ticket-size purchases where people are buying gold worth INR 1 lakh per month or so. So, it has been a very broad penetration when it comes to gold. I think our target segment comprises customers who want to buy gold either for investment purposes or because they believe that gold is a good currency hedge for them. There are customers who also buy gold for their personal or family use, be it during a festival or special occasions such as birthdays, marriages, anniversaries etc. Many customers also prefer to get gold delivered to their doorsteps on such occasions.
Maximum purchase of gold on PhonePe We have seen a significant spike in the purchase of gold in the run-up to and during festivals and auspicious days such as Akshaya Tritiya, Dhanteras, Onam, etc. Interestingly, this year since Akshaya Tritiya overlapped with the countrywide lockdown, we saw tremendous growth in the purchase of gold on our platform. The sale of gold on our platform rose by 125% on Akshaya Tritiya (in terms of the total purchase value of gold) this year (2020) compared Since we launched the category, we to the festive occasion last year (2019). It is encouraging to note that customers have sold around 1,150 kgs of gold on from Jharkhand bought the most amount of gold by weight and the highest our platform. number of customers and transactions originated from West Bengal. Some of the tier-3 cities that contributed to the maximum transactions included Tirupati, Future Plans Bhilai, and Muzaffarpur, among others. The response from customers across We are working on a bunch of the country reflects the trust reposed by them in PhonePe, and this could be an interesting new features based on inflection point for the purchase of gold online in India. the study of customer demand. We are planning to launch a systematic Liquidity of the Gold investment plan (SIP) feature for gold Gold is actually quite liquid. If you have already bought gold, you have two to encourage disciplined and regular options – either you can sell gold instantly and get your money deposited in investments in gold and to help our your bank account or you can get it delivered. The delivery will come in the form customers build wealth sustainably. of a bar or coin depending upon the amount of gold you have purchased. A We are also working to launch minimum of 1 gm of gold is required in a customer’s account for taking physical reminders to help our customers delivery of the product. avoid missing out on regular investing due to other priorities. Gold gifting is another exciting feature we are planning to roll out in the next 12 months, enabling our customers to gift gold to their loved ones through PhonePe.
www.bullionbulletin.in 13 Silver Bullion Gold Collateralization and Basel III
Alternative Gold Collateralization in the Age of Basel III The new Basel III set of banking regulations went into effect earlier this year with a focus on making banks more resilient in a crisis. But with the stated goal comes the downside of making it considerably more expensive for banks to finance or collateralize gold.
Banks have been moving out of the commodity sector for several years now and these newly increased costs are even likely to result in fewer banks making fewer loans at higher interest rates. The upshot is that as a result of these changes and pressures, new distributed collateralized lending models are maturing now with the potential of slowly taking over lost business from the banks.
While not necessarily a full replacement for large bullion bank loans yet, these models are growing quickly, using highly automated processes and robust asset tracking frameworks to enable the safe distribution of loan issuance on a platform that is flexible, inexpensive Mr. Gregor Gregersen and fast. Founder and CEO A practical P2P Gold Collateralization Silver Bullion Pte Ltd Example: Our company developed and launched a collateralized peerto- peer lending system (P2P) for our storage customers in 2015. In the four years since its inception, nearly one thousand participants have engaged
14 www.bullionbulletin.in in approximately 3,300 loan contracts valued at approximately $100 million Bullion details and audit reports are SGD. made available to the public at large so that lenders have a wealth of These P2P business transactions represent individual loan amounts ranging information about collateral, which from a few thousand dollars to nearly one million dollars. However, a single in turn builds confidence and leads borrower can obtain multiple loans allowing users to borrow multimillion-dollar to lower interest rate demands by sums in aggregate. Loans are always contracted between a single lender lenders. and a single borrower. Each loan requires between 160% to 200% worth of unencumbered physical gold or silver as collateral, valued at the current spot Furthermore, because all bullion is price on the contract date with margin calls at 125% and 110% respectively. publicly tracked and both lenders and borrowers have to undergo AML/KYC, Loan durations range from 1 to 24 months and interest rates are set in a typical loans can be created and approved bid/ask market with both borrowers and lenders as active participants. Typical within minutes at minimal interest rates are between 2 and 4.5% depending on the loan’s currency administrative costs. Loan terms are (currently options are SGD and USD) and duration. also public as is the collateralization history for each bullion bar, coin and By avoiding any kind of financial aggregation and using physical assets, the parcel. system falls outside of the regulatory scope of the Monetary Authority of Singapore (MAS) and instead follows the Singapore Ministry of Law’s AML/CFT These high transparency collateral- standards for precious stones and precious metals dealers (PSMD), which also ization requirements have created an regulate physical bullion liquidity. overabundance of willing lenders.
The high collateralization and transparency requirements, typically being 50% to The next step: Intra Vault P2P and Ex- 62.5% loan-to-value (LTV) using the liquid nature of the collateral, make the loan treme Transparency. Silver Bullion Pte very safe for the lender, resulting in virtually zero default risk. Ontime payment Ltd will now expand these liquidity has also been spotless thus far due to the system’s “sweeper fund” which acts services to bullion stored in reputable as a buffer in case of missed or delayed payments. third-party vaults while maintaining or exceeding existing P2P transpar- Distributed Loans rely on high transparency and public access to build confidence ency requirements and ease of use. Whereas traditional loans tend to be confidential agreements between a This will provide alternative sources financial institution and a borrower, our distributed P2P platform is designed of liquidity to our increasingly illiquid to provide as much public transparency about the transaction and the asset as industry. is practical so that auditors and other third parties can independently track and verify assets and loans. The parties to the loan however are confidential. The system is supported by a lightweight, uncomplicated asset Collateral transparency has been our focus for the past decade and has resulted tracking system that uses specialized in an advanced vault management system that tracks bullion parcels individually, scanners and tamper-evident RFID provides asset photos, and records events such as ownership changes, loan chips to scale up our P2P system encumbrances, testing, insurance and thirdparty audits. with minimal costs and deployment hurdles. This proprietary system is called “GramChain.” GramChain tracks and values bullion down to the gram and uses public blockchains to record event details in real time.
