Digital Currency Systems: Emerging B2B e-Commerce Alternative During Monetary Crisis in the United States

By Constance J. Wells, M.S. Aspen University Tuesday, February 8, 2011

From the Abstract:
Digital currency systems form the triumvirate nexus of government policies, money, and technology. Each has a global reach and responds to the needs of business and consumers. E-commerce depends on private and government financial institutions to enable payment transactions; the basis of e-commerce. As the United States financial crisis continues B2B enterprises may need to abandon traditional payment transaction systems and look to alternatives, in the form of Web based digital currency systems accessed via the Internet. The various types of digital currency systems generally fit into five categories: Barter Exchange Software Systems, Non-Bank Digital Currency Payment Systems, Digital Precious Metal Systems, Online Value Transfer Software Systems, and Online Stored Value Transaction Software Systems. Digital currency systems are not online banking. Digital currency systems use private electronic monies: electronic tokens, barter-exchange currencies, digital cash, and stored value e-cash vouchers. We explore the history of money against a backdrop of banking and government policies that cause cyclic monetary crisis's, how these current digital systems operate, how business can thereby benefit in their use, and why digital currency systems are such an underutilized service in the United States.

Digital Currency Systems: Emerging B2B e-Commerce Alternative During Monetary Crisis in the United States

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Thriving E-Money Industry Puzzles Regulators

By Irina Filatova

The Moscow Times
Wednesday, May 5, 2010

http://www.themoscowtimes.com/business/article/thriving-e-money-industry-puzzles-regulators/405368.html

Veronika Moiseyeva, 24, a broadcast journalist, loses no sleep over holiday gifts because she knows she can always send her friends a virtual bouquet of flowers on Vkontakte.ru, Russia's leading social network.

"The last time I sent flowers to my friends was on March 8. But there are different occasions. It's a new way to communicate," Moiseyeva said.

Vkontakte.ru offers a variety of inexpensive virtual gifts that can be purchased through an instant cell phone message, a credit card or an electronic payments terminal.

Buying virtual gifts is one of the most popular types of electronic payments, major players on the electronic money market said. But legal regulations remain a matter of concern for many operators as the presidential administration considers two versions of a bill to create a new National Payment System aimed at uniting players in the electronic payment market.

The e-money market was worth 40 billion rubles ($1.3 billion) in 2009 and may double this year "if a proper law is approved and the current dynamics remain," said Viktor Dostov, chairman of the Russian E-Money Association, an industry group.

Industry players said regulation is needed but should be compatible with the current market model. The government, however, is caught in an inner struggle over the legal status of e-money operators.

The Finance Ministry was supposed to prepare the legislation by April 1, but its proposals were rejected by the Central Bank, which is set to be the regulator for e-money operators.

The bank said it would not be entitled to oversee the operators if they retained their current status of payment organizations, and it has drafted its own version of the bill, changing their status to that of credit organizations, which makes them similar to banks.

Extended discussions between the ministry and the Central Bank resulted in them sending two separate versions of the bill to the presidential administration on April 1.

Market players support the Finance Ministry proposal, which defines the status of electronic market operators without turning them into credit organizations.

The industry does not object to being regulated by the Central Bank, but it fears that turning e-money operators into credit organizations would lead to excessive regulations from the Central Bank and might cause commission fees to increase, said Dostov of the Russian E-Money Association.

"We do not want to restrict the power of the Central Bank. We clearly see that the power of the Central Bank should be expanded to noncredit organizations involved in payment operations," Dostov told The Moscow Times.

E-money operators should not be turned into credit organizations because their income is significantly less than that of other segments of the financial market, said Yevgenia Zavalishina, chief executive of Yandex.Dengi, one of Russia's leading electronic money operators.

"We think that the regulations must be proportional to the risks. An electronic money operator cannot give loans, which removes most of the risks that banks are bearing," Zavalishina said in an e-mailed statement.

Another option is to turn electronic money operators into nonbanking credit organizations, said Sergei Barsukov, head of the Finance Ministry's financial policy department, which was in charge of drafting the bill.

In that case, the Central Bank could set more flexible rules for e-money operators than for other nonbanking credit organizations, he said.

He promised that the e-money market would not be damaged regardless of the future status of the operators.

Electronic money operators keep simpler accounting records than banks because they handle small payments requiring no bank accounts, which removes credit risks that banks need to manage.

