Monday, August 17, 2009

Goldgrams Product is Not Anonymous

By Jon Matonis

Goldgrams® are the basic units of value within the GoldMoney system. One troy ounce of pure gold bullion contains 31.103 grams of metal, and one goldgram (gg) is equal to one gram. It's really not much different than a registered bank account or a gold bullion account in the United States. GoldMoney from Net Transactions Limited is regulated by the Jersey Financial Services Commission under the Financial Services (Jersey) Law of 1998 within the British Channel Islands. Jersey is an autonomous possession of the British Crown, and Britain is responsible for its external affairs including negotiations with the European Union. However, be careful because GoldMoney is not anonymous and it is not untraceable.

I realize that this article will tend to get a lot of people worked up, because James Turk and his crew have been dutifully serving the precious metals buying community for many years. It is an exemplary organization with superior customer service, top-grade insurance policies, and routine vault audits; however, it has two other features that do not serve it well as a potential leader in the emerging digital gold currency field.

First, GoldMoney follows the same know-your-customer rules with proof of identification that most banks around the world adhere to as part of FATF (Financial Action Task Force) guidelines. That puts GoldMoney at a serious disadvantage. For a digital currency to thrive and survive, it must possess, at a minimum, the same features that make a $100 bill and 500-Euro note so popular -- namely anonymity and untraceability. Otherwise, it is not true electronic cash but merely another traceable book entry that can be subpoenaed by governmental or taxation authorities.

Second, the physical and legal jurisdiction that Net Transactions Limited has selected for its base of operations, British Channel Islands, does not permit it to conduct operations in a way that would ever lead to a viable, circulating digital gold currency. Unlike admirable digital currency jurisdictions such as Panama, the British Channel Islands will blindly conform to both OECD and FATF guidelines in an effort to retain so-called legitimacy. GoldMoney has been neutered like e-gold, although sadly, with GoldMoney it was voluntary.

Therefore, far from being a promising digital replacement for the $100 bill and private money remittance services, GoldMoney has become a glorified bullion bank no different than Monex in the United States or BullionVault in the United Kingdom. Their future as a digital gold currency is seriously in doubt, because as Dr. David Chaum, founder of DigiCash Inc., boldly stated to Seth Godin in his Presenting Digital Cash (1995) interview:
"It really is not electronic cash unless your privacy is protected. That's the idea of cash. You don't have to reveal your identity to pay. Cash is the most popular payment system on the planet. It's something even kids know how to use. Its particular structure may have had one technological origin, but its now established as a fundamental payment system and certainly the most prevalent one. If you want to create an electronic thing that will replace cash, at least in cyberspace, then it should have all the features that cash has. It can have more features, but it can't have fewer."
In other words, be very afraid of the cashless society unless the privacy of paper cash is vigilantly maintained.

2 comments:

  1. Jon, I just found your blog. I love it, and I enjoy your emphasis on digital currencies requiring intrinsic privacy attributes for them to really replace (or even supplement) cash - so far, the only one I've heard of is known as 'eCache' - it is accessible via the TOR network, so it's certainly not something that has mainstream appeal, at least for now. I am a fervent advocate of privacy, especially when it comes to financial matters - but other than eCache (and Hawala) I have yet to see a good solution. Do you know of any others? Again, nice blog. It's been added to my RSS feed.

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  2. Thank you for the kind words. Just saw your comments so I will answer below:

    c-gold and others outside of the US have those attributes (jurisdiction is important so see my 9/1/09 post on issuers and my 7-29-09 post on jurisdiction).

    Also, Loom.ca is a platform that can be utilized for anonymous value exchange. See http://www.dgcmagazine.com/blog/index.php/2009/07/28/loom-software-an-open-source-online-system-of-value-transfer/

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