Gramchain goes several steps beyond our current asset tracking system by requiring three critical factors: • Origin Integrity: Because assets are always tracked live via tamper evident RFIDs directly by vaults, the occurrence of third-party scams and document forgeries is eliminated. www.bullionbulletin.in 15 • Data Immutability: Raw data is hashed during upload and broadcasted to a This is a solid foundation for securely public blockchain, guaranteeing data authenticity and immutability. expanding distributed P2P lending • Public Auditing: Asset events and photos are publicly available making across the bullion industry. anyone a potential auditor and greatly increasing the chance that any improprieties, no matter how unlikely, are uncovered in a timely manner. GramChain will set the foundation for a new generation of third-party GramChain transparently provides the public with all event data recorded by applications and services that will vault operators and broadcasts data hashes to the blockchain to prove the enable physical gold digitization event data is authentic and has not been tampered. Even sensitive data is made in a simple, highly scalable and public in a salted and hashed format to securely hide the raw information while transparent manner. providing the public immutable “who-did-what” proof on a need to know basis.
Author: Gregor Gregersen (www.gramchain.net)
16 www.bullionbulletin.in Keeping up with the rapid move to online sales of gold
“Gold is money, everything else is just credit”-J. P. Morgan The above statement from Mr. J. P. Morgan in 1912 holds significance even today. The phenomenon of turning towards gold in times of crisis is nothing new.During the 2008 subprime mortgage crisis, there was a massive rise in gold prices; on the evening of demonetization announcement, individuals rushed to invest their old notes in gold, which resulted in a three year high of the gold prices.
In the current COVID-19 pandemic, gold has emerged as a safe haven for many people. Amid the lockdown in India, gold crossed the Rs. 47,000 mark for 10 grams of the yellow metal. The fact that gold is viewed as a hedge against inflation and currency debasement explains the notion of safety associated with it. Some experts are estimating that gold might reach the levels of 20% of the investment portfolio of individuals.
Mr. Abhinav Ramesh However, the current situation poses a problem and opportunity never Founder, Chainflux seen before. Due to the Covid crisis, people cannot buy physical gold from the stores. Stores are facing huge
www.bullionbulletin.in 17 losses due to a shut down for close to doing this to tide over the credit crunch, by offering a “buy now, collect 2 months, however on the bright side later” scheme to customers. This scheme along with the discounts offered customers’ demand is rising for gold. incentivizes customers to buy to fulfill their demand, and collect once the This poses a unique opportunity for Covid crisis is over. jewellery stores to move sales online. Online sales of jewellery is nothing When customers are looking to buy online, they are not necessarily looking new, with companies like Tanishq to get physical gold. Here, we can divide customers into three categories: already selling jewellery online. However, for a jeweler, mimicking 1. Jewellery: Customers who are looking to purchase jewellery online. They customer behavior in the store vs could currently be looking to buy e-gold, and look to get delivey of gold and predicting what customer behavior convert that into jewellery. On the other hand, customers could look to will look online is the key question. buy jewellery directly online, which would be a completely new customer The current solution that is adopted behavior. is to just put up an e-commerce 2. Investment: Here customers are not necessarily looking to purchase or portal, similar to Shopify, for store physical gold, but looking to invest gold, hence they would also look customers to browse, add to cart, to explore Soveriegn Gold Bonds and Gold ETFs. pay, get incentivized while paying with 3. Loans: Customers who are facing a cash crunch due to Covid will be looking discounts, and purchase. However, we to get gold Loans or even possibly participate in the Gold Monetization feel that there are many additional Scheme which enables them to earn interest on existing jewellery. workflows that jewelers can use to incentivize customers to buy online: At our company Chainflux, we mainly work on Blockchain technology. We have built a traceability soluton called SHINE to solve for the Gems and jewellery 1. Build Trust: Building trust with sector’s trust shortcomings. We are working closely with the India Gold Policy customers is paramount when it Centre (IGPC) to put India’s gold industry on the world stage on the back of comes to jewellery. Customers technology that ensures traceability, real time audits, and enhanced trust in want to know that they are getting an otherwise unorganised industry. the best quality of precious stones and gold. Blockchain SHINE uses Distributed Ledger Technology (DLT) or Blockchain technology to as a technology can greatly provides a fully traceable, auditable, and tamper-proof ledger on which data is help in building trust in online stored and exchanged. transactions, with all details on the jewellery, hallmarking, SHINE provides the opportunity for India to set the standards in the precious quality of stones being recorded metals industry for source verification, goods delivery, data validation, data on the Blockchain at the sharing, regulatory compliance and customer happiness. SHINE can potentially time of data entry be verified reduce cash outflow from the country by setting reliable standards for the Indian participants. Hence, this gives gold industry, thereby making a strong case to the regulator to allow banks to customers the traceability of the participate in the local markets. Furthermore, SHINE can make it difficult to use manufacturing of the jewellery, gold for financing illicit activities as this system would ensure all gold within the as well as gives them assurance country moves within the confines of the closed-loop network supported, at of the quality of the jewellery. every step of the way, with a unique Blockchain digital identity. Any gold item or bullion outside of this network will be regarded as unverified, discouraging its 2. Greater experience with AR/ purchase and trade. VR: Augmented reality and Virtual reality helps customers Using SHINE, jewellers can build trust online with customers by showing real time to visualize how the jewellery traceability of the jewellery, hence authenticating source verification, product would look when they wear quality, guarantee of delivery in real time. Hence, all online jewellery would come it. This can be done through a with a simple Blockchain Identity, which would be linked to the history of each simple mobile app that shows of the items on the jewellery. Data that would be recorded for each piece of user through a front facing jewellery is: camera, and shows how a piece of jewellery would look through a photo on the phone.
