Using the Blockchain to Trade Gold, Via a 1,000-Year-Old Institution

The UK’s Royal Mint is teaming up with the world’s biggest futures exchange operator to launch a new way to trade physical gold based on the technology behind the digital currency bitcoin.

The product, to be called Royal Mint Gold, or RMG, will launch in 2017, the mint said in a joint press release with Chicago-based exchange giant CME Group on Tuesday.

Each RMG will be a digital record certifying ownership of gold at a secure bullion vault run by The Royal Mint. A 1,000-year-old institution that is effectively an arm of the U.K. government, the mint is the official body responsible for producing coins used in Britain. For centuries run from the Tower of London, the Mint’s history has been intertwined with that of Britain and it once had Isaac Newton as its “Warden.”

RMG holders will be able to convert the digital certificates to physical gold. That’s similar to the way Americans were able to convert U.S. dollars to gold until 1933, when the federal government abandoned the gold standard. The new product could be backed by up to $ 1 billion worth of gold when RMG is launched, according to the press release.

“Developing a trading platform with CME Group will satisfy customer demands for faster, cost effective and secure ways to buy, hold and sell gold and complement our existing products,” said Vin Wijeratne, chief financial officer of The Royal Mint.

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The trading platform will be based on blockchain, the much-hyped technology that first drew attention with the emergence of Bitcoin in 2009 and has since become a major focus for investment by banks and other financial companies.

Blockchain technology uses powerful cryptography and a decentralized network of digital records to keep track of when assets change hands in an electronic marketplace, without any need for a centralized registry.

CME, a $ 38 billion company that has its roots in grains trading in 19th-century Chicago, is among the financial heavyweights that have been exploring the technology. The exchange operator owns stakes in two startups active in blockchain and digital currencies, and this month CME launched a pair of price indexes that are seen as a precursor to bitcoin futures.

The Royal Mint’s partnership with CME is not the first attempt to bring blockchain technology to the gold market.

Among the firms that have announced similar plans is IEX Group, the startup U.S. stock exchange best known for its prominent role in Michael Lewis’s 2014 book “Flash Boys.” Earlier this year, IEX spun off a company called TradeWind Markets that plans to use the technology to power a new gold exchange.

A number of startups have promoted digital platforms for trading precious metals or for converting bitcoins to gold, but none have gained broad acceptance.

MoneyBeat » Bitcoin

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