What Are They?
Goldbacks are the product of a new patented technology that effectively “sprays” microdotted gold onto a film of plastic in an exact and precise weight allocation. The pieces of the plastic resemble artful, shiny, well-designed bills that fit into someones wallet. The idea of this is to allow users to spend gold in a manner more appropriate for everyday living costs.
- 1/2 Goldback: Contains 1/2000 troy ounce of gold.
- 1 Goldback: Contains 1/1000 troy ounce of gold.
- 2 Goldback: Contains 1/500 troy ounce of gold.
- 5 Goldback: Contains 1/200 troy ounce of gold.
- 10 Goldback: Contains 1/100 troy ounce of gold.
- 25 Goldback: Contains 1/40 troy ounce of gold.
- 50 Goldback: Contains 1/20 troy ounce of gold.
- 100 Goldback: Contains 1/10 troy ounce of gold.
Goldbacks are produced by a company where they are now deemed legal tender in many US states (New Hampshire, Wyoming, Nevada and Utah first; most recently South Dakota and Florida). This means that any state debts you have can legally be paid for using their products known as the goldbacks. [I’ll use goldbacks as a way to describe the bills themselves not the company nor the manufacturer of the bills]
The company that owns the patented technology behind the Goldbacks company have also created unique customized notes also recognized by the Central Banks of Ghana, Cameroon, Cook Islands, Tanzania. They are a company out of Oregon.
The attributes:
- Lightweight
- Durable/Flexible
- Novel
- Very difficult to counterfeit
- They claim pinpoint precise to the gold weight itself
- Sold at a few large gold dealerships
- Timely launch with CBDCs, gold accumulation and inflation
Story Time
I am writing about this because admittedly, I wanted to monetize this opportunity myself. I had the idea of trying to partner with the patenting company and try to be a first player into jurisdictions that were either pro-gold or had very little in terms of any laws/regulations and therefore there would be little in my way of launching this without being seen as a viable “competing currency”. I had narrowed it down to about 30 potential jurisdictions–many of whom were located in the 3rd world. Needless to say, I had done a little bit of homework behind it before reaching out to lawyers. I sought out countries that were pro-cryptocurrency thinking they will be more open to the acceptance of another, new form of currency.
My plan was to pocket the spread behind what I could have them made and what they could be sold in any number of countries. My partner would be the artist for the bill designs. If I sold 10,000,000 USD worth with a 5% margin, in 10 countries–> I’d be pretty darn happy! In my best cast scenario, I’d convince a Central Bank to buy a heap of them using their printed money that then could be sold as a collectible for high prices one by one. However, while this still seems possible with cryptocurrency, it’s not as clear with these new “minted bills”.
Problems
I’ve summarized the problems down to five main issues with the goldback or this technology taking off as an alternative payment system or a great investment for investors. This is what I’ve found:
#1 The Premium
The premium on the goldback is enormous. It ranges greatly but it could be as little as 80% but as high as 300%. At the time of writing, one “goldback unit” is $6.68USD. The goldback unit is 1/1000th of a troy ounce of 24kt gold. At today’s price of $3,321 per ounce, that makes each goldback as $3.32.
This is slightly more than DOUBLE the price of the gold contents within it. The best rate I had seen was an 81% premium.
Regardless of your entry point, gold will always have to double for you to get your money out of it. This is the number one killer behind my idea in my opinion.
#2 Price Dilemmas
Rather than adopting gold directly, there’s a dilemma by which the higher price of gold causes the public to swap more and more dollars for the same number of goldbacks. From the producers point of view, success is shrinking if gold does well due to the fact that the margins will be the same (to retain customers) but the currency risk will be increasing. In other words, the premium will have to expand proportional with the downfall in the dollar which makes goldbacks even less economical as a circulating barter currency.
Functionally, it’s also worth considering that the companies producing the goldback are subject to locating gold for themselves as well, which may come at higher than expected costs [although this risk is always present].
In addition, cryptocurrency, regardless of what you think of it, has the hearts and minds of millions of people around the planet. When cryptocurrencies appreciate, there’s a concept known as FOMO (Fear Of Missing Out) and people pile into the coin, especially if they can do so for a margin service fee of 2% instead of 100%.
Goldback doesn't have a great answer for why people wouldn't choose to transact in silver coins.
#3 Most into Gold…Hate It
This includes the dealers themselves. Individuals, dealers and companies buy gold as a means of protecting themselves and hold the strong viewpoint that it is the most solid money that exists. Hence, their position towards gold is one that is basic, boring and predictable. When there’s an element of chance such as, that it won’t catch on, that dealers can’t offload them and they’ll be stuck with them, that the company will fold, that they’ll be regarded as illegal, etc., then this is very antagonistic towards the mentality that most approach gold investing.
There is a great YouTube video where a fellow calls dealer and inquires what they think of the goldback and whether they accept them. The majority of the replies are “the what…?” or “…ohhh are those the little gold note things?”. Sure it is new, but it’s not garnering mass excitement.
I have gone over hundreds of forum, chat, and social media replies that have all amounted to this
- “If I want the benefits of gold, why not just own the gold? Why add risk and cost for no reason?”
- “So I spend more than the gold is worth, only to melt it down and purify it for a cost more than the gold is worth to have tiny pieces of gold? Where is the sense in any of this?”
- “If it has no melt value, then what is the value?”
I was honestly surprised by this. Thinking it was “gold-themed” it would be adopted, but choice words were used towards it from what I could tell.
