Wednesday, August 17, 2016


Bitcoin has certainly been one of the most audacious financial experiments in the last century. While governments have tried everything from pegging currencies to Gold, a basket of foreign countries and repeatedly meddling with monetary policies, none of them have been able to perfect sustaining base unit value and continuous growth. Additionally, although globalization has bought the world together and helped us interact far faster in terms of trade and investments we have barely been able to brings its benefits to people from all walks of life. Bitcoin, for the first time was able to remove government set barriers and empower individuals to trade and remit money without middle men eating through the fruits of their labour. During its meteoric rise from hacker currency to the love child of innovators, inventors and investors alike the coin has undergone a turbulent period with its founder eventually disappearing from the public. A coin that was once traded by the pennies soared upto thousand+ dollars then crashed to as low as 180.

For all the benefits Bitcoin bought along with it - it bought along paranoia, hysteria, volatility, market manipulation, losses and for an elite few- massive profit. Bitcoin's rise has been meteoric but it does not solve all the monetary problems we face in the 21st century. There have been a number of similar currencies launched in the recent past in order to solve various issues through the Blockchain. Ethereum - the second most common currency on a blockchain permits smart contracts or programmable currency in simpler words. There are other currencies that permit storage of files, reward prediction markets or even possess stakes on the potential profits of a gambling house.

Xaurum a coin that has been recently launched aims to solve one of the most crucial economic problems through a smart approach. To put it in simple terms - the coin like some others in the industry (digix)  permits you to hold rights to Gold on a blockchain. The organization behind the coin - Auresco Institute aims to hold gold as a commonwealth or a conglomerate of holders at a secure location in Europe. This is a rather logical approach to financial security as the tokens one purchases on this blockchain will be physically backed at a central location in Europe and the gold that is under the organization’s holding would be verifiable and shippable as and per requested. The coin will be able to witness an increase in its price as the base value increases and thereby will witness an upward slope in price without being heavily dependent on user adoption alone  This is a revolutionary value of store in economies where conventional forms of banking do not offer security due to the national monetary policies and hoarding large amounts of gold becomes unsafe due to lack of security. This opens a whole new world of opportunities for individuals willing to take the risk of acquiring Bitcoin from local resources.

There are a number of perks to this approach.

  1. Limited Coinage

    Since the number of coins that will be released will be limited to the amount of gold that can be held, there will be anti-inflationary nature to the coin from day 1. Additionally, since the coin is anti-inflationary in nature, as more and more individuals buy into the coin, the price will slowly rise in value
  2. Utility

    While bitcoin itself is a token subject to market fluctuation and commonly agreed notions of what its price should be, the coin offering here is relatively less volatile as its offering is with Gold. This means, a traditional business seeking payments in heavy amounts could hedge its position with gold while being able to access the quick and easy remittance availability on a blockchain. While Bitcoin start-ups have struggled with adoption, this currency could rather easily pick up steam

  3. Seignorage

    The founders of the organization believe the only true way for  a monetary system to actually be beneficial to all parties is through seigniorage and this lies at the crux of what the organization does. Instead of permitting banks to be the sole players benefitting from the issuance of currencies and their base value, the organization is paving ways for this to be a more democratic process - one that is accessible to anyone with access to the internet. Additionally it is a major socio-economic experiment that is being run for a while now with a strong user group backing it.

Capital flight has been at the crux of a large number of political debates ni the recent past. Even Brexit could be attributed towards the currency outflow from Britain towards Europe. During the world war, it is believed Gold retrieved from the jaws of the jews were molted and made into bars and saved in order to insure the nation’s economy from a potential decline. Rules and empires have been built on top of gold and in order to question their authoritarian regime  an economic system scripted to question their very basics are needed. I believe Xaurum is positioned to provide exactly this. For a migrant labourer in the middle east looking to save his income from taxation, or an individual in Africa risking loss of his currency to thugs in the streets - xaurum offers a safe alternative. In a way, I see it being the Swiss bank of the 21st century.
Xaurum is a unit on the golden blockchain. It represents an increasing value in gold and is exchangeable for it. The main function of Xaurum is the storage and increase of value, it is founded on the assumption, that the most important systemic function of money is a fair distribution of the profit of money creation - seigniorage. For this reason Xaurum was the first cryptocurrency that has its commonwealth, the store of value for all its users. Commonwealth value is stored in gold reserves of 1g, so that every user of Xaurum can exchange his or her xaurum for gold at any time. While similar, in gold standard the ratio between the representation of gold and gold is fixed, this makes the currency inelastic and bad for the economy in a recession. Xaurum makes this ratio dynamic, so that it can increase, but can not decrease increasing the buying power of each Xaurum and uses the elastic difference between its gold base and market price to adjust to current supply and demand.

Xaurum's ratio to gold is not fixed, but can only increase, this enables that its price and base value are both different and known (perhaps BTC should be seen as a combination of BTC the digital commodity and BTC the currency, two distinct things, connected in a system in a way only the latter is known and determined on the market, while the costs of mining are at least partly obscured). This difference between price and base value is used for profitable inflation, that at the same time increases the gold reserves and consequently the base value of all existing xaurum and the individual creating new money supply. For example, 1 xau = 500$, and backed with 2g (100$ in value), the miner/minter pays more than 100$ in gold to the commonwealth and creates a new xaurum for less than 500$, the commonwealth profits in gold, he profits in price difference. This would soon collapse the value to the value of the base value, if there were no counter-measures. To prevent this Xaurum uses artificial scarcity and the consideration of past market demand (if for example, new xaurum were coined when price was 400$, they would not be coined for less, as we take the lower price to mean the demand was over-represented).

What I loved about Xaurum was their transparency in conversation and their long history within the community. I could sense a strong sense of belongingness by people towards the coin. Additionally the people behind the coin have been open towards rectifiying their mistakes from past learnings. A good proof of this is their willingness to make the coin divisible by 8000 and the change of their ticker. This move makes the coin more inclusive of possible new users. The team’s sound understanding of the economics behind the project and professionalism in their communication stood out throughout my interaction with them.

However, in light of the number of Scam ICO”s the community has seen in the recent past it becomes imminent to tread with caution. While the underlying technology, economic brilliance and pragmatism makes sense and does offer the average man from any corner of the gold access to Gold on a ledger, its implementation can be tricky. For instance, the total reserve of gold held by the institute is not verifiable as it is now. Additionally, the project fails to take into account the laws and legal procedures involved in shipping gold internationally. Customs, verification requirements and additional legal scrutiny in the event of someone looking to do a withdrawal could add delays to the process and make buying gold the conventional way seem more appealing.  

A possible solution for the organization is to set up hubs around the globe from where gold could be shipped easier and much faster.  While this would mean the organization has to take the added strain of finding reliable centers around the globe it offers a certain level of globalization and quicker access to the individual’s gold. Additionally, services that certify the amount of gold held in reserve and their purity in real time could be implemented into the project. With a strong advisory and increased transparency the project has the potential to question how we wee monetary systems.

Tangibility of gold and the transparency and speed of a blockchain coming together is just about every economist’s dream and Xaurum is taking us one step closer to that grand vision. While the system has its own bit of inherent flaws, all of them are the kind that can be worked out over time. The bright side is, the team behind the coin has worked on it for a fair amount of time and has the power to implement changes as and when required. As long as they hold true to their promises, things could change for the better. I have my eyes on the coin simply because of the economic understanding behind it and look forward to covering it further in the near future.

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