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Exploring the World of Virtual Gold
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(June 21, 2001) The latest incarnations of the world's oldest money are virtual payment systems denominated, not in dollars, yen, euros, etc., but in gold by weight. Quite a few websites now compete, allowing you to buy (and sell) stuff over the Internet, with payment in the form of electronic dollops of gold. Chewing through Bananas, Coconuts, and Estonian Popsicles, we find the germ of a real idea here.
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"Cyber currencies spawn 21st century gold rush" by Marcelo Ballve

"June 17, 2001 San Juan, Puerto Rico, (AP) --In a strange quirk of fate, the Internet may be breathing new life into an ancient currency -- gold. Several Caribbean-based Web companies have begun storing gold in places like Dubai, Zurich, and London and allowing Internet users to own pieces of the metal and use it as an online currency. So instead of relying on credit cards -- the dominant online payment system -- people can opt for bullion-based cybermoney, which purveyors tout as quick, cheap and private alternatives."

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This Associated Press article, picked up by the online magazine Salon, touches on some of the cyber-gold companies and their potential usefulness in e-commerce, particularly in international transactions where currency fluctuations and onerous conversion fees enjoyed by banks can now be avoided.

The crux of these virtual gold payment systems is their reliance on today's virtually no-cost electronic transmissions over the Internet. Secure payment systems are used to adjust the accounts of buyers and sellers, accounting for gold in units as small as 1/1000th of a gram, or about one U.S. penny's worth.

A central gold storage vault holds the actual gold bullion in account, but with electronic accounting, there is no need to physically measure ounces, grams, or grains of gold. You just open an account, and all your business is done in gold by grams or fractions of grams.

Gold accounts are an old idea. In the 16th century, before the days of paper money, European goldsmiths would safeguard gold for people, issuing receipts for that gold, and the receipts traded much like currency does today. As long as the receipts equaled exactly the amount of gold in storage, and could be presented for full payment in gold at any time, they represented a secure and convenient way to trade without hauling gold from place to place.

Today's fledgling attempts at electronic gold are just new versions of this old idea, with the high-tech twist that gold can be credited down to the tiniest fraction without loss or inaccuracies. Instead of written receipts for set amounts of gold, a computer keeps track of your account.

The first link from Ballve’s article is to Icegold.com. Icegold provides a service whereby they will stock your e-gold account (at 4% over spot, bankwires only). Icegold is an Estonian company, and its website pictures Paul Vahur, its co-founder and general manager. Icegold’s logo appears to be a gold-bar Popsicle (Registered Trademark, we’re sure) rampant on a circle of blue. Don’t know where Estonia is? See their website for more details.

Searching banner ads, we also found Gold-today.com. It is a provider of gold, and will sell gold into your electronic account, at a rate of 9%, or 7% if over $1500, and negotiable rates downward on larger purchases. Gold-today is in Melbourne Australia, and if you click on a “Who are we” button (more accurately, this would be “Who am I?”) you see an unflattering portrait of one Michael Moore, presumably sole proprietor of the Gold-today enterprise.

One of the actual gold payment systems itself is e-gold.com, operated out of the island of Nevis in the Caribbean, although the gold itself is stored in a bank in Nova Scotia, according to their website.

“E-gold is a monetary (payments) system which enables the use of gold as money,” announces the site, “All financial value will migrate to cyberspace over the next few years. E-gold is ready so that you can be too.”

The e-gold site shows definite evidence of a well-developed gold payment system, complete with an on-site calculator that translates gold prices into the various currencies. There’s also a real-time online service called the “e-gold Examiner” which provides constant information on the amount of gold in storage and in circulation in the form of e-gold.

E-gold.com charges 1% per transaction, up to a maximum of 50 cents, and a 1% yearly storage fee for the gold in your account. There is also a multi-level marketing aspect involved for website operators who provide a link to the e-gold site. Again, quoting the site, “Those who follow your link and subsequently create a new e-gold account will become your Progeny. Thereafter you will make a little money every time one of your Progeny spend or receive payment in e-gold.”

Moving along, Bananagold-com has a headline that pretty well explains their site: “Where you can shop Amazon.com using e-gold!”

Staying with the tropical sweets theme, Coconutgold.com is an “offshore e-gold exchange” and, like Bananagold.com, is a production of Interesting Software, Ltd., (ISL, Ltd., BWI – British West Indies?) To quote their site, “ISL is a very well known entity, is extremely liquid and successful…a large amount of business (kilos) in e-gold every week.”