The average one-time payment handled by e-money operators amounts to 500 rubles ($17), but there is also a segment for small payments less than 100 rubles ($3.50), Dostov said.

"Electronic money operations are very cheap, the commission is very low, and their cost price is very low," he said. "Therefore, it is profitable to make not only 1,000 ruble or 500 ruble payments. This operation remains profitable for payment system operators even with payments of several rubles."

Electronic money is attracting consumers since it is a very convenient payment instrument, Dostov said.

"To open an electronic wallet … it is enough to have a computer with Internet access or a cell phone," he said.

An electronic wallet, as defined by Investorwords.com, is an encrypted storage medium holding financial information that can be used to complete electronic transactions without re-entering the stored data at the time of the transaction.

Electronic wallets, available on the web, pay terminals and cell phones, currently have 20 million active users in Russia, according to the Russian E-Money Association. The number of web wallets alone amounted to 2.3 million last year, 1.2 million of them with Yandex.Dengi and about 1 million being WebMoney accounts.

The work on the new e-money legislation began in December, when President Dmitry Medvedev ordered the Finance Ministry to draft a bill regulating the electronic payments market and modernizing the financial system.

In March, Medvedev chaired a meeting on the National Payment System, which he called "a strategic issue" that would make the economy more stable.

Creating a legal basis for the National Payment System, which will also introduce electronic payments for state-provided services, and determining its major participants is a priority for the government, Medvedev said.

The industry is cautiously optimistic of the new legislation. "The rules of the game in the market will be clearer. That usually results in improving the quality of services and, in many cases, in decreasing their cost as well," Zavalishina of Yandex.Dengi said of the bill.

"If we all are lucky and the law is approved without sophisticated restrictions and requirements, consumers will benefit," she said.

The new bill on the e-money market will define consumer rights and expand the range of services provided by operators, Dostov said.

E-money is hardly a vital economic tool for its current users.

Moiseyeva, the broadcast journalist who sends virtual gifts to her friends on Vkontakte.ru, said she never deposits more than 100 rubles a time into her account at the site.

After depositing money through one-time payments, users of Vkontakte.ru can buy “voices,” the social network's currency used to purchase gifts, the number of which indicates popularity of the user.

"When you visit someone's page and see many gifts, you think, 'Wow!'" Moiseyeva said.

E-money Use on the Rise in Russia

By RT.com
Monday, April 5, 2010

http://rt.com/Business/2010-04-05/e-money-use-rise.html?fullstory

The use of E-money is becoming more popular in Russia, but as the government begins to call for more regulation, that growth could be stalled. Using web money is not the same as making an electronic payment from a bank account. The service it provides is primarily intended for people who don't have a bank account or wish to keep a transaction entirely secret.

The customer essentially buys credits in the form of Web Money by wiring or depositing cash to any participating vendor. These credits can then be spent over the internet or given to another individual.

The amount of money in Russian e-wallets reached more than a billion dollars last year and the government thinks it needs regulation according to Finance Minister, Aleksey Kudrin.

“I met with the companies which are issuing electronic money, providing web-payments and the so-called e-purses. So far, these web services have not been recognized as using electronic money. According to the draft bill, the central bank will take over regulating the system.”

The Central Bank proposes to classify electronic money operators as non banking credit organizations. This would imply strict regulation which Boris Kim, Head of the Association of Electronic Trade, believes will harm the development of the sector.

“Payment systems are not credit organizations. They don’t take long-term deposits and don’t issue loans. So their risks are much lower then those of banks and they don’t need to be so strictly regulated."

But some control would be welcome, especially if it inspires greater confidence in the services on offer.

Clear legislation would help attract new customers and, therefore, more investment. It will also bring the whole system into the light, making it harder to use web money as a convenient means to finance crime or launder money.

Crashing Russia's All-Cash Culture

By Julia Ioffe
Fortune Brainstorm Tech
Tuesday, October 27, 2009

http://brainstormtech.blogs.fortune.cnn.com/2009/10/27/crashing-russias-all-cash-culture/

Electronic money purveyors make it easy for Russian consumers to make micropayments. Now they’re seeking legitimacy.

Because building an entire banking sector from scratch in 20 years makes for some wild swings, Russians put their trust in cash. In Russia, the first thing you do when you get your monthly salary is withdraw it all, and pay for everything with tangible, fungible cash.

