Sprott-backed blockchain platform to give gold digital edge

TORONTO – Cryptocurrencies and the blockchain were thought by some to replace gold as the ultimate haven against financial calamity. Now the gold market is using blockchain to kick back at crypto and bring precious metals into the digital age.

TradeWind Markets, a technology provider backed by Sprott, Goldcorp and IEX Group on Monday launched a new digital gold trading and settlement platform that aims to simplify and speed up trading and reduce transaction costs. The Royal Canadian Mint will provide storage for the platform, confirm that it’s in possession of the physical gold that underlines it and guarantee the option of physical delivery.

“The gold market today is a very manual market. A lot of the dealing is done over the telephone, via email, maybe even faxes or chat rooms,” Matt Trudeau, president of New York-based TradeWind, said in a phone interview. “We feel like this will reduce the frictional and transactional costs in the market and lead to greater liquidity and price discovery.”

TradeWind’s offering joins other blockchain-based gold platforms, including a partnership between CME Group Inc. and the UK’s Royal Mint. Cryptocurrencies have been volatile this year but blockchain, the secure distributed ledger system that underlies it, has been working its way into industries from financial services to food safety.

TradeWind will use a tailored blockchain application called VaultChain that will securely identify participants, register gold and settle transactions. The platform will initially target physical gold dealers in North America, but Trudeau said it’s designed to eventually operate on a global scale.

Gold-focused money manager Sprott owns approximately 20 percent of TradeWind and plans to use the platform as a dealer, but said it’s too soon to say whether it will migrate its physical gold trust onto the platform. CEO Peter Grosskopf called the digitisation of gold trading “the most important thing to happen to the gold market in the last several decades.”

“Gold has always been criticized as being an inefficient product, a lazy product, a product that’s hard to transact with,” Grosskopf said in a phone interview. “It’s almost as though the blockchain were invented for gold. The marriage of the two, I think it’s going to be incredibly powerful.”

Grosskopf said he sees a day where gold is used as a form of digital cash, supplanting cryptocurrencies and opening up a “completely new user base.”

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"It’s a market that’s many hundred times as large as cryptocurrency markets and once it’s fast and it’s secure, why would anyone use crypto?” Grosskopf said. “Every year since the 1970s gold has lost market share to financial assets and I think this gives it a chance to come back against those financial assets.”

While Bitcoin, the largest cryptocurrency, has lost about 43%this year, gold prices have gained about 3.6%.

Customers will be able to own gold in fractional qualities in a wallet directly on TradeWind’s blockchain, and will not be charged management or administrative fees. Instead, TradeWind’s revenue will come from transaction fees paid by the dealers.