Digital gold currency

Digital gold currency (or DGC) is a form of electronic money (or digital currency) based on mass units of gold. It is a kind of representative money, like a US paper gold certificate at the time (from 1873 to 1933) that these were exchangeable for gold on demand. The typical unit of account for such currency is linked to grams or troy ounces of gold, although other units such as the gold dinar are sometimes used. DGCs are backed by gold through unallocated or allocated gold storage.

Digital gold currencies are issued by a number of companies, each of which provides a system that enables users to pay each other in units that hold the same value as gold bullion. These competing providers issue a type of independent currency.

Features

Universal currency

Proponents claim that DGC offers a truly global and borderless world currency system which is independent of exchange rate variations and political manipulation. Gold, silver, platinum and palladium each have recognized international currency codes under ISO 4217.

Asset protection

Unlike fractional-reserve banking, DGCs hold 100% of clients' funds in reserve as gold, silver, and/or platinum, which can be exchanged via digital certificates. Proponents of DGC systems say that deposits are protected against inflation, devaluation and other economic risks inherent in fiat currencies. These risks include the monetary policy of countries or territories, which are said by proponents to be harmful to the value of paper currency.

Bullion investing
Main articles: Gold as an investment and Silver as an investment

All of the other digital gold-backed currency systems can be used to buy, hold, and sell precious metals, but do not promote themselves as an "investment", as this implies an anticipated return.

Exchanging national currency

Some providers do not sell DGC directly to clients. For those DGCs, e-currency must be bought and sold via a digital currency exchanger.

Currency exchangers accept payment in national currencies by a variety of methods, including Bank Wire, Direct Deposit, Cheque, Money Order. Some exchangers also sell and fund pre-paid debit cards to make it easier for their clientele to convert DGC into an easily spendable form of national currency.

DGCs are known as private currency as they are not issued by governments.

Non-reversible transactions

Unlike the credit card industry, digital gold currency issuers generally do not have services to dispute or reverse charges. So, reversing transactions, even in case of a legitimate error, unauthorized use, or failure of a vendor to supply goods is difficult, if not impossible. This means that using digital gold currency is more akin to a cash transaction, while PayPal transfers, for example, could be considered more similar to credit card transactions.

The advantage of this agreement is that the operating costs of the digital currency system are significantly reduced because of the shortage of settlement of payment disputes. Plus, it allows to instantly clear digital gold currency transactions, making the funds immediately available to the recipient. Unlike credit cards, checks, ACH, and other reversible payment methods, there are typically 72 hours or more to clear.

Risks

As with all financial media, there are several types of risk inherent to the use of DGCs: management risk, political risk, data security and exchange risk.

Management and political risks

DGCs, like all financial institutions and public securities, have a layer of risk in the form of the management of the issuing institution. Controls aimed to limit management risk are called "governance".

All other DGC providers operate under self-regulation. DGC providers are not banks and therefore not subject to many bank regulations that pertain to fractional reserve lending as they do not engage in lending. However, DGCs do provide a method for transferring currency from one person to another, and therefore may fall under regulations pertaining to money transmitting in various jurisdictions.

The Global Digital Currency Association (GDCA), which was founded in 2002, is a non-profit association of online currency operators, exchangers, merchants and users. The GDCA is an example of the DGC industry's attempt at self-regulation. On their website they claim their goal is to "further the interests of the industry as a whole and help with fighting fraud and other illegal activities, arbitrate disputes and act as escrow agent when and where required."[1] Of the once DGC providers, Pecunix (gone, see below), Liberty Reserve (shut down for money laundering in 2013), and eight others became members of the association. It costs one gram of gold to file a complaint if you are not a member, and the list of filable complaints is not exhaustive. Their domain name is registered anonymously through domains by proxy, see whois.

OS-Gold, Standard Reserve and INTGold

Several companies claiming to be Digital Gold Currencies sprang up and failed between 1999 and 2004, such as OS-Gold,[2] Standard Reserve[3] and INTGold.[4] All these companies failed because the principals diverted deposits for other purposes instead of holding them in the form of gold. In each of these cases, account holders lost several million dollars worth of gold when the "institution" failed.[5]

