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 enabled users to pay each other in units that held the same value as gold bullion. These competing providers issue independent currency, which normally carries the same name as their company. In terms of the most popular providers, e-gold has the greatest number of users and GoldMoney holds the greatest quantity of bullion (as of January 2007).
As of January 2007, DGC providers held in excess of 9.5 tonnes of gold as disclosed reserves, which is worth approximately $184 million.
Asset protection
e-gold is, according to their website, "100% backed by gold"
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.
Bullion investing
Main articles: Gold as an investment and Silver as an investment
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.
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.
Non-reversible transactions
Unlike the credit card industry, DGC issuers generally do not bundle services such as repudiation. Thus having transactions reversed, even in case of a legitimate error, unauthorized spend, or failure of a vendor to supply goods is not possible. 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.
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.
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.
Following 27 April 2007, the United States Department of Justice forced e-gold to liquidate all the assets of 1mdc (which are held in e-gold), and is attempting to bring a case against e-gold [2]. e-gold has committed to counter what it considers groundless allegations [3]. Pecunix, GoldMoney, e-Bullion and other DGCs continue to operate normally,
Providers
Comparison of DGCs (as of January 2007):
Digital gold currency Date founded GDCA member Bullion stored Number of user accounts DCE transfers accepted Wire transfers accepted Annual storage fee Processing fee (when receiving from another user)
c-gold
2007 Yes 200 oz (as of 17 July 2007) Undisclosed No No 1% 1 - 5% (with min. 5% plus 0.0002 grams - max. 0.05 grams)
Crowne Gold
2002 No Undisclosed Undisclosed No Yes 1% 0%
e-Bullion
2000 No Undisclosed Undisclosed 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 Undisclosed No Yes 1.2 gold grams, 0.986% silver 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 Undisclosed Yes No 0% 0.15 - 0.50% (with min. 0.0001 - max. 3.0 gold grams)
VirtualGold
2006 No Undisclosed Undisclosed No Yes 0% 1% (with min. $0.10 - max. $2.00 USD)
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 scheme [4]. However, allegations that e-gold is a safe medium for crime and fraud are strongly denied by its Chairman and founder, Dr. Douglas Jackson [5].
Many DGC providers do not disclose the amount of bullion stored (see table) 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.
Digital gold currency
