The volatility of Bitcoin and other major cryptocurrencies could be solved by pegging them to precious metals.

That is the view of Thomas Coughlin, CEO of Kinesis, which will launch such digital currencies in November.

“The increasing volatility of cryptocurrencies has led to the notion of a ‘stable coin’ as a viable alternative –digital tokens pegged to traditional fiat currencies such as the US dollar, British pound or Japanese yen, with the aim of reducing this volatility and increasing confidence,” Coughlin, the former CEO of Bullion Capital, told BusinessCloud.

“However, the stability of fiat currency has also come into question as of late, with the increasing trade wars and the rapid collapse of emerging market currencies.

“The widespread economic meltdown, however, has led to a renewed interest in gold. Russia has been shedding US Treasury Bonds for gold; Venezuela’s government has offered gold to their citizens as currency and the Reserve Bank of India has bought gold for the first time in nearly a decade following the collapse of the Indian Rupee.”

However while gold is historically one of the best stores of value, it’s not an efficient means of exchange.

“This is where technology comes into play,” continued Coughlin. “One way of doing this is by creating an immutable, secure and easily exchangeable digital record of gold ownership on the blockchain.

“This ownership can then be exchanged as a digital IOU for real, physical gold in much the same way that original bank notes once acted as an IOU for gold which could be given to 'the bearer on demand’.

“To ensure widespread use, it is essential to be able to spend this cryptocurrency in the place of fiat currencies. Using mobile banking technology, this currency can exist in an e-Wallet which would function like a fiat banking system.”

The Kinesis coins – KAU and KAG – will be minted as a representation of physical gold and silver respectively. Each gram of gold will be equivalent to one KAU coin while 10g of silver will equal one KAG coin.

Those invested in the technology will be connected to a debit card which can be used in the style of a traditional bank account, allowing customers to withdraw funds at virtually any ATM around the world.

The determination of crypto investors to hang on to their assets also hinders their practicality in a real-world setting, according to Coughlin.

“To cement its place as a fully-functional monetary system, it is imperative for these currencies to incentivise exchange,” he said.

“This problem is demonstrated with gold and silver, where those who hold precious metals over legal tender or fiat currency typically do not wish to spend it, choosing the less valued fiat currency for everyday transactions.

“Similarly, given cryptocurrency’s market volatility, it is often a crypto-holder’s view that their crypto-assets will rise in value or that they must hold on to them to wait for prices to recover.

“To ensure constant movement within the system, this gold-based currency needs to be able to reward use. This could potentially be through attaching a yield system that promotes exchange and fairly shares the wealth generated according to participation and capital velocity.”

Kinesis has a public sale which ends in 45 days.