You buy your groceries with cash, pay for your winter boots with cash; heck, you even pay for real estate in cash. But how do you use cash for amorphous things like Internet service or to prepay your cell phone?

In the last ten years, a rapidly growing shadow banking system has sprouted up in Russia to service these small payments by turning cash into electronic currency, or e-money. And now that this sector has reached the $1 billion mark – and this in a crisis – and has expanded to include 10 million customers, e-money business owners are getting antsy about government regulation.

Their problem? There isn’t any. However paradoxical, this is an understandable fear in a country where government pressure on businesses is becoming more and more suffocating, and where legal gray areas can be used to bring a business to its knees. (Often, this also depresses the market valuation of these companies.)

And now that the Kremlin and the Russian Central Bank have noticed these legal blind spots, the need to mold regulation right is even more urgent for the various e-money players. This month, they have banded together to form the Electronic Money Association (AED) in order to lobby the Russian parliament (the Duma) for clear – and favorable – legal definitions of their business.

The association’s goal is regulation based on the flexible and nuanced European model, which outlines six types of e-commerce entities. To date, Russia has zero.

In fact, e-commerce is barely described in the Russian legal system, partially because of the natural lag time before law catches up to fast-moving technology, partially because there is no consensus here on how to regulate this industry. For instance, because e-commerce uses the language of banking – checks, currency – some in Russia have suggested that it be brought under the preexisting banking framework. But these companies are no banks.

Here’s how it works: Say you want to pay your web provider for a month’s worth of service. You take your cash and feed it into one of 200,000 ATM-like terminals scattered all over the country. (Qiwi, which owns the largest network of these, is a member of AED.) Then, depending on which company you use, you either direct your money for an on-the-spot payment to your provider (WM Transfer Ltd.’s WebMoney service is popular in Russia), or fill up a virtual “wallet” from which the funds can be distributed later to merchants of your choosing. (Search engine Yandex operates a digital wallet called Yandex.Money payment system. For more on Yandex, see "Google's Russian Threat.")

WebMoney and Yandex.Money account for more than 90% of the e-money market and account for hundreds of thousands of daily transactions, some for sums as low as $7, to, say, play a round of World of Warcraft.

These are small transactions, usually topping out at $250 for bigger-ticket items like air or train tickets, but the need for them is evident: WebMoney, which controls 54% of the Russian e-money market and deals with several currencies (including a gold-based one), has doubled in size every year since its creation. Overall market growth rates have slowed a bit but given that Russian internet penetration is still low and growing faster than anywhere in Europe, it only means there’s room to expand.

And as more Russians get online, they’re bound to turn to the web to handle some of their basic transactions. First, there are the convenience and trust factors. Banks in Russia have been known to vanish overnight with the savings of millions, yet opening an account in one is extremely difficult. (“My 18 year-old son tried to open an account and the bank demanded to see a real-estate deed – for a debit card!” says Peter Darahvelidze, an executive with WebMoney.)

Furthermore, in a country sprawling across six time zones and bound together with an infirm infrastructure, even getting to a bank might be difficult. E-money services, points out Mikhail Mamuta of the National Partnership of Microfinance Market Participants, “are also a form of economic development and fighting poverty.”

E-money has also become extremely popular with Russian and international merchants (Telecom company Skype gets most of its Russian payments through Yandex.Money) because it cuts down on fraud and false “charge-backs” (when a customer declares a credit-card purchase to have been made without his knowledge), which are rampant in Russia.

E-money companies have put in place various measures to deal with this. Yandex.Money, for example, does not allow a charge back if there was no technical problem with the transaction. (Some players in this business – like some terminal operators and mobile micropayment companies — are less than legitimate and have raised suspicions of money laundering. It is yet another reason that the bigger players are looking for careful regulation.)

But as the sector continues to grow, some natural foes have started to trouble the waters. Many banks, for example, are reluctant to see any inroads made into their market share yet who are too unwieldy and uninterested to build any e-commerce interfaces of their own. The Association of Russian Banks, for instance, viciously fought recent reforms targeting payment terminals.

And certain conservative members of parliament have begun speaking openly about the illegality of e-money, demanding that these companies apply for banking licenses – which means would require them to have at least 5 million euros in assets.