3. Alternative financing options: Many jewelers have started
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1. The entire traceability of the stones, the measurement of carat, colour of the stones; 2. The measurement of purity/fineness, weight and the source of the gold;
All this data would be stored securely and in real time on the Blockchain, hence building trust with customers on the authenticity and source of the jewellery. In addition, this would also help jewellers build trust with banks in order to get a line of credit from them.
As a second part of this article, we will talk about how we intend to use Blockchain to further build trust inonline transactions and provide a seamless experience to customers to buy gold and jewellery online in the most trusted manner, by combining trust based technology such as Blockchain with an easy user experience like never before seen in the gold industry.
www.bullionbulletin.in 19 Blockchain Technology: How the Bullion industry will benefit
The bullion industry is one of the oldest and long established out of all sectors. As an industry that works in the financial space and deal with a tangible and physical asset, methods of operations remained the same for many years. For many years, various mining companies, refineries,mints and logistics companies were working in the same manner and methods while digitalization processes were hard to implement in such a traditional environment.
The rise of blockchain technology and its many virtues may be a perfect match to an industry which is very traditional by nature.
Blockchain is a single, shared, tamper- evident ledger in which recorded transactions can’t be altered. It’s a shared system that requires consensus or verification from all parties in the network to create or add transactions. Although its best known use is for cryptocurrencies, most notably with Bitcoin, blockchain technology has created a stir in the business world with its main properties.
We would like to discuss and Mr. Joshua Rotbart demonstrate how blockchain Founder and Managing Partner technology can benefit various aspects of the precious metals supply chain. J. Rotbart & Co.
20 www.bullionbulletin.in Applications in the bullion industry Decentralization From supply chain to shipping, many projects are exploring how to harness Blockchain by its nature, is blockchain technology to cut costs, improve efficiency and expedite processes. decentralized in many cases, As blockchain continues to enjoy popularity among major industries, one might meaning, there is no one central wonder how the traditional precious metals industry could benefit. authority that controls the information that the network Mining to Refining: Traceability holds. In many blockchain Within a blockchain, all users can record and trace transactions, strengthening networks, transactions history supply chain management by improving safety, quality, and governance; while and information isn’t stored in reducing potential confusion and complexity. one place. It’s recorded in every computer within the network. In 2018, the Republic of Congo began using TrustChain, a blockchain There’s no core authority. collaboration between IBM and diamond and jewelry companies. It tracks and authenticates diamonds and precious metals at all stages of the global supply chain—from miner to retailer. The project also focuses on enforcing compliance Transparency with regulations preventing child labor. Transparency is inherited in Blockchain technology. The The bullion industry has seen how this technology can track raw metals from decentralization of the distributed mines to refineries. A few projects are already trying to standardize a system. blockchain ledger means that those transaction records are Transportation: Documentation Efficiency identically recorded in multiple TradeLens, developed by IBM and Maersk, is a blockchain logistics network locations (computers or “nodes”). allowing easy access to tamper-proof documents on a distributed ledger that Having the same records spread makes physical paperwork largely unnecessary. The precious metals industry is across a large network for all still quite paper rich and implementing similar systems may dramatically reduce to see is the core of blockchain costs and transportation time. transparency. It is also why the blockchain is considered Production: Gold Bar Integrity, Security, and Authenticity hacking-resistant. Every party In 2018, the London Bullion Market Association (LBMA) started examining can fully access every transaction blockchain technology implementation. This could include a responsible in the blockchain. Complex sourcing programme to minimize fraud and security risks. cryptography encodes an individual’s or company’s details, This could also include safeguarding supply chain governance, such as through which are publicly represented a blockchain “kilobar database”, which identifies bars by digital imaging or QR only by an address. codes. This system could securely record bar-specific data like brand, purity, weight, origin, custody, and storage location on an inviolable platform for smoother transactions. Immutability Immutability simply means that The Precious Metals Industry and Blockchain: A Conclusion something can not be changed The bullion industry is quite traditional. But blockchain technology is here, or altered. Data can almost and key players are actively moving towards adoption. The results may be never be altered. Every block in unprecedented boosts in trust, credibility, and efficiency. the chain has a digital signature, ensuring that no one can tamper Blockchain’s golden promises shouldn’t be overlooked. Many aspects of the with it. bullion industry can be improved, although some will, by necessity, remain “old school”. Blockchain immutability has the potential to transform a process into a quick, efficient, and cost- effective procedure, and bring more trust and integrity to the data businesses use and share every day.
www.bullionbulletin.in 21 The Future is Digital Gold
India has traditionally been a gold loving country. Naturally, Indians are more accustomed to the touch and feel of gold. This has resulted in accumulation of a huge house held reserve of gold over the years. In 2013, rising import bills and widening current account deficit (CAD) drove the government to take short term corrective measures to restrict the import of gold. Although such moves brought some respite in terms of official imports, grey market trade was reported to have gone up.
Late in 2014, the present day government, realising that such short term measures are bound to backfire in the long run conceptualised the idea of gold monetisation. Gold monetisation was focussed on two aspects, ensuring that above ground house held stocks of gold are brought into the formal financial sector, and two, to push investment demand from physical gold to dematerialised gold. In fact, both the Gold Monetisation Scheme (GMS) and the Sovereign Gold Bond (SGB) scheme were introduced to achieve these objectives. Ms. Nirupama Soundararajan On the trade side, in order to improve Senior Fellow, Pahle India Foundation access to gold, the government has decided to set up a gold (bullion) spot exchange in the country. Apart Digital gold is not new to India.To put it simply, digital gold is dematerialised from bringing transparency in bullion gold, quantified in terms of grammage, recorded in a digital format andis transactions, the exchange can act backed by physical gold. It allows for participants (both institutional and retail) as an alternative channel for retail to trade gold in a smaller denominations, even in decimals, in a transparent and investors to buy and sell gold. Digital convenient manner. The National Spot Exchange Limited (NSEL) ran successful gold or dematerialised gold will pave gold spot contracts that were held in their dematerialised form by investors. way to better and more seamless This was by far their most successful product. This was of course discontinued monetisation of above ground stock after NSEL was shut down. Notwithstanding, the concept of dematerialised gold of gold and holding of investment was popular and the demand for the product indicated that maybe modern gold. India was ready to shift from physical to digital gold.