e-gold
Main article: e-gold § Criminal prosecution

e-gold was a digital gold currency founded in 1996. A legal case was brought against e-gold in April 2007 that included violations of 18 U.S. Code § 1960 (Prohibition of unlicensed money transmitting businesses). e-gold vigorously contested the § 1960 charges brought against it in April 2007 for more than a year. In July 2008, following a ruling from the court that effectively enshrined in case law the Treasury Department's expansion of the definition of "money transmitter", e-gold entered into a plea agreement that detailed actions required to bring the companies into compliance with laws and regulations governing operation of a money transmitting business. Although e-gold complied with all other terms of its plea agreement,[6] it was not able to obtain money transmitting licenses due to its guilty plea.[7] Since returning value to customers could constitute money transmitting without a license, e-gold entered into an agreement in 2010 with the US Government to enable e-gold account holders to claim the "monetized value" of their accounts,[8] collectively valued in excess of 90 million US Dollars.[9]

1mdc
Main article: 1mdc

1mdc was a digital gold currency backed by e-gold[10] rather than by physical gold. On April 27, 2007, a US court ordered e-gold to freeze or block the e-gold accounts 1mdc used to back the digital gold currency it issued.[11] Before the year was out, the 1mdc website was no longer accessible.[12]

e-Bullion
Main article: e-Bullion

E-Bullion was a digital-gold currency exchange that had risen, then become defunct around 2008.

In August 2008, James Fayed, the owner and chief executive official of the E-Bullion Company, was taken into United States Federal custody to face felony charges of conducting unlicensed money transactions and the murder of his business partner. Shortly thereafter, the website ceased to be available. As a consequence of these charges, by January 2010 the U.S. Government had seized all of the assets of e-Bullion, resulting in the complete closure of the company.[13] In June 2011 a California jury found Fayed guilty of murder and sentenced him to death.

Pecunix

Pecunix was a gold based digital currency (or e-currency) in which accounts had balances in GAU (gold grams).

Pecunix was founded by Simon "Sidd" Davis in 2002, and was registered and incorporated in Panama.[14] All gold bullion was originally stored with Mat Securitas Express AG in Zürich, Switzerland, but in 2008 the Pecunix directors transferred the bullion to an undisclosed location.

In a 2012 interview with DGCMagazine, Mr. Davis described the development of the Voucher-Safe software and peer-to-peer network for the exchange of digital currencies.[15] In early 2014, Pecunix announced they would be replacing their Pecunix Payments system with the open source Voucher-Safe system and PX-Gold. By the end of 2014, all legitimate digital currency exchangers had ceased dealing with Pecunix. In early 2015, Pecunix disabled the log-in feature of their website, thereby preventing all users from accessing their accounts. A statement on the Pecunix website claimed that this was a temporary change "due to new management and restructuring", but access was never restored. The P2P Voucher Payment System became fully operational in August 2015,[16] but PX-Gold never came into existence. Account holders never recovered their funds.

Data security

Digital gold systems are completely dependent on electronic storage and transmission of account ownership information. Therefore, the security of a given digital currency account is dependent upon the security of the issuer as well as the security of the accountholder's computer.

While the digital gold issuers employ data security experts to protect their systems, the average accountholder's computer is poorly protected against malware (trojans, worms and viruses) that can be used to intercept information used to access the user's DGC account. Therefore, the most common attacks on digital currency systems are directed against accountholders' computers by the use of malicious spam, phishing and other methods.

Issuers have taken quite different approaches to this problem. E-gold basically places the entire responsibility on the user, and employs a user-name and password authentication system that is weak and highly vulnerable to interception by malware. (Though it is the most common authentication method used by online banks.) The "not our problem" approach to user security has negatively contributed to e-gold's public image, as not a few e-gold accounts have been hacked and swept clean by attackers..

e-Bullion offers account holders a "Cryptocard" security token that changes the passphrase with each logon, but charges the account holder US$99.50 for the token. E-bullion does not require customers to use the Cryptocard, so account holders who choose not to get one may suffer from the same security issues as e-gold customers.

Pecunix devised a unique rotating key system that provides many of the benefits of a security token without requiring the user to buy one. Pecunix also supports the use of PGP signatures to access an account, which is probably the strongest of all authentication methods.

Exchange risk

Digital gold currency is a form of representative money as it directly represents gold metal on deposit or in custody. This depends on the issuer. Most issuers have the gold on deposit - i.e., the issuer will redeem the digital currency obligation with physical metal. Just as the exchange rates of national currencies fluctuate against each other, the exchange rates of DGCs fluctuate against national currencies, which is reflected by the price of gold in a particular currency. This creates exchange risk for any account holder, in the same way one would experience exchange risk by holding a bank account in a foreign currency.

