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Digital gold currency (or DGC) is a form of
electronic money Digital currency (digital money, electronic money or electronic currency) is any currency, money, or money-like asset that is primarily managed, stored or exchanged on digital computer systems, especially over the internet. Types of digital cu ...
(or
digital currency Digital currency (digital money, electronic money or electronic currency) is any currency, money, or money-like asset that is primarily managed, stored or exchanged on digital computer systems, especially over the internet. Types of digital cu ...
) based on
mass Mass is an intrinsic property of a body. It was traditionally believed to be related to the quantity of matter in a physical body, until the discovery of the atom and particle physics. It was found that different atoms and different ele ...
units of
gold Gold is a chemical element with the symbol Au (from la, aurum) and atomic number 79. This makes it one of the higher atomic number elements that occur naturally. It is a bright, slightly orange-yellow, dense, soft, malleable, and ductile ...
. It is a kind of representative money, like a US paper
gold certificate Gold certificates were issued by the United States Treasury as a form of representative money from 1865 to 1933. While the United States observed a gold standard, the certificates offered a more convenient way to pay in gold than the use of coin ...
at the time (from 1873 to 1933) that these were exchangeable for gold on demand. The typical
unit of account In economics, unit of account is one of the money functions. A unit of account is a standard numerical monetary unit of measurement of the market value of goods, services, and other transactions. Also known as a "measure" or "standard" of rela ...
for such currency is linked to
gram The gram (originally gramme; SI unit symbol g) is a unit of mass in the International System of Units (SI) equal to one one thousandth of a kilogram. Originally defined as of 1795 as "the absolute weight of a volume of pure water equal to th ...
s or
troy ounce Troy weight is a system of units of mass that originated in 15th-century England, and is primarily used in the precious metals industry. The troy weight units are the grain, the pennyweight (24 grains), the troy ounce (20 pennyweights), and th ...
s of gold, although other units such as the
gold dinar The gold dinar ( ar, ﺩﻳﻨﺎﺭ ذهبي) is an Islamic medieval gold coin first issued in AH 77 (696–697 CE) by Caliph Abd al-Malik ibn Marwan. The weight of the dinar is 1 mithqal (). The word ''dinar'' comes from the Lat ...
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 A gold bar, also called gold bullion or gold ingot, is a quantity of refined metallic gold of any shape that is made by a bar producer meeting standard conditions of manufacture, labeling, and record keeping. Larger gold bars that are produce ...
. These competing providers issue a type of independent
currency A currency, "in circulation", from la, currens, -entis, literally meaning "running" or "traversing" is a standardization of money in any form, in use or circulation as a medium of exchange, for example banknotes and coins. A more general ...
.


Features


Universal currency

Proponents claim that DGC offers a truly global and borderless
world currency In international finance, a world currency, supranational currency, or global currency is a currency that would be transacted internationally, with no set borders. History First European Banknotes (17th century) The first European banknotes we ...
system which is independent of
exchange rate In finance, an exchange rate is the rate at which one currency will be exchanged for another currency. Currencies are most commonly national currencies, but may be sub-national as in the case of Hong Kong or supra-national as in the case of t ...
variations and political manipulation. Gold, silver, platinum and palladium each have recognized international currency codes under
ISO 4217 ISO 4217 is a standard published by the International Organization for Standardization (ISO) that defines alpha codes and numeric codes for the representation of currencies and provides information about the relationships between individual ...
.


Asset protection

Unlike
fractional-reserve banking Fractional-reserve banking is the system of banking operating in almost all countries worldwide, under which banks that take deposits from the public are required to hold a proportion of their deposit liabilities in liquid assets as a reserv ...
, 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 In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduct ...
,
devaluation In macroeconomics and modern monetary policy, a devaluation is an official lowering of the value of a country's currency within a fixed exchange-rate system, in which a monetary authority formally sets a lower exchange rate of the national curre ...
and other economic risks inherent in
fiat currencies Fiat money (from la, fiat, "let it be done") is a type of currency that is not backed by any commodity such as gold or silver. It is typically designated by the issuing government to be legal tender. Throughout history, fiat money was sometime ...
. These risks include the
monetary policy Monetary policy is the policy adopted by the monetary authority of a nation to control either the interest rate payable for federal funds, very short-term borrowing (borrowing by banks from each other to meet their short-term needs) or the money s ...
of countries or territories, which are said by proponents to be harmful to the value of paper currency.


Bullion investing

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 A cryptocurrency exchange, or a digital currency exchange (DCE), is a business that allows customers to trade cryptocurrencies or digital currencies for other assets, such as conventional fiat money or other digital currencies. Exchanges may acc ...
. 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 A private currency is a currency issued by a private entity, be it an individual, a commercial business, a nonprofit or decentralized common enterprise. It is often contrasted with fiat currency issued by governments or central banks. In many coun ...
as they are not issued by
government A government is the system or group of people governing an organized community, generally a state. In the case of its broad associative definition, government normally consists of legislature, executive, and judiciary. Government i ...
s.