22 www.bullionbulletin.in in the smallest denomination from both institutional and domestic retail customers, in the most transparent manner. This will reduce banks’ dependence on import to a large extent.
Furthermore, with the adoption of digital gold, new gold backed financial products can be developed. If physical investment in gold needs to be reduced, consumers must have gold based financial products to invest in. Hence, product innovation is key. Some of these products could be the Gold Savings Account that allows investors to open a metal savings account through which gold may be bought, sold, accumulated and dematerialised. Reverse mortgage pension products may also be thought off. Similarly, insurance policies with assured metal delivery on maturity (or its monetary equivalent) is another product. It is hoped that with digital gold becoming more and more ubiquitous product Mr. Arindam Goswami innovations will happen.
Fellow, Pahle India Foundation The concept of physical gold being dematerialised and converted It is however not just about catering to the millennials. Dematerialised gold to digital gold may sound both offers other benefits. Dematerialised gold is always backed by physical gold as its laborious and challenging. However, underlying. For all practical purposes dematerialised gold is gold in the financial history shows that our country system.This means that one can take for granted the quality and purity of the had faced similar challenges and underlying. This is an important aspect for financial institutions to participate in overcame those in the stock market. any monetisation scheme. However, with the introduction of the Depository Act of 1996, SEBI was Digital gold is a recent product innovation that has no regulatory framework able to establish a smooth system to at present. It probably does not require one per se either. Gold vaults and enable the transfer of physical share custodians will however require regulations and guidelines for functioning. certificates to dematerialised form. Twenty years hence, the percentage Digital gold will have multiple benefits on the gold ecosystem and on gold of physical shareholding compared monetisation. First, in its dematerialised form, gold transactions will become to dematerialised form is minuscule more transparent and efficient since it will only involve a book entry rather amount. Suitable best practises from than the physical movement of gold. Second, GMS, which is yet to meet with the stock market and commodity its much anticipated success, will get a facelift. If banks are allowed to accept derivatives market and the necessary dematerialised vaulted gold in GMS, the minimum deposit in GMS can be regulatory impetus can help in considerably lowered to one gram, if not lower. This would also reduce the costs differentiating financial gold from of transaction significantly since the deposits would be a book entry rather than non-financial gold. The only difference physical transfer of gold. Third, it will facilitate the conversion of physical gold should be the form in which it is held. into digital gold for retail consumers. Financial gold must always be held in a dematerialised form. This will Currently, banks are mostly dependent on imported gold for lending and sale be the key to monetising gold and to to bullion dealers and jewellers. Dematerialised gold will enable the creation integrating gold as a savings product of a reverse logistics system which the banks will be able to use to source gold into the financial system. www.bullionbulletin.in 23 Digital Gold: PAX Gold is Allocated Gold on the Blockchain
Paxos Trust Company is a qualified custodian powering enterprise-grade blockchain solutions. Our products create a gateway between physical and digital assets. We’re working to build an open financial system that operates faster and is more accessible.
In 2015, the New York State Department of Financial Services granted Paxos a limited-purpose trust license, thus establishing Paxos as the first U.S. company approved and regulated to offer digital assets in addition to traditional financial services. By operating under the highest forms of regulation and compliance, we’ve distinguished ourselves within the blockchain industry and earned the trust of leading financial services institutions.
We’ve been involved in the commodities markets for some time through our Post-Trade services for FX and commodities. We’ve built cutting- edge technology with enterprise- grade security so customers can introduce automation to their workflow and better manage the trade lifecycle.
With our understanding of this Mr. Kyle Libra industry, we wanted to address one Product Director, Paxos of the biggest challenges that faces gold: how can you have allocated physical gold that’s easily tradable and transferable. We introduced PAX
24 www.bullionbulletin.in Gold in September 2019 to solve this challenge. PAX Gold is the first regulated When you own PAX Gold, you own digital asset backed token that represents premium gold bars. Designed as an ounces of LBMA-accredited London ERC-20 token, PAX Gold has the flexibility and accessibility of crypto assets, Good Delivery gold bars held in while representing physical, secure, vaulted gold–without storage fees. Brink’s London vault. You have self- sovereignty over your gold; your The importance of gold has waned in the global economy, in part because of PAX Gold is fully-segregated and this existential issue in an increasingly digitized world. While it’s possible to allocated to a specific gold bar easily trade gold derivatives, ETFs and unallocated gold, these are synthetic identifiable by serial number. Your representations listed on limited, narrow marketplaces–and none offer titled gold is redeemable as full London ownership to actual gold. The underlying gold stays secure in London vaults Good Delivery gold bars or in smaller even while PAX Gold is easily, cheaply and instantaneously transferable 24/7 quantities as gold coins through gold on the Ethereum blockchain. It’s divisible into miniscule amounts (out to 18 retailers globally. It is also convertible decimal places), making it accessible and useful to broader markets. to or from unallocated gold.
Each PAX Gold token is backed by one fine troy ounce of LBMA gold bars. We created PAX Gold (PAXG) to be Paxos tokenizes physical gold bars and allocates each token a serial number the safest and easiest way to hold and corresponding to a gold bar. We provide specifications of the tokenized gold trade gold. With PAX Gold, anyone bars to customers. PAX Gold holders can use our gold allocation lookup tool to can benefit from owning the highest- find the serial number, fineness and weight of the gold bar backing their tokens. quality physical gold without having This transparency is only possible because of blockchain technology. Gold any of the drawbacks of other gold retailers cannot always verify the quality or source of their inventory like Paxos products. can. The same goes for products like gold ETFs and futures contracts, which are not tied to specific gold bars. PAX Gold is different – the quality and ownership can always be verified on the blockchain.
www.bullionbulletin.in 25 Applying Blockchain Technology for the Benefit of the Global Precious Metal Industry
Today, the precious metal industry faces a number of considerable challenges and pain points globally. Increasing compliance and regulatory requirements are materially adding to the operating costs. Reputational and legal risks are mounting. When stolen and forged bars or products of questionable origin are mentioned in the news, the entire industry cringes and suffers. This applies to all participants across the entire value chain – miners, refiners, transporters, vaults, dealers and banks.