Rather than wait for the anvil to fall, however, the Electronic Money Association has taken a proactive approach, pushing for legislation that will spell out, exactly, what kinds of legal entities companies like WebMoney are. To that end, they have formed a working group in the Duma to hammer out legislation and to resolve some key dilemmas. Who, for example, will be allowed to participate in this sector: just banks? Just internet companies? Both? And who will regulate the industry: an industry association or the Russian Central Bank? What kind of documentation will a virtual system need to provide this regulator? Will the new regulation significantly raise operating costs?

The law is rumored to be passed before the new year, but, “so far, there is no ready text,” says Maria Panferova, a member of the Duma working group. “The goal at this stage is to work out the conceptual framework of the legislation.”

Victor Dostov, an e-money pioneer and head of the Association, hopes that this legislation will pass more smoothly this time and that banks recognize that this is not a natural niche for them.

“These companies collect all the crumbs, make a roll out of them, and then put it in the bank,” Dostov says. “The bank still gets the money.” He points out that Deutsche Bank and Citibank tried to get in on this business in the United States and then quickly figured out that it wasn’t worth the hassle. “No one is interested in killing the hen that lays – well, maybe not the golden egg, but the little silver eggs,” he says, adding. “At the end of the day, we just want to sleep soundly at night.”

Julia Ioffe is a freelance writer living in Moscow.

Digital Currencies Declared Central to Underground Economy

By John Leyden
The Register
Thursday, October 22, 2009

http://www.theregister.co.uk/2009/10/22/soca_fbi_cybercrime_strategy/

FBI and SOCA plot cybercrime smackdown
White hats get proactive on e-crime

RSA Europe 2009, London -- The FBI and the UK’s Serious and Organised Crime Agency have drawn up a program for dismantling and disrupting cybercrime operations. The effort relies on a better understanding of the business models of carders, malware authors and hacker groups which have increasingly come to resemble those of legitimate businesses.

The three prong strategy aims to target botnet and malware creators, so-called bullet-proof hosting providers that offer hosting services to cybercrooks, and digital currency exchanges. Digital currency exchanges such as WebMoney and Liberty Reserve are central to the operation of the black economy, according to Andy Auld, head of intelligence at SOCA’s e-crime department.

During a keynote presentation at the RSA Europe Conference, Auld and FBI special agent Keith Mularski used the Russian Business Network (RBN) cybercrime network as an example of the type of criminal enterprise they were targeting. The now disbanded group used an IP network allocated by RIPE, a European body that allocates IP resources, to host scam sites, malware and child porn.

RIPE actions might lend themselves to interpretation, viewed in the harshest terms, as being complicit with cybercriminals and "involved in money laundering offences".

"We are not interpreting it that way. Instead we are working in partnership to make internet governance a less permissive environment," Auld said.

The RBN – described as a purpose-built criminal ISP – allegedly paid off local police, judges and government officials in St Petersburg.

"This was a well organized organization not a cottage industry,” Auld explained. “RBN was the e-crime component in a wider criminal portfolio.

“There were strong indications RBN had the local police, local judiciary and local government in St Petersburg in its pocket. Our investigation hit significant hurdles.”

Auld said that although western law enforcement efforts were frustrated, the group was put under surveillance for a short time, during which the group travelled around the Russian city in an Armoured Audi A8 that was always escorted by a Range Rover.

As the heat was turned up on RBN, the group applied a disaster recovery plan, activated in November 2008. However, foreknowledge allowed the FBI and SOCA to shut down new systems before RBN was able to complete its migration.

“All we achieved was disruption, not a prosecution,” Auld explained. “We believe RBN is back in business, pursuing a slightly different business model.”

Zombie botnet taxonomy

The well attended presentation also included a comprehensive taxonomy of botnet types. Network of compromised PCs can be used for multiple purposes include proxies that supply anonymity (based on machines infected by malware strains such as Xsox), credential stealing (the notorious banking Trojan ZeuS and Torpig being the chief irritants in this category), web hosting (ASProx), spam distribution (Srizbi, Storm worm) and malware dropping botnets.

Another vital component of the cybercrime economy is carder forums, described by Mularski as e-crime “supermarkets” for exploits, tools and stolen data that have adopted a mafia-style organisational structure. These forums have splintered after law enforcement efforts that led to the demise of forums such as Shadowcrew and Carderplanet in 2004.

New generation forums are split between Russian and English language sites. Each have hierarchical structures with administrators who take a percentage for running escrow services and control membership at the top. Below these bosses are reviewers who handle site management (capos).