Non-reversible transactions

Unlike the
credit card A credit card is a payment card issued to users (cardholders) to enable the cardholder to pay a merchant for goods and services based on the cardholder's accrued debt (i.e., promise to the card issuer to pay them for the amounts plus the ...
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 In economics, cash is money in the physical form of currency, such as banknotes and coins. In bookkeeping and financial accounting, cash is current assets comprising currency or currency equivalents that can be accessed immediately or near-im ...
transaction, while
PayPal PayPal Holdings, Inc. is an American multinational financial technology company operating an online payments system in the majority of countries that support online money transfers, and serves as an electronic alternative to traditional paper ...
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 Political risk is a type of risk faced by investors, corporations, and governments that political decisions, events, or conditions will significantly affect the profitability of a business actor or the expected value of a given economic action. ...
,
data security Data security means protecting digital data, such as those in a database, from destructive forces and from the unwanted actions of unauthorized users, such as a cyberattack or a data breach. Technologies Disk encryption Disk encryption refe ...
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 Governance is the process of interactions through the laws, norms, power or language of an organized society over a social system ( family, tribe, formal or informal organization, a territory or across territories). It is done by the g ...
". All other DGC providers operate under self-regulation. DGC providers are not banks and therefore not subject to many
bank regulation Bank regulation is a form of government regulation which subjects banks to certain requirements, restrictions and guidelines, designed to create market transparency between banking institutions and the individuals and corporations with whom th ...
s 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." Of the once DGC providers, Pecunix (gone, see
below Below may refer to: *Earth *Ground (disambiguation) *Soil *Floor *Bottom (disambiguation) *Less than *Temperatures below freezing *Hell or underworld People with the surname *Ernst von Below (1863–1955), German World War I general *Fred Below ( ...
),
Liberty Reserve Liberty Reserve was a Costa Rica-based centralized digital currency service that billed itself as the "oldest, safest and most popular payment processor, serving millions all around a world". The site had over one million users when it was shut d ...
(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 throug
domains by proxy
se
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, Standard Reserve and INTGold. 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.


e-gold

e-gold e-gold was a digital gold currency operated by Gold & Silver Reserve Inc. (G&SR) that allowed users to open an account on their web site denominated in grams of gold, or other precious metals, and that let users make instant transfers of value ...
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, it was not able to obtain money transmitting licenses due to its guilty plea. 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, collectively valued in excess of 90 million US Dollars.


1mdc

1mdc was a digital gold currency backed by e-gold rather than by physical gold. On April 27, 2007, a US court ordered
e-gold e-gold was a digital gold currency operated by Gold & Silver Reserve Inc. (G&SR) that allowed users to open an account on their web site denominated in grams of gold, or other precious metals, and that let users make instant transfers of value ...
to freeze or block the e-gold accounts 1mdc used to back the digital gold currency it issued. Before the year was out, the 1mdc website was no longer accessible.


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. 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. 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 Peer-to-peer (P2P) computing or networking is a distributed application architecture that partitions tasks or workloads between peers. Peers are equally privileged, equipotent participants in the network. They are said to form a peer-to-peer ...
network for the exchange of digital currencies. 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, 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 Phishing is a type of social engineering where an attacker sends a fraudulent (e.g., spoofed, fake, or otherwise deceptive) message designed to trick a person into revealing sensitive information to the attacker or to deploy malicious softwa ...
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 Purchasing power is the amount of goods and services that can be purchased with a unit of currency. For example, if one had taken one unit of currency to a store in the 1950s, it would have been possible to buy a greater number of items than would ...
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. 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.


Providers

Comparison of operating DGCs:


Criticisms

DGC providers and exchangers have been accused of being a medium for fraudulent
high-yield investment program A high-yield investment program (HYIP) is a type of Ponzi scheme, an investment scam that promises unsustainably high return on investment by paying previous investors with the money invested by new investors. Mechanics Operators generally set ...
(HYIP) schemes. In January 2006, ''
BusinessWeek ''Bloomberg Businessweek'', previously known as ''BusinessWeek'', is an American weekly business magazine published fifty times a year. Since 2009, the magazine is owned by New York City-based Bloomberg L.P. The magazine debuted in New York City ...
'' reported that
ShadowCrew ShadowCrew was a cybercrime forum that operated under the domain name ShadowCrew.com between August 2002 and November 2004. Origins The concept of the ShadowCrew was developed in early 2002 during a series of chat sessions between Brett Johnso ...
, an online gang, used the
e-gold e-gold was a digital gold currency operated by Gold & Silver Reserve Inc. (G&SR) that allowed users to open an account on their web site denominated in grams of gold, or other precious metals, and that let users make instant transfers of value ...
system in a massive
identity theft Identity theft occurs when someone uses another person's personal identifying information, like their name, identifying number, or credit card number, without their permission, to commit fraud or other crimes. The term ''identity theft'' was c ...
and fraud scheme. 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. 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 Reserve requirements are central bank regulations that set the minimum amount that a commercial bank must hold in liquid assets. This minimum amount, commonly referred to as the commercial bank's reserve, is generally determined by the centra ...
, or that their currency is entirely virtual and not backed by physical gold at all. Due to increase of compliance requirements for
payment service provider A payment service provider (PSP) is a third-party company that assists businesses to accept electronic payments, such as credit cards and debit cards payments. PSPs act as intermediaries between those who make payments, i.e. consumers, and those ...
s, Jersey-based GoldMoney decided to suspend its DGC service as from January 21, 2012