Moreover, based on high confidentiality requirements and a lack of inter-company data standards, industry participants find it difficult to streamline and automate B2B processes, and to achieve data- sharing efficiency. This leads to incomplete product provenance and low data integrity which results in fragmented inter-party data processing and a lack of transparency.
In most jurisdictions, the precious metal industry has not yet been as Mr. Urs Röösli strictly regulated as, for instance, the financial services industry. However, CEO of aXedras Group regulators have set their attention to this fact and the “grace period” is rapidly coming to an end. The demand for a technology solution which ensures product integrity along the industry is coming under more and whole life cycle of a precious metal product has significantly increased. more stringent regulatory scrutiny. As a result from the increasing focus of In the last few years, the development of Blockchain technology was investors and clients on documented tremendous. The latest generation of Distributed Ledger Technology (DLT) and responsibly sourced gold, the has overcome the disadvantages of significant energy consumption and
26 www.bullionbulletin.in slow transaction processing time. The latest DLT generation enables users to What are the benefits? exchange product data in an immutable, efficient and secure manner without This kind of solidly constructed giving up the confidentiality of their data. Finally, the technological solution for and trusted data network affords a an interoperable product integrity solution for the precious metal market is multitude of benefits in the realms of: available. a) Product provenance documenation stored on In my point of view, as of today, the industry has a unique opportunity, albeit immutable blockchain platform there is only a limited time window to proactively and constructively define to ensure data integrity strategies and standards that address the regulatory requirements and to jointly b) Business process automation and reap the benefits of smart digital industry solutions. streamlining B2B processes c) Automation of data management This is the context in which aXedras™ has been founded. As neutral technology and data transfers between company, aXedras™ built the Bullion Integrity Ledger™ as a DLT-based platform business partners solution. It connects all industry stakeholders in a trusted data ecosystem d) Safeguarding the confidentiality enabling the efficient and safe digital flow of precious metal products addressing requirements of each member the aforementioned industry pain points. The business concept of aXedras™ is and their data not disruptive. Instead, it is founded on a cooperative and interoperable win-win e) Lower compliance costs due to philosophy. documented provenance and chain of custody at the product level f) Detection of any fake products at first point of contact by a member ensures high brand protection of all members
The use of information technology as a tool to reengineer workflows is nothing new. However, the unique characteristics of the modern DLT does indeed add another level of opportunity by connecting and digitalizing the precious metal industry ensuring the integrity of the How does it work? products in circulation. The digital representation of a bullion starts with its registration by a refinery at the time of its production: The Bullion Integrity Ledger™ allows LBMA-certified I am confident in and excited about refiners and mints to register their newly refined bullions and to also digitize the material improvement potential available provenance documentation which is attached to the digital twin of the that DLT brings to the precious metal products on the DLT platform. industry. For further information or questions about our solution, please Once registered, each bar receives its unique aXedras™ code and the Bullion visit our website: www.axedras.com. Integrity Certificate™ as a digital birth certificate. By refiners registering We are happy to assist you. their daily production, a global product database for high quality and fully documented products is being formed. As a result of that, banks, traders and other market participants can rely on receiving digital integrity data for their purchased physical products.
Furthermore, as a bullion is shipped from one vault to the next one, the Integrity Certificate™ is also transferred to the new storage provider and and the information on the digital certificate are automatically synchronized and updated. That generates a properly documented chain of custody which is recorded immutably on the product’s Bullion Integrity Certificate™. These product data are only available to involved parties such as the owner or custodian. A trader could offer the product’s provenance data to a potential buyer on request in order to reduce one’s compliance work substantially. www.bullionbulletin.in 27 Emerging Technology to Protect our Gold
Technology advancement, in particular blockchain, delivers unprecedented visibility into the gold supply chain. This means any product made from gold can be irrefutably traced back to its origin. As soon as this linkage can be established, it becomes impossible for gold without “identity” to enter the supply chain. By extension, it means that a discerning buyer of gold can be satisfied that this gold did not play a role in money laundering or terrorist financing.
The question of how best to protect the gold industry is not one that can be answered easily. Sitting in the Western world we think of protecting the structure of the global gold market and implementing the regulatory changes that have taken place over the last decade. We think about measures that we, as an industry, can take to ensure that gold remains an important and relevant part of global financial systems. We also think about the sustainability and legitimacy of the physical flow of metal that takes place in the gold market, a market that is truly global both in terms of supply and consumption. The size, reach and sheer value of the gold industry has a Mr. Matthew Keen profound effect on entire cultures and economies around the world. This can Emergent Technology range from artisanal mining, where a few kilos extracted per week support the livelihoods of thousands of local communities, to the recipients for whom the physical purchase of gold has been embedded in their life and culture for hundreds of years. Therein lies the challenge.
