At its simplest, tokenised gold is a digital claim on physical gold.
Each token typically represents a fixed quantity of gold and is backed by real bullion stored in independently audited, high-security vaults. The gold does not exist in digital form, it continues to sit in physical custody, while ownership is recorded on a blockchain.
According to Prateek Gupta, Head of Business at Mudrex, a cryptocurrency investing and trading platform, tokenised gold is not a derivative or synthetic exposure. Instead, it is designed to mirror actual bullion holdings, with each token tied directly to physical reserves held by the issuer.
How the system works
The process behind tokenised gold follows a simple structure:
First, issuers purchase physical gold in the form of bullion. This gold is then placed in regulated vaults under independent custody. Once secured, digital tokens are created on a blockchain, with smart contracts ensuring that each token corresponds to a defined amount of gold.
These tokens are then issued to investors, allowing ownership to be transferred digitally without moving the underlying metal.
Manhar Garegrat, India Head at Liminal Custody, an institutional-grade digital asset custody and wallet infrastructure platform, explains that the key innovation is not just digitisation, but the ability to make gold transferable and divisible while it remains physically stored.
Blockchain acts as the settlement and record-keeping layer, enabling instant ownership updates and transparent transaction history.
What makes it different from traditional gold
Tokenised gold sits between physical gold and financial products like ETFs.
Physical gold gives direct ownership of metal, but requires storage, insurance and manual liquidity management. ETFs provide market exposure through exchange-traded units but do not give direct access to underlying bullion.
Tokenised gold combines elements of both. It allows fractional ownership, meaning investors can hold very small portions of gold. It also enables faster transferability, with ownership changes recorded digitally rather than through physical settlement processes.
According to Prateek Gupta, this structure allows investors to access gold in smaller denominations while maintaining a direct link to real bullion held in custody.
Role of blockchain in the system
Blockchain in tokenised gold primarily functions as an infrastructure layer.
It records ownership, enables transferability and ensures that transactions are verifiable and tamper-resistant. Smart contracts automate issuance and tracking of tokens, reducing reliance on traditional intermediaries.
However, as Manhar Garegrat notes, blockchain does not replace the need for trust. The system ultimately depends on the integrity of physical custody, audit processes and the transparency of reserve management.
Proof of reserves and verification
Many tokenised gold systems use proof-of-reserves mechanisms to show that issued tokens are backed by actual gold holdings.
This allows investors to verify that circulating tokens match the amount of gold stored in vaults, adding a layer of transparency beyond periodic audits.
In essence, it is a way to continuously align the digital representation with the physical asset.
The takeaway
As experts say, the gold itself does not change, it remains stored in vaults. What changes is how ownership is recorded, transferred and accessed.
The result is a version of gold that behaves more like a digital asset, while still being anchored to a traditional store of value.
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