Cultural references

*The novel ''
Cryptonomicon ''Cryptonomicon'' is a 1999 novel by American author Neal Stephenson, set in two different time periods. One group of characters are World War II-era Allied codebreakers and tactical-deception operatives affiliated with the Government Code an ...
'' by
Neal Stephenson Neal Town Stephenson (born October 31, 1959) is an American writer known for his works of speculative fiction. His novels have been categorized as science fiction, historical fiction, cyberpunk, postcyberpunk, and baroque. Stephenson's work e ...
uses the idea of a gold-based digital currency in combination with strong
cryptography Cryptography, or cryptology (from grc, , translit=kryptós "hidden, secret"; and ''graphein'', "to write", or '' -logia'', "study", respectively), is the practice and study of techniques for secure communication in the presence of adv ...
. *The novel ''
Alongside Night ''Alongside Night'' is a dystopian novel by science fiction writer J. Neil Schulman intended to articulate the principles of Agorism, a political philosophy created by Samuel Edward Konkin III, to whom Schulman dedicated the work. It was first p ...
'' by
J. Neil Schulman Joseph Neil Schulman (; April 16, 1953 – August 10, 2019) was an American novelist who wrote ''Alongside Night'' (published 1979) and ''The Rainbow Cadenza'' (published 1983) which both received the Prometheus Award, a libertarian science ficti ...
features several types of competing DGCs. *The novel '' Molon Labe!'' by
Kenneth W. Royce Kenneth W. Royce is an American author who primarily writes under the pen-name of Boston T. Party. He has written non-fiction books that offer a Libertarianism, libertarian stance on privacy, police encounters, tax resistance and gun politics. His ...
features a gold based digital accounting system very similar to DGCs. *The novel ''Minerva'' by
Robert P. Murphy Robert Patrick Murphy (born May 23, 1976) is an American economist. Murphy is Research Assistant Professor with the Free Market Institute at Texas Tech University. He has been affiliated with Laffer Associates, the Pacific Research Institute, ...
features DGCs prominently. *The novel ''The Cryptographer'' by
Tobias Hill Tobias Hill (born 30 March 1970 in London, England) is a British poet, essayist, writer of short stories and novelist. Life Tobias Hill was born in Kentish Town, in North London, to parents of German Jewish and English extraction: his maternal ...
is centered around Soft Gold, a DGC. *The novel ''The Way to Freedom'' by Carl Kyler is about gold money and digital gold currencies.


See also

*
Digital currency exchanger A cryptocurrency exchange, or a digital currency exchange (DCE), is a business that allows customers to trade cryptocurrencies or digital currencies for other assets, such as conventional fiat money or other digital currencies. Exchanges may acc ...
* Full-reserve banking *
Gold as an investment Of all the precious metals, gold is the most popular as an investment. Investors generally buy gold as a way of diversifying risk, especially through the use of futures contracts and derivatives. The gold market is subject to speculation and ...
*
Gold exchange-traded fund Gold exchange-traded products are exchange-traded funds (ETFs), closed-end funds (CEFs) and exchange-traded notes (ETNs) that are used to own gold as an investment. Gold exchange-traded products are traded on the major stock exchanges including th ...
*
Gold standard A gold standard is a monetary system in which the standard economic unit of account is based on a fixed quantity of gold. The gold standard was the basis for the international monetary system from the 1870s to the early 1920s, and from th ...
*
Silver as an investment Silver is a chemical element with the symbol Ag (from the Latin ', derived from the Proto-Indo-European ''h₂erǵ'': "shiny" or "white") and atomic number 47. A soft, white, lustrous transition metal, it exhibits the highest electrical cond ...
* Gold to Go (Automated banking machine) *
Vaulted gold Vaulted gold denotes gold bullion stored in bank vaults. By acquiring vaulted gold, institutional or private investors obtain outright ownership of physical gold. An investor who buys vaulted gold also acquires physical gold ownership. Vaulted g ...
*
Cryptocurrency A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it. It i ...
*
Bitcoin Bitcoin (abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...


References

{{DEFAULTSORT:Digital Gold Currency