The idea and the benefits behind cryptos or utility tokens are sometimes
somewhat difficult to understand. Let’s have a completely different view of the mechanism to make it easier to understand. Let’s compare it to non-technical, but fundamentally similar phenomena, ‘digital gold’. Traditionally gold has been bought as physical gold coins or bars.
Physical gold is easy to understand, but creates other issues, e.g., transporting or storing safely and legally. Markets have created a new mechanism to address these issues, Digital Gold. Let’s look at the principles of how Digital Gold works. Firstly, the gold company has certified and audited gold in storage.
Gold investors can buy virtual gold certificates (Digital Gold) with their local currency and receive a right to a certain weight of actual physical gold in the storage. How much gold is allocated depends on gold’s market price. The digital certificate can be easily moved, stored, traded, or even used as collateral for a loan. An investor may also take his portion of the gold out of storage with the certificate, i.e., use the certificate.