Until now, cryptocurrencies—Bitcoin, as well as derivatives like Litecoin, Namecoin, and Dogecoin—derived their value purely from scarcity and a community of users willing to invest in them, without any tangible backing. There’s now a new entrant called Minacoin which, like the US Dollar in the beginning of the 20th century, is on the gold standard.
This may sound antiquated and even counter-intuitive for what digital currency was supposed to do for the world, but the creators of Minacoin, Melvin Ng and David Gallo, wanted to merge the benefits of Bitcoin with gold. Gallo states that “although gold has a more stable value, it’s really hard to transfer. With Bitcoin, it’s easy to transfer but we’ve seen the volatility over the last year when it went from $100 to $1000, down to $400 again.”
Minacoin is slated to be available to customers by the end of May. All 21 million coins are pre-mined, and backed by real gold held in a reserve, with each coin equal to one milligram of gold (making the entire currency worth a bit over $870k by my calculations). In this sense, Minacoin will be like a Gold ETF that can easily be traded person-to-person on a blockchain, without having to go through an exchange. On the downside, a 51% attack will no longer just be stealing bits, but actual gold. I don’t see how enough mining power is going to be deployed to protect against this given the entire value of the currency is a fraction of Bitcoin’s, and ultimately this is a trust run by a single, central authority, contrary to the entire point of having a decentralized blockchain.
In my view it’s an interesting experiment to use blockchains to effectively replace traditional securities markets (and allow them to be traded 24/7), but there are a lot of challenges that may present Minacoin from getting off the ground any more than the thousands of more traditional copycat currencies. Pando points out some other potential issues(such as the fact that you can’t actually withdraw the gold) here.