E-gold
and other electronic currencies
Who should use e-gold (from the e-gold
website):
Any business or individual who wants to make or receive
convenient, secure, cost effective, and final payments
across the internet. Whether your market is:
* On-line retail trade or services
* International remittances
* Micro-payments, such as music downloads
* Paid content websites
* Internet gaming
* On-line auctions
If you can not or do not want to use a credit card,
e-gold is your answer.
Get
more information or open your e-gold account here.
Other digital currencies
e-Bullion.com
- A digital gold currency backed by physical gold that
also allows you to trade physical gold for currency.
GoldMoney -
Digital precious metal currency backed by physical gold
and silver.
1mdc.com - A digital
gold currency.
Paysilver -
Electronic currencies backed by gold, silver, platinum
and palladium. Payment system allows micropayments and
provides statistics on holdings and transactions.
Pecunix - A digital
gold currency backed by physical gold.
The Phoenix
Dollar - A digital silver currency backed by physical
silver.
E-gold - information
e-gold is a digital gold currency operated by Gold
& Silver Reserve Inc. under e-gold Ltd., and is
a system which allows the instant transfer of gold ownership
between users. e-gold Ltd. is incorporated in Nevis,
Lesser Antilles.
According to the company's website, as of September
2006, e-gold had 111,779 oz (3,465,149 grams) of gold
and 138,567 oz (4,295,577 grams) of silver in storage,
which is worth approximately US$86 million. There are
typically 66,000 e-gold spends each day totalling 15,000
oz (460 kilograms), which is about US$10.5 million.
There are over three million e-gold accounts of which
about one quarter are active.
Open
your e-gold account here.
History of egold
e-gold was founded in 1996 by Dr. Douglas Jackson and
Barry K. Downey. Transactions using e-gold have grown
dramatically since 2005. The total amount of gold bars
(over three tonnes) in the e-gold system is approaching
the size of the national reserves of smaller countries.
e-gold now generates a substantial income from spend
and storage fees — it costs a few cents to make
each e-gold "spend" and e-gold itself now
earns well over a million USD per year from fees.
The number of e-gold accounts (as claimed by e-gold)
grew from 1 million in November 2003 to 3 million on
22 April 2006. That represents a compound growth rate
of approximately 55% per annum. This high growth rate
has been sustained by e-gold almost since inception.
Role of egold in global commerce
Many small businesses in the U.S., Europe and Asia,
each with full-time staff now operate as "digital
currency exchangers," doing nothing other than
buying and selling digital gold currency for "fiat
currencies," as gold bugs term the euro, pound,
yen and U.S. dollar.
e-gold transactions — a "spend" —
are completed electronically, usually using the web
interface, and they always settle by weight of the metal
even if denominated in some other way. A user may send
(or "spend") a tiny amount of gold (a fraction
of a gram, ounce or kilogram) to another user account
instantly, anywhere in the world.
Even though e-gold is careful to not advocate any particular
political agenda, as the Liberty Dollar does for example,
e-gold could be viewed as a libertarian form of private
currency
e-gold is, according to their website, "100% backed
by gold"
Unlike fractional-reserve banking, e-gold holds 100%
of clients' funds in reserves with a store of value.
Proponents of the e-gold system contend that e-gold
deposits are protected against inflation, devaluation
and other possible economic risks inherent in fiat currencies.
These risks include the monetary policy of countries
or territories, which are perceived by proponents to
be harmful to the value of paper currency.
The repository of the actual bullion bars with serial
numbers and other data can be seen using the live "Examiner"
function on the e-gold web site. Bullion is held in
allocated storage with Brink's Global Services (part
of The Brink's Company), Transguard Security Services
(part of The Emirates Group) or MAT Securitas Express
AG (part of the VIA MAT Group). Clients hold an unallocated
share of this allocated bullion.
The user may take physical delivery of the precious
metal upon payment of an additional fee, and provided
the user has an available balance of at least the weight
of the smallest individual item displayed in the Examiner.
This is currently a 32 troy ounce gold bar, which is
worth approximately $20,000. However in practice, most
users permit the company to store the metal for them.
Open
your e-gold account here.
Bullion investing
e-gold is a form of commodity money, so it is subject
to the price fluctuations of that commodity. If the
price of gold drops versus your national currency, the
value of your e-gold drops in that currency. The account
balance, which is denominated in gold grams, does not
change, but its purchasing power will change in relation
to the gold price.
This can, of course, work both ways. Proponents of
the e-gold system would argue that the risk of significant
price fluctuation is small compared to the risk of value
fluctuations among fiat currencies. The opposite argument
is that a typical user is more affected by changes in
the price of e-gold than of fiat currencies; this is
because most people are paid in and spend their local
currency, while the use of e-gold will typically involve
a foreign exchange transaction each time. In both cases,
long-term shifts in the price of a currency or e-gold
affect its owner, but anyone who frequently buys and
sells e-gold will be exposed to short-term fluctuations
as well. The price of gold has happened to increase
over the past five years, so this factor has worked
out to the advantage of anyone holding e-gold over that
period.