Some DGC holders make use of the digital currency for daily monetary transactions, even though most of their normal income and expenses are denominated in the national currency of their home country. Fluctuations in the value of gold against their national currency can create some confusion and difficulty for new users as they see the "value" of their DGC account fluctuate in terms of their native currency.

In contrast to exchange risk, caused by gold's fluctuation against national currency, the purchasing power of gold (and therefore DGCs) is measured by its fluctuation against other commodities, goods and services. Since gold has historically been the refuge of choice in times of inflation or economic hardship, the purchasing power of gold becomes stronger during times of negative sentiment in the markets.[17] Due to this speculative interference, there are times when purchasing power has also declined. For example, in 2007–2008, gold volatility closely tracked the run-up in oil prices.[18]

Providers

Comparison of operating DGCs:

Digital gold currency Birth Death Financially regulated GDCA
member		 Bullion
stored		 Bullion audit
trail		 Number
of user
accounts		 DCE transfers accepted Wire transfers accepted Annual storage fee Processing fee
(when receiving from another user)
e-dinar 2000 N N Undisclosed N Undisclosed N Y 1% 1% (with max. 0.015 gold dinar)[19]
Pecunix 2002 2015 N Y 2,777 oz gold Y Undisclosed Y N 0% 0.15 - 0.50% (with min. 0.0001 - max. 3.0 gold grams)[20]
iGolder 2005 2013 N N Undisclosed N Undisclosed N Y x% 1%
Liberty Reserve 2004 2013 N N Undisclosed N Undisclosed N N x% 1%
gbullion 2007 N N Undisclosed N Undisclosed N N x% 1%
e-gold 1996 2008[21] N N Undisclosed Y[22] over 1.6 million funded accounts in May 2007[23] Y[24][25][26][27][28][29] N 1% per annum[30] Depended on amount spent[30]
eCache ~2007 <2014
Gold Bullion International LLC 2014[31] N N Undisclosed Y Undisclosed Y Y 0% 30bit/s Ripple (payment protocol)
Global Standard Gold (AUG) 2015[32] Y[33] N Undisclosed Undisclosed Undisclosed Y[34] N Depends on balance[35] Depends on amount spent[35]
GoldMoney / BitGold 2015 Y 20,799,464.939 grams Mar. 2017 Y 1,425,254 March 2016 Y 0% personal 0.5% personal accounts / 1% business

Criticisms

DGC providers and exchangers have been accused of being a medium for fraudulent high-yield investment program (HYIP) schemes. In January 2006, BusinessWeek reported that ShadowCrew, an online gang, used the e-gold system in a massive identity theft and fraud scheme.[36] Traditional banks are also used frequently for such fraud. Allegations that e-gold is a safe medium for crime and fraud are strongly denied by its Chairman and founder, Dr. Douglas Jackson.[37] Further, it can be argued that such problems lay with the source of the information or monies, rather than the location of storage of such ill-gotten gains. In other words, it would be difficult to claim the bank as villain when the criminal activity occurred by other parties away from the storage location.

Many DGC providers do not disclose the amount of bullion stored (see table), or do not allow independent external bullion audits, raising concerns that such companies do not maintain a 100% reserve ratio, or that their currency is entirely virtual and not backed by physical gold at all.

Due to increase of compliance requirements for payment service providers, Jersey-based GoldMoney decided to suspend its DGC service as from January 21, 2012[38]