Hackers, carders and data thieves occupy the rung below with mainstream members (associates) below them. The quality of stolen credit card data, for example, is reviewed before a vendor is allowed to sell through these forums.

Counteroffensive

SOCA and the FBI intend to infiltrate groups or cultivate inside sources. The law enforcement agencies will also go after the money by targeting electronic exchanges that are used to transfer funds between criminals. Working with internet governance organisations, such as groups that allocate IP addresses to crooks without realising that the address space will be used for cybercrime, also form part of the clampdown.

The two law enforcement agencies also want to encourage the targets of cybercrime to improve their security while going after locations where crackers upload and store stolen data.

“Traditional policing is reactive,” Auld explained. “Cybercrime enforcement, by contrast, has to be pro-active.”

For further reading:
"FBI and Soca need help", ComputerWeekly, October 22, 2009

DGC Magazine Visits WebMoney Transfer in Moscow, Russia

DGC Magazine visited WebMoney headquarters in Russia for this October 2009 WebMoney Transfer Special Issue, which focuses on one of the premier companies in the digital currency business. Excerpt from DGC Magazine:

"Experts estimate that in 2008 there were 0.6 bank cards per Russian citizen. In comparison, the worldwide average is more than three cards per person. The online payments software is very much a part of everyday life for many Russians."

"Webmoney Transfer is a family of products created by knowledgeable professionals with backgrounds in the daily business practices of the Russian people and consumers in former CIS countries. The products, the operation and the regulatory framework for this dynasty started in Russia and are based on the changing Russian economic model. When the company first began operations in 1998, the Internet was brand new, cell phones were very expensive & the online payment industry was still in diapers."

"Can you imagine 200,000 cash-in terminals throughout New York City that would accept cash and instantly credit a PayPal account, or pay a utility bill? This type of payment terminal is far superior to anything found in the United States."

For further reading:
"Interview with WebMoney, Best Payment System 2008", Ecommerce Journal, March 10, 2009
"Webmoney Interview: Peter Darakhvelidze", DGC Magazine, October 22, 2008
"Interview with Alexander Fedotov of WebMoney", Planetgold.com, June 3, 2002

Issuer Market Update - September 2009

By Jon Matonis

The Issuer Market Update is a periodic snapshot of active digital gold currency issuers. Only those issuers and currencies that have precious metals backing are included in the analysis, although some issuers may also offer non-metal digital currencies.

Additionally, I have included each issuer's date of founding and the legal jurisdictions for administrative, operational, and guarantor entities, if applicable. Certain companies below will be the focus of issuer highlight studies in the future. Please bear in mind that not all issuers are forthcoming about the full details of their legal and control structure -- a fact that I believe puts them at a relative disadvantage.

1. c-gold (2007) - Seychelles, Malaysia
   
2. e-dinar (2000) - Dubai, Malaysia
3. e-gold (1996) - Nevis, USA
4. EuroGoldCash (2008) - Panama
5. GoldExchange (2006) - Costa Rica
   
6. GoldMoney (2001) - British Channel Islands
7. GoldNowBanc (1999) - unknown jurisdiction
8. Gold-Pay (2008) - Panama, Costa Rica
9. iGolder (2009) - Belize
10. Liberty Reserve (2005) - Costa Rica
11. Pecunix (2001) - Panama, Vanuatu
12. Perfect Money (2007) - Panama
13. WebMoney (1998) - Belize, Lithuania, Russia, Dubai

Interviews with Issuers:
"Interview with c-gold", DGC Magazine, June 19, 2009
"Interview with iGolder", DGC Magazine, April 16, 2009
"Interview with e-gold", DGC Magazine, March 20, 2009
"Interview with Gold-Pay", DGC Magazine, March 20, 2009
"Interview with Perfect Money", Ecommerce Journal, January 23, 2009
"Interview with e-dinar", DGC Magazine, October 22, 2008
"Interview with WebMoney", DGC Magazine, October 22, 2008
"Interview with GoldMoney", DGC Magazine, October 22, 2008
"Interview with Liberty Reserve", Planetgold.com, May 20, 2002

One Global Digital Gold Currency...The Devil´s Work Indeed!

By Mark Herpel
American Chronicle
Thursday, April 2, 2009

http://www.americanchronicle.com/articles/view/96914

Digital Gold stands firm as a protector of personal wealth and value

I am constantly amazed at the bad information I see and read regarding digital gold or digital gold currency.