It would be easy to dismiss many of these cyber-gold entities as flavor-of-the-week enterprises. And even one of the more substantial-looking, E-gold.com, according to the AP article, boasts of having some 200,000 accounts and more than $14 million of gold ‘currency’ in circulation. But that’s an average of only $70 per account, not the sort of number likely to make a banker feel jealous.

But there is the potential for an efficient monetary exchange system in this idea. Gold has a universal value which translates into any of the world’s currencies – why shouldn’t e-commerce have its own money, one that transcends borders and doesn’t have to be ‘converted’ as it flows from country to country?

“Just like every country had its own national currency, the Internet needs its own money too,” Ballve quotes James Turk, the founder of GoldMoney.com. Turk, formerly a banker with Chase Manhattan, says “right now we’re just a speck in the world economy, but I’m optimistic that we’ll grow.”

Judging from the website GoldMoney.com, James Turk and his crew have done the most impressive work in the field of electronic gold. GoldMoney is an Isle of Man corporation, the site is hosted in South Africa, and the gold they store for account-holders is in London.>br>

“GoldMoney is an internet payment system that greatly advances electronic commerce by providing a safe and easy way to exchange money for goods and services. By combining the power of Internet technology with the simplicity of gold, the world’s oldest money, GoldMoney enable its users to make instant, non-repudiable payments to anyone around the world at any time, day or night.” –from the GoldMoney.com website.

GoldMoney.com provides many working details, such as sample transaction interface pages that show potential users exactly how a cyber-gold payment works. And GoldMoney also demonstrates an understanding of the theoretical basis of money, and how gold may be the key to efficient e-commerce. We viewed a lot of sites in this field, and found GoldMoney.com the most interesting. We recommend a visit.

Other issues are of course raised when you’re talking about a whole new (old) system of money based on gold. For instance, our tax system in the U.S. is based on dollars, not the crediting of e-accounts with units of that ‘barbarous relic,’ as everyone likes to refer to gold. What is income if it’s not dollars?

“There is a tremendous potential in using these products for money laundering,” U.S. Treasury agent Eddy Lugo is quoted in the AP article. Which just goes to show that where some see the genius of a stable, cashless money that crosses borders with ease, others will simply bemoan the fact that the know-your-customer banking establishment will be bypassed.

Anonymity is certainly possible with these cyber-gold plans, but in an absolute sense, there is no more diligent surveillance tool known to man than the Internet. Even your own computer and ISP have records of the sites you visit and email you send. For the average Web surfer, who makes no special effort to maintain anonymity, the term “internet privacy” is an oxymoron. So we don’t really see these cyber-gold trading centers being much of a tool for money-laundering.

Will ‘cyber-gold’ really gather steam and take off? Certainly, for many transactions, it seems to have practical applications. Its pioneer users will be those who are not baffled by the math of converting dollars to grams of gold, or grams to euros, yen to grams, etc.

And a sure and steady hand at the keyboard will be required to use this payment system, since sending 122.383 grams to someone’s account rather than 12.2383 grams would be an easy mistake to make.

As for cyber-gold’s effects on the price of gold versus currencies, the resumption of the use of gold as money is overwhelmingly positive. Although our culture has virtually ignored the role of monetary gold since the dismantling of the gold standard in 1971, gold has always been there, permanent, brilliant, scarce, and desirable, and just waiting to be rediscovered.

In a presentation to the Gold Institute, James Turk said:

“People buy gold… because gold is - to use the historical term - "sound money". And because gold is sound money and possesses valuable and useful attributes unique to it, people will want to use gold as currency. By enabling gold to circulate as currency, its usefulness will be enhanced. In other words, not only will gold remain as sound money, but GoldMoney provides the means by which gold can once again be used to buy and sell goods and services.”

“In short, because of its unique attributes, because it is non-national money and because it is not 'managed money' like the fiat currency of today's nation-states, gold is the logical choice of money for global commerce, which is after all its historical role.”

As recently as the early 20th century, ‘money in hand’ or ‘cold, hard cash’ meant gold coins. And as the 21st century opens, we may find that the next monetary use for gold will be measured in electronic ‘blips’ across the World Wide Web.

 

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