As well as digital gold, e-gold also offers e-silver,
e-palladium and e-platinum. Funds can be switched between
e-metals using their sister company OmniPay. Metal-to-metal
(or M2M) exchanges are completed at spot price with
no bid/offer spread.
Exchanging fiat currency
e-gold does not sell its currency directly to clients.
Instead numerous digital currency exchangers, such as
OmniPay (a sister company of e-gold), and some independent
companies such as IceGold and GoldNow act as market
makers selling e-metal in exchange for fiat currency
and a transaction fee. Conversely, these exchange providers
will sell fiat currency in exchange for e-metal, and
a transaction fee. In this manner e-metals can be converted
back and forth to a variety of national currencies.
The amount of a particular fiat currency or e-metal
necessary to complete a transaction is determined by
the spot price of the metal in relation to the value
of the fiat currency. e-gold is known as private currency
as it is not issued by governments.
Compared to other systems like PayPal, the process
of buying e-gold can be confusing to a person unfamiliar
with the e-gold system. e-gold, unlike e-Bullion for
instance, does not sell digital currency directly to
the user. According to their website the reason e-gold
does not provide an in-house exchange service is so
there can be no debt or contingent liabilities associated
with the business, making e-gold Ltd. absolutely free
of any financial risk. They claim e-gold Ltd. does not
possess currency of any nation or even have a bank account.
Fees
e-gold charge an account fee (or Agio Fee) of 1% per
annum (deducted in monthly payments) on all e-metal
stored.
Spending e-gold is free, with transaction fees (or
Spend Fees) deducted from the recipient. As of 2006
these spend fees vary on a sliding scale from 55% for
very small amounts (0.0004 grams of gold, worth about
1 cent) to 5% for amounts on the order of 0.1 gram (about
$2) to 1% for amounts of over 1 gram (about $20), with
a maximum fee of .05 grams (about $1).
e-gold spends clear instantly, in contrast to cheques
or credit card transactions. Unlike other online payment
systems such as PayPal, there are no distinctions between
merchant and non-merchant e-gold accounts. Anyone can
instantly create a "merchant account" (there
is only one type of account). All e-gold accounts carry
the same fees and have the same capacity to receive
and transmit e-gold account holdings.
Universal currency
Proponents claim that e-gold offered the first truly
global and borderless world currency system which was
independent of exchange rate variations. Gold, silver,
platinum and palladium each have recognised international
currency codes under ISO 4217.
Crime and fraud
e-gold has notoriously been the medium of choice for
many online con-artists, with pyramid schemes and HYIPs
("High Yield Investment Programs") commonplace.
This is presumably partly due to e-gold maintaining
its policy of irreversibility of e-gold transactions.
e-gold and OmniPay have also been accused of being
a medium for money laundering, although this is questionable
given that there were only 24 customer accounts holding
over 10kg of gold (approximate value $200,000) by April
2006. As digital gold currency providers are not banks,
they are not legally required to perform various sorts
of "know your customer" background checks.
However, many e-gold exchange providers require a high
level of identification, sometimes more intrusive than
a bank.
Opening an account at www.e-gold.com takes only a few
clicks of a mouse. Customers can use a false name if
they like because no one checks. With a credit card
or wire transfer, a user buys units of e-gold. Those
units can then be transferred with a few more clicks
to anyone else with an e-gold account. For the recipient,
cashing out — changing e-gold back to regular
money — is just as convenient and often just as
anonymous.
In January 2006, BusinessWeek reported on the use of
the e-gold system by ShadowCrew, an 4000-strong international
crime syndicate involved in massive identity theft and
fraud. Omar Dhanani of Fountain Valley, California,
connected to the ShadowCrew, is an e-gold customer and
is reported to have moved amounts ranging from $40,000
to $100,000 a week from proceeds of crime through e-gold.
In response, Chairman and founder, Dr. Douglas Jackson
published a letter which stated that "e-gold operates
legally and does not condone persons attempting to use
e-gold for criminal activity. e-gold has a long history
of cooperation with law enforcement agencies in the
US and worldwide, providing data and investigative assistance
in response to lawful requests." He further noted
that "Our staff has participated in hundreds of
investigations supporting the FBI, FTC, IRS, DEA, SEC,
USPS, and others."
In August 2006, WORLDLawDirect lawyers announced e-gold
Ltd. officials and their legal counsel to be the subject
of a U.S. Federal Court subpoena. They believe e-gold
Ltd. is subject to U.S. Federal Court jurisdiction and
may be held liable for some or all of the investors'
losses (and potential triple damages) in the Solid Investment
(Solidinvestment.com) large scale HYIP scam.
Non-reversible transactions
Unlike credit cards, there is no way of having transactions
reversed, even in case of a legitimate error or an unauthorized
spend. e-gold's Terms of Use stipulate that all spends
are final and e-gold cannot be held responsible for
any spend. In this respect, an e-gold spend is more
akin to a cash transaction (except for the fact that
there is a fee levied) while PayPal transfers, for example,
could be considered more similar to credit card transactions.