Senior Fellow, Director of International Economics and quite possibly the hardest working man over at the Council on Foreign Relations, Mr. Benn Steil, mentioned digital gold more than two years ago in his article, "Digital gold and a flawed global order". He offered a positive viewpoint and forward looking statements regarding the future of digital gold. Here is what Mr. Steil had to say:

Digitized commodity money may then be in store for us. Gold banks already exist that allow clients to make and receive digital gold payments—a form of electronic money, backed by gold in storage—around the globe. The business has grown significantly in recent years, in tandem with the dollar´s decline. As radical and implausible as it may sound, digitizing the earth´s 2,500-year experiment with commodity money may ultimately prove far more sustainable than our recent 35-year experiment with monetary sovereignty.

However, in the recent news headlines, it seems that not everyone completely understands Digital Gold Currency and the powerful role it can play in everyday commerce.

This month I have been inundated with no less than 36 Skype discussions and emails regarding Mr. Bob Chapman´s piece from "The International Forecaster" and GoldSeek news. The article is entitled, "Staggering Deficits In A Depressionary Economy". [1]

How did Mr. Chapman, or anyone for that matter, get the ridiculous idea that Digital Gold Currency is big government´s global tool to control and spy on the population?

Who said that digital gold will allow governments to control every aspect of my life? Ridiculous!

In the past decade, Digital Gold Currency has been a safe private banking and commerce financial tool for millions of users. It has only been, in just the last 36 months, that the U.S. Government has made an attempt to regulate its use within their borders. The wild prediction that there could, should or would ever be ONLY one digital world currency backed by gold is laughable.

Private Digital Gold Currency companies have been in operation for more than ten years. DGC (digital gold currency) is a private value transfer solution which is always issued by a business and not a government agency.

Digital gold is an everyday guaranteed solution to the never ending problems of inflated national currency. DGC is NOT government issued legal tender.

Yes, on a global scale, there could be one financial category known as "digital gold currency" however that category could contain thousands of private brand name gold currencies. Here are some examples:

• GoldMoney gold grams
• e-dinar (digital gold dinar and silver dirham)
• Pecunix grams
• iGolder gold grams
• Webmoney WMG purse gold grams
• c-gold grams
• CryptoBullionReserve GoldGrams
• GoldNowBanc GoldGrams
• PC GoldGrams
• Gold-Pay grams
• Wontongold Grams

These are all currently functioning private Digital Gold Currencies.

Digital gold is unlike national currency. In the case of government issued paper money, one U.S. Dollar does NOT equal the value of one euro, yen, ruble or pound. National paper currency has floating exchange rates. However, one gram of digital gold always equals one gram of any other digital gold in any other country around the world. Gold is universally accepted by weight, no matter what brand name it holds. Gold backed digital units are the perfect candidate for a global digital currency.

One Gram = 1 gram = one gram

A digital gram of "Bob´s USA Gold" is identical to one gram of "Benson & Co.s" Singapore digital gold, which is also guaranteed to be exactly the same as a gram of "Amr´s XtraOrbit Egyptian" digital gold. Any private currency backed by gold can be easily exchanged for any other digital gold currency with no loss from exchange rates or additional fees which are always present with a paper currency exchange.

The concept of one global currency backed by gold should not mean ONE government issued digital currency. A global digital currency backed by gold should be understood to mean thousands of privately issued gold currencies or brands of currency. The public needs to recognize that digital gold currency is already in use today around the globe, it is NOT some devil which government henchmen dreamed up to control the masses. Digital gold is a private banking solution which offer extraordinary personal security and protection from inflation.

Digital gold = Freedom

Here is Mr. Bob Chapman's statement from "Staggering Deficits in a Depressionary Economy" (March 14th, 2009):

We are hearing more and more about digital gold as a private-bank solution to potential devaluation of fiat currencies. The May/June issue of the CFR´s, Foreign Affairs magazine, Benn Steil a senior fellow and director of International Economics, who has been on loan from the parent Royal Institute in London since 1996, says digital gold, "although a niche business at present, gold banking has grown dramatically in recent years in tandem with the dollar´s decline." Mr. Steil was the Illuminist who drew up the plans for the North American Union and the Amero. If there is digital gold out there somewhere we haven´t heard about it.

