UK's Royal Mint to sell digital gold

The UK’s Royal Mint (TRM) and CME Group recently announced that AlphaPoint and BitGo are helping develop a trading platform for a new blockchain based product, Royal Mint Gold.

The Royal Mint is the world's leading export mint, making coins and medals for an average of 60 countries every year. However, its first responsibility is to make and distribute United Kingdom coins as well as to supply blanks and official medals.

Royal Mint Gold (RMG) is a new digitised gold offering utilizing distributed ledger technology to make it more cost-effective and providing increased transparency for traders and investors to trade, execute and settle gold. “RMG utilizes blockchain technology for its digital infrastructure, providing a cryptographically-secured alternative to buying, holding, and trading spot gold,” states the Royal Mint.

“The initiative is poised to change the way gold is traded, executed, and settled by making it available for trading 365 days a year, with lower costs and a transparent ledger of ownership.” - The Royal Mint

Holding RMG is designed to negate counterparty risk by having direct ownership of physical gold bullion. Each RMG represents ownership and full title to 1g of physical gold bullion held in the form of fully allocated, LBMA Good Delivery Bars within The Royal Mint's vault.

Launching later this year, the new gold investment product will be traded on an exchange using a platform provided by CME Group, the largest, most diverse derivatives marketplace in the world, handling, on average, 3 billion contracts worth approximately $1 quadrillion annually.

AlphaPoint is the architect of the RMG digital asset trading platform, and has been customizing the system in partnership with TRM and CME Group since 2016.

“At any time RMG can be redeemed for physical gold bars and coins produced by The Royal Mint, with physical delivery.” - The Royal Mint

The Mint has been looking into blockchain technology since January 2015. In November last year the Mint announced plans for the upcoming RMG product with CME. “Distributed ledger technology is a game changer and supplying gold on a blockchain has been something The Royal Mint has wanted to develop for some time,” said Vin Wijeratne, CFO of The Royal Mint.

The Mint partnered with CME group, formerly known as the Chicago Mercantile Exchange Group, as it’s one of the largest securities trading houses in the US and operates the largest options and derivatives exchange in the world. Its digital securities trading platform, CME Direct, has been chosen to be the home of trading for RMG, which can be accessed anywhere with an internet connection.

CME Group Head of Digitization, Sandra Ro, explained that the new blockchain-based product is an entire trading eco-system for gold, providing speed, security as well as transparency of direct ownership. The current plan, according to Ro, is to launch the product backed by up to $US1 billion in gold bullion, which will reside at the Mint until needed.

“When you purchase RMGs you will effectively have real gold that is allocated from a direct ownership standpoint that is completely reserved – there is no re-hypothecation, there is no lending on that gold, there will be enough physical gold to represent all the RMGs that are issued.” - Sandra Ro, CME Group Head of Digitization

Ro added that one of the key aspects of making this distributed ledger technology as effective as possible is to release it as open source code ahead of its launch. “We are open sourcing elements of it but we don’t want to give the illusion that this is an open network. It’s not initially. It’s a permissioned private network, and we’re going to be allowing for some of the source code – which is based on Bitcoin anyway and which is already open source – to be enhanced and modified.”

The RMG ledger is built on Prova, an open-source distributed ledger for commodities and digitized physical assets, whose development is being led by BitGo. The popular wallet startup has had at least US$14m in funding and now provides the bitcoin wallets behind many exchanges and third-party services in the sector. RMG will be their first wallet offering that was not designed to hold Bitcoin.

BitGo CEO Mike Belshe explained that all of the code for Prova has been made open source and available for developers to download and use at the Prova website. “For the first time in history, a government owned treasury, top-tier financial institutions, and technology companies have come together to innovate in a major market,” he stated.

“We welcome developers, cryptographers, and security researchers to review what we’ve done and improve upon it in the future.” - Prova

BitGo worked with Alphapoint in developing Prova. The open-source distributed ledger for commodities and other digitized physical assets requires all users to be fully identified, and has peer to peer nodes that only send RMG to multi-signature wallets. The blockchain is also said to be incapable of sending RMG into an address that no one owns.

Alphapoint is a Bitcoin liquidity provider that offers a suite of tools based on their shared order book for matching trades between their customer's exchanges. Over 20 markets on five continents use their service, including USD leader Bitfinex. The company also offers a custom blockchain service called StreamCore, which designs them for financial institutions.