Security
As with any online payment system, e-gold is vulnerable
to various threats, notably phishing (for example, forged
emails asking for login details) and spyware (such as
keystroke logging).
e-gold offers no protection whatsoever if an attacker
succeeds in obtaining:
- the user's e-gold account number
- the user's e-gold password
- access to the user's registered email account (free
web-based email accounts are specially vulnerable)
as the e-gold account will then be completely open
for malicious use.
All three pieces of information can be gathered with
a trojan keylogger which monitors accesses to the e-gold
web-site. All online services are affected by this security
issues, but what makes e-gold especially vulnerable
is that any losses resulting from a security breach
cannot be undone since transfers are non-reversible,
and unlike online banking, e-gold do not provide any
insurance against such abuse. Also if funds are stolen,
e-gold will not block a recipient's account without
being issued with a court order. Since there is a lag
time in obtaining a court order, the stolen funds can
easily be withdrawn from the offending account and e-gold,
rendering the recovery of any funds virtually impossible.
This is not clearly stated in e-gold's user agreement,
but an abused user will receive the following explanation
from the company:
Unfortunately we will not be able to refund your
money because all e-gold spends are final and not
reversible as stated in the e-gold account user
agreement. e-gold is also contractually prohibited
from freezing e-gold accounts or releasing e-gold
account information in the absence of a court order
or subpoena. You might want to consider obtaining
some combination of help from a legal professional
or law enforcement to obtain a court order, if the
size of your loss warrants expenditure of your resources
(time and money) to resolve.
In 2005, the Los Angeles Times reported on a specially
created trojan horse that compromised "dozens"
to "the low hundreds" of e-gold accounts.
While trojans usually silently record the login details
of the unsuspecting user, the trojan in question (Win32.Grams)
emptied the accounts themselves by transferring the
contents to the attacker's accounts.
To partly counter the threat from keystroke logging
it is imperative that users never enter their password
via a keyboard when logging-in, or authorising spends,
if the computer they are using is potentially infected.
Instead users should always use a mouse and the popup
window provided (SRK Passphrase Entry). Other security
recommendations from e-gold include restricting access
to a single IP address or browser (Account Sentinel)
plus using Mozilla Firefox, a firewall and antivirus
software.
Some competing DGCs offer similar features to combat
typical, simple, "mass" phishing attacks and
keystroke loggers. e-Bullion utilizes a "two-factor",
token-based authentication solution from CRYPTOCard,
an alternative to RSA's "SecureID". Pecunix
has an extremely secure, somewhat complicated, log-in
procedure. 1mdc has a simple PIN-pad addition. GoldMoney
allow user certificates to be used. Most systems also
include an optional or compulsory "email confirmation"
type of process when logging-in or authorising spends.
Regulatory challenges & shortcomings
e-gold Ltd. was registered in Nevis, Lesser Antilles
in 1999, but was temporarily removed from the register.
e-gold cleared an administrative issue and as of July
14, 2006 it is properly registered in Nevis.
In September 2004, several Australian based e-gold
currency exchangers ceased operation as they did not
hold an Australian Financial Services licence (AFSL).
Australian based digital currency exchangers that closed
down voluntarily, due to the Australian Securities and
Investments Commission (ASIC) licencing requirements,
included:
goldex.net
sydneygoldsales.com
ozzigold.com
Whilst exchange providers can still operate in Australia,
many have found it impractical to do so due to licencing
or proxy issues. Australian residents can exchange e-gold
via exchangers in the U.S., Europe or other countries.
There appears to be no issues about New Zealand citizens
buying e-gold in NZ, and a number of AU citizens have
opened NZ bank accounts, specifically to purchase e-gold
from NZ based exchangers (even though e-gold doesn't
denominate e-gold in NZD).
Bullion storage
As of November 2005, it is unclear if e-gold has an
independent auditor of the physical bars, so there is
no way of knowing if e-gold Ltd. really has the reserves
to back the currency in the e-gold system. e-gold does
maintain an "Examiner", a web page with updated
statistics on outstanding liabilities and the total
amount of each precious metal in its holding. While
proponents generally consider this assuring enough,
critics remain skeptical.
Limited use
Beginning January 2006, eBay has restricted buyers
and sellers from using many online payment systems and
encouraged them to use Paypal, which is wholly owned
by eBay. eBay specifically named e-gold as one of the
online payment systems that will result in them cancelling
a seller's account if used [20]. e-gold runs a non-reversible
transaction policy, meaning that there is no protection
for purchasers if vendors fail to supply goods.
Source: This informational article is licensed
under the GNU
Free Documentation License. It uses material from
the Wikipedia article e-gold,
which you should consult for embedded references
and further useful links.
Open
your e-gold account here.
e-gold - more resources
InformationWeek
article (January 2006) on e-gold
Indomitus
report on e-gold
Wired
magazine article on e-gold and e-dinar
Would
a Global Crisis Make e-gold Glitter? - BusinessWeek
Online article
GDCA
Online - The Global Digital Currency Association
Some
e-gold listings from the ODP
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