A new, silver-backed cryptocurrency aims to combine precious metals and blockchain into the money of the future.
Cryptocurrency often catches flak for lacking an objective value, so could a silver-backed token be the way forward? “Advisors Magazine” recently caught up with two ambassadors from LODE, a new cryptocurrency that turns “idle silver” into electronic tokens.
Gold often dominates discussions about the value of precious metals while silver gets downplayed or ignored. Now, a cryptocurrency initiative known as LODE intends to restore silver to its historic place as “sound money” and as a modern alternative to fiat government currencies.
“A return to a precious metals silver standard [would be] a vehicle to turn this sound money into an actuality, and we could use blockchain as the vehicle as the technological backing to make this asset liquid again,” said Nicholas Prouten, a brand ambassador for the LODE system. “Historically, we transitioned away from that for a numerous variety of reasons. The LODE community is driven by the belief that the world truly does need a stable, sound form of currency that is an alternative to central banking, fiat currencies, which are backed by debt.”
If Prouten sounds like the sort of person who questions the Federal Reserve, it is because he does, to some degree at least. The LODE community envisions a world where parallel “stablecoins” –
cryptocurrencies backed by precious metals or other stores of value – coexisted with government currencies.
“The biggest risk or one of the most difficult facts when competing against these governments and currencies is that they are established. They’ve been established for hundreds of years and you’re working against a structure that is deeply ingrained in people,” Prouten said. “It’s not about necessarily looking at this as a head-to-head combat, we’re working collaboratively and jurisdictionally around the world to work within existing ecosystems to provide people with an alternative.”
The average person still will pay their taxes in government currency in the future, Prouten added, but the LODE system provides a peer-to-peer or consumer-to-business transaction system that individuals can use for other transactions.
The alternative works via a two-token system. The LODE system allows community members to enter their “idle” silver, meaning silver that currently sits unused in a home or storage unit, into circulation. That silver ends up in one of LODE’s vaults around the world. The users who put silver into the system benefit by seeing their investment grow as people purchase AGX tokens for consumer use.
What’s an AGX token? The AGX token is the LODE system component that allows people to use the stored silver as a medium of exchange. The LODE system, in this way, emulates the way U.S. dollars used to be backed by gold in a two-part currency.
Cryptocurrency experts and precious metals observers remark that while LODE shows some similarity with other backed tokens on the market, the system aspect sets it apart.
“The problem I see right now … is that most of [the backed cryptocurrencies] are tokenized assets that you can spend,” said precious metals observer David Morgan, publisher of “The Morgan Report,” a monthly report that covers economic news and the global economy. “So, it’s similar to some of the systems that exist let’s say in Utah … where you can use gold and silver for any transaction as long as both parties agree. But other than just tokenizing the asset and spending it, this system is the only system out of probably 19 or 20 that I have seen to have a monetary system. There is a markup between the LODE token and the AGX coin which allows people that put their silver in … And put it to work, and they earn silver in return as a monetary asset.”
LODE tokens are perpetual bonds. In return for the silver contributed to the LODE system, token holders earn rewards, or a dividend, known as a “micro-payout” that is administered every 52 days, seven times a year, at a rate of 5.25 percent of all newly minted AGX coins distributed amongst LODE token holders, the project said in a news release.
Morgan, who gave an interview about LODE to financial media in February, added that the system’s appeal, for now, appears limited to “anti-Fed” types, but that could change as adoption increases. Silver, historically, has been seen as money used by common people and that may increase its appeal as a tokenized asset.
“Gold was the money of kings … Silver, yes, is an industrial asset, [but] it has a long history of being considered the money of the people,” Prouten said. “Silver is more accessible, it’s more readily available. Almost anybody from most countries in the world have access to silver and can afford a gram denomination of silver to participate.”
The investors interested in LODE also are looking for a less “aristocratic” asset.
“They’re more libertarian. They’re looking for an idea that says, ‘How can we sort of take the power back, so to speak from central governments?’” said Matthew Taub, a LODE project ambassdaor spokesman who joined an interview with Prouten in August.
The founders incorporated LODE in Lichtenstein, but the project retains a global focus. Prouten said that most users currently live in North America or France but developing world residents may see value in the system as their central banks continue to falter.
“Countries in South America are seeing these [inflation] rates at hundreds of thousands of percent,” said Taub,. Silver’s stability might induce people struggling with hyperinflation to seek alternatives that are backed by precious metals.
Cryptocurrency experts, and organizations such as the World Bank, have commented for some time on the possibilities surrounding tokens in the developing world, where a majority of people remain “unbanked.” An asset-backed token might appeal to residents of Venezuela, for example, who experienced a record-high inflation rate of 815,194 percent last May, according to “Trading Economics.” Few in the developing world participate in LODE as of yet, however, Prouten said, but he added that the community does include members from 100 countries total.
The backed cryptocurrency model does offer advantages compared to major industry players such as Bitcoin, Prouten said. Many investors missed the boat on Bitcoin, said Taub, which was exacerbated by the fact that the currency is not backed by anything tangible; Bitcoin’s value comes entirely from what people think it is worth. That means Bitcoin, while an alternative to government fiat currency, is valued by fiat itself. 
“The LODE system really does provide the best of both worlds,” Taub said. “It’s never too late to get started, either.”
Facebook’s proposal to create “Libra,” a cryptocurrency that was intended originally to be backed by several global organizations, was “backed by nothing,” he added.
A token based on silver ties the asset to a real, hard asset, which can be entrusted to weather economic storms as well. Recessions, for example, often see investors flocking to precious metals as they are widely considered “safer,” but spending or using those assets remains cumbersome.
“Historically, in those crisis situations, people lean back into precious metals. The difference now is that this precious metal can be used as a viable asset,” Prouten said. “If a recession is inbound, then having wealth stored in something like AGX and LODE is a fantastic hedge against devaluation.”
For more information on the LODE system, visit: lode.one