The problem’s core
The main idea
Setting the task
Accomplishing the task
About 500 years ago, Nicolaus Copernicus, a Polish astronomer, economist and mathematician, and Thomas Gresham, an English financier, formulated the following law of economics: “Bad money drives out good.”
“Good” money is such whose “internal” value is not lower than its nominal one, or that of the circulating “bad” money with the same nominal value.
Let’s apply this law to the reality of nowadays. For example, some country introduces a gold standard - “good” money. Let’s imagine it is China, for instance, and its currency is gold yuan which is equal 1 gram of gold. Then let’s say there are 100 tons of gold backing the issuance of the money. The issuance is limited by the size of the gold reserve - that is, the number of grams in the hundred tons corresponds to the number of the gold yuans issued.
Unbacked fiat (“bad”) money is also in the market. Its issuance is not anyhow limited.
In this case, the countries issuing fiat money carry out a special issuance aimed at buying out the gold yuans and buy them out to later provide the issuer with them and thus acquire the 100-ton gold reserve.
Therefore, the gold-backed money disappear from the market, leaving only the unbacked money in circulation. “Bad money drives out good”.
This is Copernicus-Gresham’s law applied in the modern world.
That’s why every specialist aware of this problem considers those willing to introduce a gold-backed currency marginals. Such a specialist will explain it by the failure of the Genoa and the Bretton Woods gold backed currency systems in the 20th century.
The failure occured not because of Copernicus-Gresham’s law only. But this problem also played a great role in making the mentioned currency systems disappear. Particularly, the Bretton Woods system ceased operation when France provided the US with the gold-backed dollars and acquired a significant part of the gold backing.
We may seriously discuss the matter of a gold-backed currency only if Copernicus-Gresham’s problem is solved.
Our team created Copernicus Gold system allowing to issue an electronic currency denominated in gold, without the risk of having it bought out for unbacked fiat money. Its monetary unit is a gram of gold.
Its main idea is making the gold reserve not fixed but changeable dependently of the demand for the gold-backed currency.
Let’s say the fiat currency which a client wants to buy the gold backed currency for is deposited into the system. Let’s suppose physical gold may be bought at a stock exchange instantly and without any commission imposed. In this case, the amount of gold correspondent to the amount of the fiat currency deposited into the system is purchased, thus the system’s gold reserve increases. In case of a withdrawal from the system, the client specifies an amount of gold, the amount is sold and the client receives the amount of fiat currency correspondent to the up-to-the-moment market rate.
Therefore, one can not buy out the gold-backed money for any unbacked fiat currency.
The real market is more complicated than it is described in “The main idea” section.
To be precise, you may not instantly purchase physical gold. Even more troubles occur at weekends and on holidays. Although they may be partly avoided by purchasing gold at places in different time zones, we can not really speak about instantaneousness. Besides, there are commissions imposed for purchasing and selling gold at a stock exchange. On top of that, those commissions depend on the bullion’s weight. They may range from less than a per cent, in case of standard bullions, to such that are times higher for bullions weighing tens or hundreds of grams. So, in order to reduce commissions, you need to purchase standard gold bullions of not less than a kilogram at a stock exchange.
In order to ensure low fees and online processing of orders for purchasing of the gold-backed currency, Copernicus Gold must own a real reserve of physical gold purchased for Copernicus Gold’s own funds.
As well, it’s necessary to determine both the amount of the initially purchased gold and the minimal amount of it at which a topping up of the gold reserve or a sale of its part (if clients actively sell the gold currency) happens.
The task is to build a mathematical algorithm for automatic purchasing and selling of gold.
The use of a robotized system is related to Copernicus Gold’s being a system not involving humans. It is aimed at minimizing the costs and maximizing the reliability of the system’s operation. Unfortunately, a human is expensive to hire and not reliable, so they are totally cast out of operational management of financial services.
The mathematical model must deal with all the peculiarities of working in the field. The calendar - weekends and holidays; terms of physical gold supplies; flow of orders for purchasing and selling of gold, and many other conditions for operational management of gold reserves aimed at ensuring Copernicus Gold’s online operation mode.
The range of instruments of automated liquidity management was developed by the team of scientists working at Copernicus Gold.
It’s notable that Copernicus Gold faces no risks related to changes of the gold stock price. Copernicus Gold always owns the full backing in the form of real physical gold. In this case, there are no risks related to changes of the gold market price.
In fact, in case a client purchases the gold for a fiat currency, they get exactly grams of gold, which are independent of any fiat currency, deposited into their account. This is why if the stock price of gold changes, a client of the system either wins or loses. Copernicus Gold system’s financial condition is almost not impacted by changes of the price of gold. The physical gold is stored at a depository, the system is always liquid and does not depend on the current price of gold.
It must be noted that Copernicus Gold faces some risks related to changes of the price of gold anyway. They relate to the gold reserve purchased for the company’s own funds. However, our thorough modelling of the system’s operation in reality has showed that such risks are negligibly low because the share of the own gold is not large in comparison with that of the clients’ gold. This is reachable by optimizting the management of the gold reserve, Copernicus Gold’s operation in the physical online and the robotized procedures of purchasing and selling of gold.
The main idea of Copernicus Gold’s projecting was minimizing any possible risks.
Copernicus Gold is protected from a buyout of the gold-backed curency thanks to the mathematically correct algorithm properly managing the system’s gold reserve.
The company’s economic model is of a non-risky nature because all the monetary funds of clients are either allocated to the purchasing of gold bullions in the physical form (in case of purchasing of the gold electronic currency) or stored on the remainders on bank accounts and not used for giving credits and purchasing of securities. This is why all the monetary funds and gold bullions may at any time be used for fulfilling the clients’ requirements.
The compliance risks related to potential money laundering and financing of terrorism are substantial. To prevent such risks, a unique client identification procedure was designed. It analyzes several factors and allows to prove that the data provided in the system really are those of a certain individual. As well, an effective system of direct detection of suspicious transactions has been built.
Copernicus Gold platform has been implemented on the basis of the blockchain technology guaranteeing reliability at an ultimately high level. Copernicus Gold system’s nodes are located at remote data centers which may be distributed all around the world. The system based on the blockchain technology works as a p2p network, ensuring conduction of payments in the real time mode.
The choice of Singapore and not some offshore is also connected to the wish to show the market that we are committed to the reliability of the business and its legality. Singapore is often called a “gold cage”. It is connected to Singapore’s very high level of comfort of living and penalties for crimes which are among the world’s most severe ones. Operation in the Singaporean market is an unconditional declaration of running a business honestly.
Copernicus Gold’s main achievement is the development of technology of a simple, cheap and mass global gold trading system.
We were conducting a testing for 1.5 years, for the purpose of creating a stable and ergonomic system. We believe the goal has been reached.
The system’s API allows to involve not only individuals but banks, jewelry stores, pawn shops and other companies in gold trading. In other word, it allows to create a global system deeply penetrating all the fields of gold circulation.
The system with the minimum risks is another advantage today because of the regular turbulence in financial markets. In process of the system’s creation, most strict requirements were imposed to ensure the reliability and stability of Copernicus Gold system’s operation.
Vladimir Frolov, professor, Scientific Supervisor of Copernicus Gold