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Digital gold currency

Encyclopedia : D : DI : DIG : Digital gold currency

e-gold is, according to their website, "100% backed by gold"
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e-gold is, according to their website, "100% backed by gold"

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.

As of January 2006, DGC providers held in excess of 8.6 tonnes of gold as reserves, which is worth approximately $154 million.

Contents

Providers

Digital gold currencies are issued by a number of providers, each of which provides system that enables users can pay each other in units that hold the same value as gold bullion. Each competing provider issues independent currency, which normally carries the same name as their company. The DGCs currently in circulation are: 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 May 2006).

Features

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.

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. Precious metal digital currencies provide an easy way to gain access to bullion investing, without the hassles of delivery and storage.

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 gold currency exchanger. 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 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.

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." [link] Of the eight DGC providers, only Pecunix and Liberty Reserve have become members of the association.

Criticisms

DGC providers and exchangers have been accused of being a medium for fraudulent HYIP schemes. In January 2006, BusinessWeek reported on the use of the e-gold system by ShadowCrew, an online gang involved in massive identity theft and fraud [link]. However, allegations that e-gold is a safe medium for crime and fraud are strongly refuted by its Chairman and founder, Dr. Douglas Jackson [link].

There is also suspicion that some DGC companies do not maintain a 100% reserve ratio -- their currency may be entirely virtual and not backed by any actual gold.

See also

External links

 

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