28 www.bullionbulletin.in With such a vast and complex value World Gold Council and the Organization of Economic Development (OECD), in chain it is difficult to know where its 2019 Annual Report recommended that the OECD’s five step framework for to begin applying measures for the the responsible sourcing of gold is made mandatory for Indian refiners . The gold protection of all participants whose consumer market, however, has always been fiercely competitive and the Indian lives are affected by this yellow metal. market is an example of extreme price sensitivity. It is only due to advancements Perhaps, it sounds illogical, but I in technology that responsibly sourced gold can be made available at a price- believe the best place to start is… in point that can be measured in cents, not dollars. the middle. That is to say, the supply chain. The process of transporting A few years ago, it was unthinkable to record the provenance of a gold ring on doré bars to refineries and onto vaults a finger. Now, with the power of blockchain as a repository of information that or wholesale distributors is a crucial can be shared, it is not unreasonable to think that we are close to developing part of a sustainable gold value chain. an ecosystem where gold without “identity” cannot be traded. Starting with the Stakeholders, such as miners, refiners, tracking of all inbound gold on a blockchain-based supply chain platform, where logistics companies, make significant both provenance and custody transfers are transparent, the Indian domestic gold investment in the gold industry and industry can extend these practices all the way through to fabricated products. therefore have a vested interest in Not only does this allow consumers to be confident in what they are purchasing, ensuring the transfer of metal from it also closes the door to illegally imported gold, the sourcing of which may have one party to the next is incorruptible. been the subject of a variety of illicit activities. Track and trace solutions will go a long way to stamping out crime and illegal practices associated with the physical Technology advancement, in particular gold market, as well as protecting all industry participants, ranging from physical blockchain, delivers unprecedented consumers in India, all the way back to the artisanal and small-scale miners in the visibility into the gold supply chain by hills of Peru. It seems inevitable that consumer markets around the world will digitally tracking the provenance and gravitate towards this higher standard, made practical by blockchain technology. chain of custody of physical assets. This means any product made from 1 India Gold Policy Centre 4th Annual Report April 2018 to March 2019 gold can be irrefutably traced back to its origin. As soon as this linkage is be established, it becomes impossible for gold without “identity” to enter the supply chain. By extension, it means that a discerning buyer of gold, whether for investment or for physical consumption, can be satisfied that this gold did not play a role in money laundering or terrorist financing. Moreover, by tracking the application of responsible mining and sourcing standards, the investor or consumer can rest assured that this gold was produced by industry participants following stringent environmental, social and governance standards.
According to the Indian Ministry of Commerce and data from Metals Indian Ministry of Commerce, Metals Focus 2018 Focus, in 2017 India officially imported around 840 tons from more than a dozen countries. Such volumes and regional diversity present a high risk of “dirty” gold entering the Indian market. Risks of gold bars from legitimate refineries being forged or cloned are also significant. The India Gold Policy Centre, working with the www.bullionbulletin.in 29 Technology which improves transaction and vendor processes; Goldblocx in the precious metal segment
Our main focus is applying digital ledger technologies to bring about practical efficiencies to both client experiences and vendor precious metals processes. This can apply into many verticals eg how a client monitors, trades or even gifts (send) Gold to his loved one or how a vendor might effortlessly launch new products (eg jewellery, bars, coins) with real time pricing via a mobile digital distribution (your phone) quickly to his/her customers.
Mr. Loh Mun Chun CEO, Goldbocx
30 www.bullionbulletin.in Benefits of tokenizing gold in comparison with holding Can I get my Gold back? it in physical If you have changed your Gold bar/ In Goldblocx, we are utilising this technology to remove friction and open up jewellery into the pool allocated access for more investors into this asset class. Fractionalization allows anyone, digital format, then of course it will from example $1.00, to buy Gold now. The ability to invest in any variable not be the same bar that you will get amount from your mobile phone is a great boon to investors. However, this in back. You will also lose the premium and of itself, is quite useless if it does not help to bring the investor to a higher previously paid when you change state. It is akin to giving a car to someone when he does not really know how your physical bar into a digital pool to drive it. This is where Goldblocx is focused on – to help the user become a allocated format. better investor either by effortlessly applying dollar cost averaging strategies for the beginning investor or to advanced fractional position sizing strategies for The other use case is when you have the advanced trader. We are building tools to help the investor become more digitized your physical Gold bar and profitable - in essence, applying quantitative code to add alpha. But beyond the have sold it to Goldblocx but have obvious, tokenization also allows the injection of programmability. And this is yet to deliver it. In this instance, you where the possibilities start. Holding physical Gold bars of course comes with a can buy back pool allocated Gold and lot of obvious advantages. But we want to use the technology not to just “hold” deliver that against your prior sold the metal better but to bring out efficiencies on how to make use of Gold as Gold bar if you want to keep back your a true asset in its many facets. The challenge is of course bringing forth the particular Gold bar that you already best from both worlds into a new offering – the merging of the technology and have in your possession. human investor needs. Goldblocx uses a Banking-as-a-Service Goldblocx accepts both LBMA and non-LBMA Gold, and even Gold jewellery too. platform created by our founding If you have non-LBMA Gold and would like to upgrade it into a more manageable investing partner which allows it to pool allocated format with the possibility to further change that into a LBMA bar fast launch fintech projects. Currently, or jewellery, then Goldblocx can help you with that whole process. The Gold Goldblocx supports several ways that we collect from customers will be sent for assay and re-melting. Goldblocx for Gold customers to convert Gold can easily and quickly give you a quick valuation of your currently held Gold to jewellery or into other physical based on the quantity of Gold that you have input into the app. forms. We work with precious metals
