By Mark Herpel
Friday, February 22, 2008
Digital gold currency systems are closed accounting systems. This means during operation there is a limited or ´set´ amount of digital units circulating. When one account receives a unit another account drops by one. If you have 400 ounces of digital gold circulating within the system and you spend 5 ounces to my personal account and I pay three others one ounce each...there is still only 400 ounces in that closed system. Units travel back and forth between accounts but always within the system.
Closed digital gold systems like e-gold, Pecunix or Goldmoney only give birth to new digital units when additional gold is allocated (deposited) into the vault. Once the gold is on deposit in the vault then the company can create additional digital units. When cash is needed for outexchange to users, a bar is sold and the amount of digital units circulating will fall by that amount. If all users cashed in at the same time, all the bars could be sold to liquidate that value back to the users. We have seen some very large multi-million dollar liquidations in e-gold over the past year, but the value and the money was always available to be distributed back to users.
What is the procedure for creating the digital grams?
The process of creating digital grams is referred to as ´minting´
Of course, each issuer has their own private methods to accomplish this task but we can take a closer look at the Pecunix minting process and gain a good idea of how they all ´mint´ digital grams.
Pecunix is committed to open, transparent operation. Their organization has strict a ´one to one´ rule clearly stating that, "every unit of value present in the Pecunix database has, at all times, a corresponding value of gold stored in an internationally approved vault."
If the value of gold in the Pecunix system is to be altered, four separate agents - the Bullion Agent, the Escrow Agent, the Auditor and the Currency Issuer - must be involved in the following progression to ensure secure transfer.
(1)Approved gold bars arrive at the vault. Representatives from the Escrow Agent and the Bullion Agent witness the actual gold bars secured in the vault.
(2)The Bullion Agent records the weights, marks of the gold bars and allocates them to the account of THE PECUNIX FOUNDATION under the watchful eye of the Escrow Agent.
(3)The auditor examines the entry made by the Bullion Agent to ensure that all details correspond with the actual weight of the gold bars that have been witnessed in storage.
(4)When currency is to be created, the Issuer sends a Mint Request from a secure Pecunix system interface to the Auditor and the Bullion Agent. They each verify the exact amount of gold entered into the system, the exact amount of Pecunix that is to be minted, and the specific account that the Pecunix is to be paid into. They each PGP-sign the request to authorize it. Once all three signatures (Issuer, Auditor, Bullion Agent) are submitted to the system, the secure Pecunix software mints the currency to the relevant account.
(5)When currency is to be destroyed, the same process is repeated in reverse. Once all signatures are in, the correct amount of Pecunix currency is destroyed from the designated account. Only once the currency has been destroyed will the Foundation Council release the relevant gold bars from the vault.
Because their ´minting´ process requires the active participation of independent third parties, Pecunix users can be assured that all reporting on the vaulted gold backing the digital units is accurate. Pecunix, like e-gold and GoldMoney provides an extremely transparent online operation.
Any visitor to the Pecunix web site can view the auditor report on gold stores, the bar count, serial numbers and even the purity of each bar. This ensures the ongoing integrity of the value behind the digital grams. Pecunix currency is calculated at a rate of 31.1034768 per ounce of fine gold. All gold bars are exclusively in the form of London Bullion
Market Association (LBMA) certified "good delivery bars". http://www.lbma.org.uk
To ensure absolute integrity, three of these organizations - the Bullion Agent, the Escrow Agent and the Auditor - are all completely independent third parties with no financial interests in Pecunix.
For more information you can visit these links.
The e-gold Examiner page provides complete details on the vaults´ contents. Examination Report of Bullion Stored at Repositories
This information is provided on their web through the e-gold Bullion Reserve Special Purpose Trust.
GoldMoney also publishes detailed information on the bars held in Zurich and London.
Mark Herpel is the editor of Digital Gold Currency Magazine and resides in Panama.