#4 To Prove It’s Real, It Must Be Destroyed
The value of the goldback is that we are now in a position of using fragments of gold in a recognizable bill-shape object, affordably. On the surface, this is revolutionary. This circumvents the problem of having to spend gold coins that may be hundreds or thousands of dollars. However, for the other party involved, especially if they’re new, they may want some assurance that the value (gold contents) you are transacting with them is in fact the precise weight of gold printed on the bill–after all, how do they know if they’ve seen it for the first time?
The main value of the technology is in it’s ability to conceal this amount in a flat, smooth pocketable shape. If we were to verify the contents and weight of the gold, we have to destroy the added value that is the technology itself. Assuming this verification can be done economically, there’s no way for us to recreate the goldback that we once destroyed. By contrast, we can take apart a cell phone and a rifle and reassemble it as to not lose it’s value; this is impossible with goldbacks.
Effectively, goldbacks must remain in their current form which limits it’s adoption as there’s no easy way of gaining trust on the contents within them. Faith is a requirement, which is a whole other level of complexity. This leads me to my last point.
#5 Impractical
It being impractical can breakdown into five sub-points
A) Since there has to be an additional bit of input to create them, the intrinsic value and the face value will never be the same. In other words, there will always be money that goes into their creation that is lost by the investor.
B) A major method of distribution would have to be done through small coin shop dealers and if they’re not accepting them out of ignorance or the fact they can’t verify it’s value, then it’s a tough sell to spread them around.
C) Some remark that during hyperinflation these items could be extremely useful. However, this fails to acknowledge that during hyperinflation, diesel, vodka, furniture, copper, even coffee beans can also become useful. It’s not the best trying to convince people of value when value is evaporating everyday.
D) If someone had a whole wheelbarrow of goldbacks and they decided to melt them to receive the physical gold, it’s truly a concern for this individual finding a refiner who will bother for such a small process of gold. Obviously it can be done, but it may be challenging finding someone willing and able to modify it how you wish, when you wish.
E) Non-Fungible. Given the limitations across state-lines and unclear laws from jurisdiction to jurisdiction–it cannot be said to be of the same monetary value. In Wyoming it may hold a legal value of $55 USD equivalent but hold no legal value in Idaho. Gold itself doesn’t have this problem.
“It may be difficult to counterfeit or fake, but it may easy to complete some trickery. Think Abbott and Costello’s two tens for a 5 skit“
Positive Feedback Received
Most lawyers, hadn’t bothered to reply back to me, however I did receive interested replies from three locations, Japan, Turkey and Switzerland. They did hold suspicions though.
- Japan: Businesses in Japan are increasingly talking about gold in Japan right now. However, these types of new trends and gimmicks have left a sour taste in people’s mouths in the late 80s and the lawyer felt as though citizens may be reluctant to put their inflating yen up to risk it.
- Turkey: Turkey had the highest interest given their commitment to gold in everyday life (also, a country experiencing bad inflation). An escape from the lira would obviously be a great demand for the Turkish citizens. However the lawyer noted that jewerlry, coin shops are extremely popular and why the novelty of it sounds alluring, it may be too challenging to “break-in”. Additionally, he thought that it may be thought of what people may hold in a cereal box or something similar and therefore not warrant significant value. He concluded that Western mints are very well known in Turkey but this new concept is not.
- Switzerland: Switzerland, being a pro-anything jurisdiction were open to hear my idea however they questioned the economics of the operation before even knowing the premium costs. The lawyer thought it would be largely adopted in Switzerland but he questioned if additional inputs would be necessary to check regulation boxes to operate in each Canton. Furthermore, he felt that most well-to-do Swiss are already significantly allocated to many assets, namely gold, and ironically it may be difficult to “steal” customers who already possess their gold bars.
Positive Note
I think Goldbacks and associated technology are very interesting and I don’t mean to disparage everything done. I believe that they continue to serve fantastic use-cases for the following:
- Gifts. Low cost item that carries intrinsic value that is fantastic for gifting friends and family.
- A collectible; A fun gift item to collect (all notes from each state). If the company were to cease operations their rarity could come very valuable one day. Almost everybody seems to love the artwork designs on them, which are beautiful.
- Educational; This is where I think this technology truly shines, pardon the pun. Just as cryptocurrency has brought people into questioning the concept and origin of money, this could be the same opportunity, especially for a younger audience to be awoken up to the realities of gold as money throughout history and paper as money. Many in the gold space say they’re pretty and great for children.
- Getting out of Cash; Someone living in the following states with various debts such as taxation, company registration fees, license renewal, waste management or other state-provided services, they could use goldbacks where it is deemed legal tender for these fees. This would allow someone to operate more independent from the fiat cash system. A sort of “spend in Goldback; save in gold bars” could emerge.
- Parties; no, not making it rain goldbacks–but you could bring a couple in your wallet and pass them around to generate some chatter about this new technology, how you came about it and get people’s thoughts on it.
- If the patent company is able to radically cut costs to streamline their creation than it has the potential of being adopted to a more widespread degree–> maybe then my initial idea could work.
Want to know my new idea for them?
On The Ball Members already know. A great way to separate you and your business from the rest–using this fascinating new technology.
Closing
Goldbacks are a very interesting new technology that allow gold to circulate in miniscule fragments of an expensive ounce coin while acting like a familiar bill with utmost durability. However, in practice, their use-cases and likelihood for wide adoption in my opinion are unfortunately limited. Gifts, teaching, collectibles and small personal usage are ideal, but until the premiums are drastically reduced, it’s not likely that the gold community will radically pour their wealth into these new niche notes.
What do you think? I’ll leave the comments open to hear from you!
#StayOnTheBall