www.bullionbulletin.in 31 partners to extend the number of possible locations and jurisdictions where as opposed to selling them more the physical precious metals can be delivered. Also, the Goldblocx platform can impractical products. Users can be used as a white label solution for them. Once a precious metals company monitor and track their total precious joins the Goldblocx platform, it can start immediately their own business with metals portfolio real time in their use of Goldblocx as their liquidity and bullion technology provider. digital wallet, activate new savings accumulation plans with dollar cost Talking about transaction charges averaging or automatic rebalancing for different metal types and cash on For transactions, there are no commissions charged. But when transacting, a risk weighted basis. Tools to identify there is the implicit cost of the bid-offer spread. In this regard, we strive to different market conditions and cycles provide real time competitive buying and selling prices for our clients. Other to assist in decision making are also charges would be for holding Gold in storage under storage charges. available. Volatility should preferably be harvested and not endured. For ETFs, generally the following charges would apply - wider bid-offer spread, ETF sales charges, annual ETF expense ratios and other management fee For vendors, Goldblocx can be used charges etc. In some cases, when you are holding a Gold ETF and depending as a mobile CRM application for on its structure, you may not be really holding Gold but only a claim or bet on sales agents to keep in touch with the direction of the Gold price. A good recent example is the oil ETF USO - that their clients via in-app chats, update ETF holds futures contracts not real oil. inventory tokens available for sale, monitor agent sales commission Comparatively, existing Gold ETFs expense ratios range from 0.25% to 0.4%. earnings or choose/scan client Our charges are generally more competitive when compared to fund managed products for item pick-ups in-store or ETFs due to the absence of management fees and high operational costs. at the nearest delivery store chosen via the in-app location map. Goldblocx Dealing with liquidity also can be activated as a digital wallet The Gold that the client transacts in Goldblocx is Pool Allocated Gold. For making seamless payments. physical conversion, the client can convert his pool allocated Gold in the app into a physical bar, coin or jewellery and then come down to the store to That said, for tracking of transactions, pick up his physical Gold bar/coin/jewellery from our partner physical retail Goldblocx is built on a blockchain store. The liquidity is always there and ready for pick up. Currently our partner database platform where all physical retail store is GoldSilver Central in Singapore, established in 2011, of transactions are hashed and recorded which is majority owned by some of Goldblocx partners. GoldSilver Central immutably. All of these records are Singapore is a current registered local associate corporate member of the accessible in the app. For the integrity SBMA and an authorized dealer for numerous mints including the government of Goldblocx as a firm, the founding guaranteed Perth Mint Certificate Program. They are also registered precious team members have accumulated stones and metals dealer regulated under Ministry of Law Singapore and combined multiple decades of hard- under jurisdiction of Commodity Trading Act Singapore. earned industry reputation and technical experience. The conversion of the Gold into physical format is done in a way where the premium charges applicable for converting into different bar/coin types are Goldblocx is also a licensed precious transparently displayed prior to transaction confirmation. There are no other metals and stones dealer under hidden charges or commissions on top of the displayed premium amounts. So Ministry of Law Singapore and operate its a simple process of simply paying the premium in cash and converting your in accordance with regulations pool allocated Gold into bar, coin or jewellery form. under the Commodity Trading Act in Singapore. We are not issuing digital tokens as a "type" of new product to push to people but instead using the technology to improve client transaction and vendor processes. We are applying the technology to improve what we already have been doing in physical Gold transactions - may it be pool allocated Gold, Scrap Gold jewellery or even the Gold bar in your hand - but hopefully in a much more transparent, useful and efficient way. We prefer to solve legitimate client needs instead of using marketing hyperbole to purely push products.
For clients, Goldblocx approach is to focus on the wealth management side of things ie products or services to grow their total precious metals wealth
32 www.bullionbulletin.in Digital Gold: the Next Step Forward
Whether it was the Kushans or the Indo-Greeks who first introduced gold coins to India, is a matter of debate. But it cannot be disputed that in the time since, gold has played an immeasurable part of our daily life- be it as a currency, a store of value, or for adornment.
While gold is associated with many positive attributes, its physical nature has meant that there are barriers to frictionless transactions- frequently due to concerns regarding purity or safety. This has played out in many different ways- for example, loans against ornaments can take a minimum of a few hours to process, and taking gold to be exchanged at your jeweller can be a long process involving negotiation over rates and deductions. Often this is due to the fact that while our needs have modernised, our ways of doing business when it comes to gold have remained rooted in the past.
But when technology has changed the face of how we eat, shop or travel, Ms. Rhea Chaterji why should gold be left behind? This is where digital gold steps in- bringing Vice President- Strategy & innovation to make gold become Partnerships at SafeGold more fungible. By linking various stakeholders such as bullion dealers, jewellers, banks, mobile platforms and customers, digital gold multiplies the range of options that customers can exercise conveniently.
So what is digital gold? Simply put, digital gold is a method of investing in physical gold without needing to physically hold the gold yourself. Digital Gold platforms allow www.bullionbulletin.in 33 customers to purchase fractional quantities (from ₹1) of gold, which is safely Improving customer trust stored in an independent vault. Customers can incrementally add to their savings, while gaining a range of functionality, such as being able to sell their and convenience The recent report into Retail Gold digital gold balance 24/7 against a live rate, get it delivered to their doorstep, or Insights published by the World gift it to a loved one. Gold Council identifies trust as a Bringing greater functionality to gold major barrier to purchase of gold, followed by a lack of transparency and What makes this more interesting is that the Customer’s options aren’t restricted convenience in the purchase process. to those fulfilled by the digital gold platform alone. Players such as SafeGold have created an ecosystem of partners, by providing a common technology Digital gold can play a significant infrastructure to make digital gold transactions seamless. role in helping customers overcome these barriers, by making it easier for As a result, a customer can now choose to save digitally and redeem physically, investors to understand gold and the by visiting their preferred jeweller through offline stores or online web gold buying process. New products platforms. A simple authenticating mechanism validates the customer balance and strategies are needed to meet and eligibility, and within minutes they can walk out after having exchanged customer requirements for trust in their gold balance digitally for some jewellery. Rate and purity cease to be a gold quality and safety, as well as an worry, since the jeweller is receiving verified physical gold from SafeGold against ease of buying through contactless these transactions. methods, from their homes.
Similarly, banks can now offer customers near instantaneous loans against their With an innovative and exciting range digital gold balance, using customised loan APIs and infrastructure created of avenues opening up, the onus is on by SafeGold. With guarantees for purity and weight assurance, loans can be us as members of the gold industry to approved and disbursed within minutes, adding a magnitude of convenience see how technology can bring greater for customers. customer delight.
