Gold has served as a store of value for thousands of years, but owning physical gold comes with limitations: it's expensive to store, difficult to transport and cannot be easily divided. 

PAX Gold (PAXG) solves these problems by tokenizing physical gold, creating a digital asset that retains all the value of the underlying metal while adding all of the benefits of blockchain technology.

Each PAXG token represents one fine troy ounce of London Good Delivery gold stored in professional vaults - the same institutional-grade standard typically reserved for central banks and large investors. But how does physical gold become a digital token available to anyone with an internet connection? Let’s explore how the tokenization process works.

What is PAX Gold (PAXG)?

Tokenizing gold transforms it from a static store of value into a programmable asset with verifiable quality. 

PAXG can be traded 24/7, without the delays and fees associated with physical gold transactions. It can be sent anywhere in the world in minutes via Ethereum. It can be used as collateral in decentralized finance protocols or integrated into automated trading strategies.

PAXG makes fractional ownership practical. Instead of needing to purchase a full 400-ounce bar - which at today’s prices can cost upwards of $1,800,000 - investors can buy any amount down to a fraction of an ounce. There are no storage fees, no insurance costs and no concerns about physical security.

At the same time, the underlying asset remains unchanged. Token holders own allocated, investment-grade gold stored in secure vaults. The tokenization process adds utility without compromising the fundamental characteristics that have made gold valuable for millennia.

Step 1: Purchase and Payment

The tokenization process begins when a customer decides to purchase PAXG. 

PAXG can be purchased on major cryptocurrency exchanges like Kraken, Coinbase, Binance, Gate, KuCoin and more, and can be held in any Ethereum-compatible wallet.

Once purchased, Paxos initiates the gold acquisition process through its network of LBMA-cleared channels. These channels ensure that all gold meets the London Good Delivery standard, the highest quality benchmark in the gold market.

Step 2: Gold Acquisition and Allocation

Paxos sources physical gold bars from LBMA-approved suppliers. Each bar meets strict quality requirements: it must be at least 99.5% pure gold and bear the stamp of an LBMA-approved refiner. These bars typically weigh around 400 troy ounces, though the exact weight varies slightly from bar to bar.

Once acquired, the gold is allocated. Allocation means that specific bars are assigned to specific customers. This is different from unallocated gold, where customers have a claim on a general pool of gold without ownership of particular bars. With PAXG, your tokens correspond to identified, serialized bars stored in LBMA-certified vaults in London.

Every bar has a unique serial number, refiner stamp and weight recorded. This information is tied directly to the tokens and can be viewed by token holders at paxos.com.

Step 3: Token Minting on Ethereum

After the gold is secured and allocated, Paxos mints PAXG tokens on the Ethereum blockchain. PAXG is built as an ERC-20 token, which means it follows a standard that allows it to be stored in any Ethereum-compatible wallet and traded on any platform that supports ERC-20 tokens.

The minting process is governed by smart contracts. These are self-executing programs on the blockchain that enforce the rules of PAXG. The smart contracts ensure that tokens can only be created when physical gold has been allocated in the vault. They also enable features like instant transfers, transparent ownership records, and regulatory compliance functions.

Each token represents exactly one fine troy ounce of gold. The 1:1 backing is maintained at all times, and the relationship between tokens and bars is verifiable on-chain.

Step 4: Transfer to Customer

Once minted, PAXG tokens are transferred to the customer's wallet. 

From this point forward, the customer has full control over their tokens. They can hold them, trade them on exchanges, use them in DeFi applications, or send them to other Ethereum addresses. 

All transactions settle in minutes and are recorded permanently on the blockchain.

The Reverse Process: Redemption

Tokenization works in both directions. 

Token holders can redeem PAXG for physical gold or convert it back to USD or unallocated gold through Paxos. For customers holding 430 ounces or more, full bar redemption is available. Those with smaller holdings can redeem fractional amounts through gold retailers partnered with Paxos.

When tokens are redeemed, they are burned and removed from circulation. The corresponding gold is either delivered to the customer or converted according to their instructions. This ensures that the total supply of PAXG always matches the total amount of allocated gold in the vaults.

Trust and Transparency

The entire tokenization process is backed by regulation and regular audits. 

Paxos operates as a national trust bank under OCC (Office of the Comptroller of the Currency) regulation, which requires strict separation of customer assets from company funds. Independent accounting firms audit the gold reserves monthly to verify that every token is backed by physical gold.

Transparency extends to the blockchain itself. Every PAXG transaction is publicly recorded on Ethereum, allowing anyone to verify ownership and transfers. The combination of regulatory oversight, regular audits and blockchain transparency creates multiple layers of accountability.

This level of verification is difficult to achieve with traditional gold ownership structures, where customers often rely entirely on the claims of custodians or financial institutions.

The Future of Gold Ownership

PAXG represents the future of how value is stored and transferred. 

By tokenizing the world's oldest reserve asset, it combines the proven stability of gold with the efficiency of blockchain technology - the best of both worlds. As finance becomes increasingly digital, PAXG positions gold for the next era while maintaining the physical backing and regulatory oversight that institutional investors require.