Cultural references

See also

References
  1. Global Digital Currency Association Ltd.
  2. "OS-Gold", The Gold Economy Magazine, September 2002
  3. "Why Standard Reserve Failed", The Gold Economy Magazine, May 2003
  4. "INTGold", The Gold Economy Magazine, September 2003
  5. "Digital Gold". Buy Gold.
  6. "Defendants' Status Report Regarding Compliance Pursuant to the July 21, 2008 Plea Agreements, and Notice of Filing (2008-11-05)". e-gold Legal Update. Retrieved 2016-05-14.
  7. "e-gold Update: Value Access". e-gold Blog. Retrieved 2016-05-14.
  8. "e-gold Update: Value Access Plan Approved". e-gold Blog. Retrieved 2016-05-14.
  9. "e-gold Value Access Plan - Monetization Complete". e-gold Blog. Retrieved 2016-05-14.
  10. "1mdc.com is similar to e-gold(R) and Pecunix(R)". 2006-10-21. Archived from the original on October 21, 2006. Retrieved 2016-05-14.CS1 maint: unfit URL (link)
  11. "1mdc.com is similar to e-gold(R) and Pecunix(R)". 2007-05-03. Archived from the original on May 3, 2007. Retrieved 2016-05-14.CS1 maint: unfit URL (link)
  12. "Internet Archive Wayback Machine". 2007-06-01. Retrieved 2016-05-14.
  13. Mullan, P. Carl (2016). A History of Digital Currency in the United States: New Technology in an Unregulated Market. Springer. p. 116. ISBN 9781137568700.
  15. "Voucher-Safe, a Next Generation Digital Currency". Digital & Gold Currency Magazine. November 20, 2012. Retrieved 2015-01-01.
  17. Tang, Frank (January 22, 2008). "US gold bounces on inflation fears, safe haven bid". Reuters.
  18. "TedBits", Ty Andros, Trader View, April, 2008, http://news.goldseek.com/GoldSeek/1207289100.php
  19. https://www.e-dinar.com/cgi/?page=dinardirham&a=_1 [The Islamic Dinar is a specific weight of 22k gold (.917) equivalent to 4.25 grams]
  20. http://www.pecunix.com/money.refined...ind.feestructure
  21. wired.com/threatlevel/2009/06/e-gold
  22. "e-gold Examiner". 2008-01-10. Archived from the original on January 10, 2008. Retrieved 2016-05-14.CS1 maint: unfit URL (link)
  23. "e-gold Statistics". 2007-04-30. Archived from the original on April 30, 2007. Retrieved 2016-05-14.CS1 maint: unfit URL (link)
  24. "e-gold Directory". 2008-01-11. Archived from the original on January 11, 2008. Retrieved 2016-05-14.CS1 maint: unfit URL (link)
  25. "IceGold - first e-currency exchange in Europe". www.icegold.com. Retrieved 2016-05-14.
  26. "e-gold... gold itself, circulated electronically". 2007-03-23. Archived from the original on March 23, 2007. Retrieved 2016-05-14.CS1 maint: unfit URL (link)
  27. "London Gold Exchange - E-gold, Digital Currency, eCurrency - buy, sell, convert". 2007-03-21. Archived from the original on March 21, 2007. Retrieved 2016-05-14.CS1 maint: unfit URL (link)
  28. "The Bullion Exchange Gold Exchange Provider. Precious Metals, E-Gold and E-Bullion". 2007-03-23. Archived from the original on March 23, 2007. Retrieved 2016-05-14.CS1 maint: unfit URL (link)
  29. "O M N I P A Y". 2007-03-22. Archived from the original on March 22, 2007. Retrieved 2016-05-14.CS1 maint: unfit URL (link)
  30. "e-gold fees". 2007-03-07. Archived from the original on March 7, 2007. Retrieved 2016-05-14.CS1 maint: unfit URL (link)
  31. Shieber, Jonathan. "Bitreserve Brings Bitcoin To The Gold Standard". TechCrunch. Retrieved 2016-05-14.
  32. "Gold-Backed Digital Currency Ditches the Blockchain". American Banker. Retrieved 2016-05-14.
  33. "COEPTIS - Better Money, Better Payments". coeptis.com. Archived from the original on 2016-05-03. Retrieved 2016-05-14.
  34. "FIDELIS-FX". fidelis-fx.com. Archived from the original on 2017-04-25. Retrieved 2016-05-14.
  35. "COEPTIS - Better Money, Better Payments". coeptis.com. Archived from the original on 2016-05-03. Retrieved 2016-05-14.
  36. "Gold Rush". Business Week. January 9, 2006. Archived from the original on February 12, 2008. Retrieved 2008-01-22.
  37. "Letter from Dr. Douglas Jackson; Chairman, e-gold, Ltd". 6 January 2006. Retrieved 2008-01-22.
  38. "Archived copy". Archived from the original on 2012-01-14. Retrieved 2012-02-22.CS1 maint: archived copy as title (link)
  39. Stephenson, Neal (2002). Cryptonomicon. New York: Avon Books. pp. 387, 476–477, 500, 659. ISBN 0-06-051280-6.
  40. Murphy, Robert P. (2004). "Minerva". strike-the-root.com.
  41. Kyler, Carl (2010). "The Way to Freedom".


This article is issued from Wikipedia. The text is licensed under Creative Commons - Attribution - Sharealike. Additional terms may apply for the media files.