34 www.bullionbulletin.in PRESS RELEASE
The Future of Gold is Digital
The Printers Are When Cash Was Golden Turned Back On Gold has many sources of demand. It is coveted for use in the manufacture of jewelry and electronics, and is valued by investors across the world as a safe- As governments work in tandem haven asset in times of uncertainty. with central banks to unleash huge fiscal stimulus packages to support However, gold is not just a commodity for wedding rings, iPhones and investment individuals and businesses in the portfolios. In the past, its scarcity and status as a globally accepted store of wake of the COVID-19 crisis, we look value meant that central banks of major economies pegged the value of their to the future of gold - the illustrious currencies to gold. yellow metal often touted as a hedge The Bank of England, for example, was once obligated to always exchange gold against severe geopolitical shocks for a specified amount of pound sterling. This was known as the ‘gold standard’. and inflation, and why we believe After putting this obligation ‘on ice’ during the First World War, it wasn’t until blockchain technology will bring back 1931 - when the Great Depression became the catalyst for a budget crisis in true ownership of physical gold in the UK and the rapid erosion of the Bank’s FX reserves - that the decision was today’s digital economy. made to finally abandon the gold standard altogether. The United States Federal Reserve followed suit - albeit temporarily - in 1933. This requires a brief history of gold, a timeline of its acceptance as a store Fast forward to today, there are no longer any countries using the gold standard, of value, and its past and present and a new global economic crisis is likely unfolding. However, gold continues to relationship with today’s “fiat” be used as a store of value and is still considered by some to be the purest form currencies. of money.
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36 www.bullionbulletin.in A New Standard Combining gold with blockchain technology allows for significant improvements to the status quo, and doubles-down on the characteristics that have made it From Ancient Egypt to serving as so attractive for thousands of years. It eliminates issues around the operational part of a modern-day investment complexity and high cost of personal storage whilst at the same time providing strategy, gold has been sought after direct ownership of gold by cutting loose all unnecessary intermediaries. and evolving in both form and utility for centuries. However, ownership of the precious metal has gradually Is digital gold safe? become more and more intertwined When talking about the safety of digital gold, I think we need to differentiate with the financial system than ever two safety categories: before. Those who use financial intermediaries to get access to gold 1 The safety & robustness of technology: are increasingly doing so in a non- How the digital gold product is built and mapped to the underlying gold is key. physical or heavily intermediated There are a number of gold tokens in the market today with varying levels format (think ETPs, futures and of security. Choosing a well-thought product backed by an experienced and certificates). reputable organization in the gold market is advisable. In partnership with leading organizations, MKS has developed a gold token called DGLD based on As a result, true ownership of physical the use of a dedicated permissioned sidechain, periodically attesting back to the gold has been pushed into a far- bitcoin Network. This ensures the trustless immutability of the DGLD blockchain reaching place where only those and of the record of gold ownership. DGLD holders can independently verify and with large capital can access it. The prove their unique ownership of insured LBMA grade allocated gold, vaulted in rest who want gold have to settle for Switzerland, without relying on any third party. This means that ownership of products which are increasingly non- allocated gold cannot be re-assigned or double-spent by anyone, including by physical, or overly reliant on financial the emitting company. institutions. This is problematic, as gold is often seen to derive its value as a hedge against systemic failure. 2 Investment safety: In the case of a digital gold product that is fully backed by physical gold, with For gold to remain relevant in a full ownership title to that gold, stored in a safe vault, in a safe country and fully digital economy, and to keep its value insured like the DGLD product described above; I would say that it is as safe as as an independent store of value, owning directly physical gold. I would even go one-step further. With a digital we believe it requires a digitally format, there is no need to transport the gold when buying or selling it, thus disintermediated format. avoiding further risk. We could argue that it makes digital gold even safer.
www.bullionbulletin.in 37 Why do investors consider gold ownership that improve liquidity, are accessible 24/7, lower storage costs, and enhance security. digital gold as part of their portfolio? “Too often gold has been pitted against bitcoin as rivals,” says Charles Digital gold done correctly and backed McGarraugh, Head of Markets at Blockchain.com. “With DGLD we’ve thrown that question out of the window to say that the world’s two hardest assets are by physical gold is as good as straight ideal complements for investors across the world. Market conditions are likely to physical gold. Investors willing to buy increasingly favor hard assets in coming years, and I see this mutually beneficial gold either to protect their portfolio interplay only increasing over time.” by mitigating against volatility in other markets, or as a safe haven or just as “If there was going to be a gold standard 2.0, DGLD is what it would look like: a directional price move investment supranational, secure ownership of physical gold which is digitally spendable,” have the easy choice to go for digital says Daniel Masters, Chairman of CoinShares. “That’s exactly what DGLD is - the gold instead of physical gold, with the world’s most enduring physical asset, Gold, combined with the world’s most ease of access and without some of resilient network, Bitcoin, to make gold digitally usable. After two plus years of the constraints they could encounter work, we could not be more excited to see trading of digitized gold begin on the with physical gold. PIT.”
"As Switzerland’s premier gold storage and fabrication facility we are proud to Gold token created by provide the physical infrastructure to support DGLD," says Marwan Shakarchi, Crypto and Precious Chairman of MKS (Switzerland) SA. "Our worldwide network of gold clients Metals Giants opens welcome this digital innovation to a much loved asset class." trading to the Public Beginning today, DGLD is available for purchase and trading exclusively on The DGLD token, secured by the bitcoin PIT, Blockchain.com’s cryptocurrency exchange. The PIT was built by the team network, released exclusively for behind over 44M Blockchain Wallets, and is the most trusted place to trade and purchase and trading on Blockchain. buy crypto. It supports deposits and withdrawals in Dollars and Euros, and is com’s crypto exchange. DGLD, a available in 190 countries. network with more than $20M in investment grade gold allocated in DGLD is not available to users in the US or Canada. Swiss vaults and secured using Bitcoin, has launched and is now available for purchase exclusively on The PIT, Blockchain.com’s cryptocurrency exchange.
DGLD is a digital asset (token) created by CoinShares, Europe’s Largest Digital Asset Manager, Blockchain. com, the most trusted platform for cryptocurrency products, and MKS (Switzerland) SA, part of the world’s most trusted gold group. At creation, each DGLD token represents 1/10th of a troy ounce of physical gold stored in Swiss vaults for which token holders can swap or physically redeem.
The launch comes at a time when gold purchasing habits around the world are undergoing a major shift. Consumers are slowly, but steadily switching from traditional physical- ownership of gold to digital formats of
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