A recent Yahoo Finance press release by NoFiatCoin claims that a new gold backed cryptocurrency has been created that can act as an alternative to bitcoin. The article reads like a news article, but it is actually a self-promotional advertisement written by NoFiatCoin.
The article reads, “Traded on the Ripple Network, this next generation cryptocurrency released by NoFiatCoin | XNF is the first coin in the digital currency market to be backed by precious metals. The coin was released on the 6th of January and saw its value rise almost 50% to $2.10 in just one week.”
The article goes on to state that, “NoFiatCoin wants to avoid problems associated with mining: waste of computing power, energy and the possibility of a mining pool taking control of the market by acquiring 51% of all available mining capacity. Therefore XNF, like XRP (currency of the Ripple Network) are pre-mined and can be directly obtained on the Ripple Network or through XNF Exchanges.”
The XNF framework isn’t really a true cryptocurrency. It can’t be. The article notes that the XNF currency is “pre-mined,” which means there must be a singular issuing body that prints up the coins and is holding them – and that issuing body is obviously NoFiatCoin. NoFiatCoin claims that no more than 25 million XNFs will ever be created, but I’m assuming we have to put trust in NoFiatCoin to adhere to that assertion. The benefit of bitcoin is that there is no trust issues in regards to quantity of the money supply because the currency limits are hard limits imposed by the cryptography that makes the system work.
NoFiatCoin says that only a 1/3rd of XNFs are backed by bullion and that the market will determine the price for an XNF. To me, this doesn’t make much sense. This means an XNF does not represent a fixed weight of gold. Further, NoFiatCoin says redemption of XNFs for bullion requires a minimum of $3000 worth of XNFs at current market prices.
If XNFs were actually a “gold backed” currency, each XNF would have to represent a fixed unit of weight. For example, they could set an XNF to be worth .001 ounces of gold, and if you saved up 1000 XNFs, then you could always exchange them with NoFiatCoin for an ounce of bullion. Of course, under this system, it would be impossible to have a fixed limit of currency creation, and there would have to be a way to take XNFs out of circulation once they were redeemed for physical specie.
Further, if XNFs were a real gold backed currency, we would have to trust NoFiatCoin to maintain an accurate accounting of its gold reserves vs. its issuance of XNFs. There’s nothing that would physically prevent NoFiatCoin from issuing XNFs without actually having the gold to back them for redemption. This is how fractional reserve banking first came about. We can see that there are multiple trust issues that come into play when trying to tie a digital currency to physical bullion.
Basically I don’t see any difference between NoFiatCoin offering up bullion for bitcoins at current market prices or them offering up bullion for XNFs at current market prices, other than the fact NoFiatCoin holds all of the initial XNFs – which sounds like a pretty sweet deal for NoFiatCoin. That said, the currency can work, because the supply is limited and it retains most of the same value properties that bitcoin does. I just don’t understand why anyone would rather use this currency over bitcoins, which don’t have the trust issues that XNFs do, nor is their issuance entirely controlled by a singular third party.
By NoFiatCoin’s reasoning, bitcoins must also be a gold backed currency, because I can directly exchange bitcoins for gold bullion right now. Since I can exchange bitcoins for bullion at current market rates, there’s no difference between bitcoins and XNFs, at least in terms of their “gold backing.”