New York bitcoin company itBit which operates the itBit bitcoin exchange has announced a new collaboration with Belgium based Euroclear Group. Their goal is to explore opportunities in creating a next generation settlement service for the London gold market using a blockchain solution.
itBit has a product called Bankchain, which is a proprietary blockchain infrastructure technology based similarly off of the bitcoin blockchain. The major difference is the Bankchain product is a private network of participants that clears, tracks, and settles trades.
Permissioned networks, or otherwise known as private blockchains, have some benefits such as instant transactions, digital signatures, and a shared transparent ledger for all participants. The disadvantages of a private blockchain is there nothing incentivizing the ledger to remain secure. There is no decentralized proof-of-work for security and immutability (censorship-resistance), which is the biggest advantage for the public and global bitcoin blockchain.
Despite this, Euroclear and itBit are working with relevant market participants to develop a service to minimize risk leading to a reduced capital charge, furnish true delivery versus payment, and reduce balance sheet constraints which occurs with settlement of unallocated gold.
Chad Cascarilla, CEO of itBit said about the news:
“We are excited to be partnering with Euroclear to develop a trusted digital infrastructure for gold. Precious metals are the first use case for Bankchain, and London bullion is a market in which a distributed ledger can have an immediate benefit.”
What is unallocated gold?
With unallocated gold there are no specific gold bars set aside. Clients are in fact owed metal by a trading company or broker that provides the service. Buying unallocated gold exposes investors to the financial situation of the seller because it is carried purely on the company’s accounts or balance sheets.
According to Vaultoro, a bitcoin-to-gold exchange company which only sells allocated gold, allocated gold means that the gold is physically held in secure storage and outright owned by you. Using Vaultoro, all gold is secured in a high-security vaulting facility (Pro Aurum). It is one of the largest vaulting companies in Europe. Their vaults are at a higher security level than most banks and so even banks hold gold in Pro Aurum Vaults.
With Vaultoro, all the gold is allocated and no client’s gold is part of Vaultoro’s balance sheets or books. Another nice thing about the gold exchange is that it uses the bitcoin blockchain to make all client holdings transparent and auditable themselves on their public audit page.