Digital gold currency
From Wikipedia, the free encyclopedia
Digital gold currency (or DGC) is a form of electronic money denominated in gold weight. The typical unit of account for such currency is the gold gram or the troy ounce, 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 independent currency, which normally carries the same name as their company. e-gold and e-Bullion are the most popular DGC providers with the greatest number of users. In terms of the total quantity of gold reserves in storage, GoldMoney is the leading provider (as of October 2006).
As of January 2006, DGC providers held in excess of 8.6 tonnes of gold as reserves, which is worth approximately $154 million.
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[edit] Features
[edit] Asset protection
Unlike fractional-reserve banking, DGCs (such as e-gold and GoldMoney) hold 100% of clients' funds in reserves with a store of value. Proponents of DGC systems contend that 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. It is also theoretically much harder for governments and/or creditors to seize or confiscate digital gold currency from someone, as most DGC companies are incorporated in offshore financial centres.
[edit] Bullion investing
Digital currencies backed by gold are the most popular, although e-gold, e-Bullion and e-dinar also provide digital currency backed by silver, while GoldMoney and Crowne Gold also provide storage in silver. Other digital silver currencies include the eLibertyDollar and Phoenix Silver. In addition to gold and silver, e-gold supplies digital currency backed by platinum and palladium. Gold, silver, platinum and palladium each have recognised international currency codes under ISO 4217.
[edit] Exchanging fiat currency
Some providers, like e-gold, do not sell DGC directly to clients. In the case of an e-gold account, currency must be bought and sold via a digital currency exchanger (DCE). According to their website the reason they do this is so there can be no debt or contingent liabilities associated with the business, making e-gold Ltd. absolutely free of any financial risk. DGCs are known as private currency as they are not issued by governments.
[edit] Non-reversible transactions
Unlike credit cards, there is no way of having transactions reversed, even in case of a legitimate error, unauthorized spend, or failure of a vendor to supply goods. In this respect, a DGC spend is more akin to a cash transaction while PayPal transfers, for example, could be considered more similar to credit card transactions.
[edit] Universal currency
Proponents claim that DGC offers a truly global and borderless world currency system which is independent of exchange rate variations. Gold, silver, platinum and palladium each have recognised international currency codes under ISO 4217.
[edit] Risks
Digital gold currency is a form of commodity money as deposits are stored in gold units rather than fiat currency. The purchasing power of DGC therefore fluctuates in relation to the gold price. If the price of gold increases, then an account becomes more valuable, but if the price of gold falls, so does the value of the account.
There are no specific financial regulations governing DGC providers, so they operate under self-regulation. DGC providers are not banks and therefore do not need to comply with bank regulations. However 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 current DGC providers, only Pecunix and Liberty Reserve have become members of the association.
[edit] Providers
Comparison of DGCs (as of October 2006):
| Digital gold currency | Date founded | GDCA member | Bullion stored | Number of user accounts | DCE transfers accepted | Wire transfers accepted | Storage fees | Transaction fees (when transferring to another user) |
|---|---|---|---|---|---|---|---|---|
| 1mdc | 2001 | No | Undisclosed | Undisclosed | Yes | No | 0% | 0% |
| Crowne Gold | 2002 | No | Undisclosed | Undisclosed | No | Yes | 1% | 0% |
| e-Bullion | 2000 | No | ? | ? | Yes | Yes | 4 gold grams | 0% |
| e-dinar | 2000 | No | Undisclosed | Undisclosed | No | Yes | 1% | 1% (with max. 0.015 gold dinar) |
| e-gold | 1996 | No | 111,779 oz gold, 138,567 oz silver, 400 oz platinum, 396 oz palladium | 3,571,496 | Yes | No | 1% | 1 - 5% (with min. 5% plus 0.0002 gold grams - max. 0.05 gold grams) |
| GoldExchange | 2006 | No | Undisclosed | Undisclosed | No | Yes | 1% | $0.35 USD |
| GoldMoney | 2001 | No | 193,921 oz gold, 3,229,907 oz silver | ? | No | Yes | 1.2 gold grams | 1% (with min. 0.01 - max. 0.1 gold grams) |
| Liberty Reserve | 2005 | Yes | Undisclosed | Undisclosed | Yes | No | 0% | 1% (min. $0.01 - max. $0.25 USD) |
| Pecunix | 2002 | Yes | 2,375 oz gold | ? | Yes | No | 0% | 0.15 - 0.50% (with min. 0.0001 - max. 3.0 gold grams) |
[edit] Criticisms
DGC providers and exchangers have been accused of being a medium for fraudulent HYIP schemes. In January 2006, BusinessWeek reported that ShadowCrew, an online gang, used the e-gold system in a massive identity theft and fraud [2]. However, allegations that e-gold is a safe medium for crime and fraud are strongly denied by its Chairman and founder, Dr. Douglas Jackson [3].
Certain DGC providers, like Crowne Gold, do not disclose the amount of bullion stored or allow independent external bullion audits, raising concerns that such companies do not maintain a 100% reserve ratio, or their currency is entirely virtual and not backed by physical gold at all.
[edit] See also
- BullionVault
- Digital gold bug
- Digital currency exchanger
- Gold exchange-traded fund
- Full-reserve banking
- Gold as an investment
- Gold standard
- Liberty Dollar
- Private bank
- Silver as an investment
[edit] External links
- Global Digital Currency Association
- DGC News
- The Gold Blog
- The Gold News
- Spot Gold Price Quote
- The Indomitus Report - Digital gold currency special report
- Strike the Root interview
- What is digital gold?