The new approach to a world currency obviously will be digital gold. This way they can introduce a one-world currency backed by gold to make it acceptable to the world public. The digital nature means government would know every aspect of your financial life and would control you and your country. The gold storage would, of course, be controlled by the Illuminists. The elitists have come to the conclusion another fiat currency is not going to be acceptable. This is why JP Morgan Chase, Citicorp and Goldman Sachs talk in terms of $2,000 gold and UBS projects $2,500. Historically such benchmarks are usually and normally exceeded by prices from $3,000 to $7,000.

When did Digital Gold become big government´s tool for spying?

Here a newsflash, the government already keeps a very close watch on the population through bank accounts and credit cards. Since 9/11 U.S. government agencies already, "...know every aspect of your financial life... and control you and your country" as Bob states. Digital gold won´t bring government agencies any further into your bedroom than they already are, that is an outright lie.

Bob also makes this statement in his article, "If there is digital gold out there somewhere we haven´t heard about it." Well, anyone reading can get on over to GoldMoney.com, Wmtransfer.com (WMG), Loom.cc or iGolder.com and try it out. Stop trying to demonize one of the best digital assets Americans have in the uphill battle to protect their wealth.

Digital gold is a protector of personal freedom and property rights. Private digital gold companies stand for freedom and financial privacy.

"To improve our money system it is neither necessary nor wise to destroy our present system. It is only necessary to produce a better product and to introduce it gradually."--Dr. Edward Popp, "The Great Cookie Jar", 1978

In all fairness I must disclose that I did email Mr. Bob Chapman and he responded saying that I just misunderstood him. After that response, I immediately re-read his article along with Ben Steil´s article(s) and a few others. I think I understand completely. Citizens in today´s world are moving away from the centralized greedy megabanks and towards local, smaller, decentralized level financial playing fields and that usually means gold or silver.

Every concerned citizen I´ve met is angry that their life saving and family nest egg just lost 40% of its value in the past two years. Everyone I meet seems mad that their job was shipped overseas in the past few years because manufacturing is not too expensive to do in the United States. Every person I know is angry at the Congressional big spenders for blowing through $3 Trillion dollars on bailouts and stimulus packages. I believe I understand it completely, it´s crystal. People want sound money.

The advances of today which give us digital gold instead of shiny gold coins for retail commerce should make NO difference in anyone´s ability to recognize honest money. The advantage of using digital gold as money is clear, gold cannot be created with a few keystrokes like excess bank loans. Digital gold gives citizens the ability to protect the population´s wealth just as freshly minted U.S. gold coins did back in 1792.

America was founded on gold and silver money. In previous decades all U.S. money was backed by gold or made of silver. It was good enough for Thomas Jefferson and it is good enough for today´s Americans.

There is nothing wrong with using digital gold currency as money and people like Mr. Chapman need to either rethink their position, clarify their writing and stop spreading rumors.

In the free Internet world, thousands of creative minds have already been building private currencies for more than a decade. Since gold is still considered money as it has been for thousands of years, the use of digital gold will continue to grow as a safe harbor protecting value from the approaching financial storm.

Digital gold currency is the number one monetary advocate for individual rights, privacy and freedom.

Georgia, Missouri, Washington State, Maryland, Montana, Colorado, Indiana & Previously New Hampshire

Today, there are about a half a dozen states with pending honest money legislation which includes the use of privately issued Digital Gold Currency for commerce and in the collection of taxes and fees. Here is one example from Indiana Honest Money:

Requires the treasurer of state and fiscal officers of political subdivisions to: (1) maintain one or more electronic gold currency accounts with a designated electronic gold currency payment provider; and (2) conduct all monetary transactions of the state or political subdivisions through electronic gold currency accounts. Provides that an electronic gold currency payment provider must use an electronic gold currency unit that constitutes a monetary unit of account and represents a claim of title to and ownership of a specifically defined, fixed weight of gold held by an independent specie vault. Specifies that a specie exchange with which an electronic gold currency payment provider associates must conduct the business of exchanging gold and silver coin, legal tender of the United States, and the electronic gold currency of the electronic gold currency payment provider.

I believe that in the very near future privately issued digital gold will be in much wider use throughout the US and around the world. However, there certainly will not be just one issuer and the gold currency could never originate from a government agency. There will be thousands of different private issuers and brand named Digital Gold Currencies in use protecting citizens wealth and privacy.

America was built on gold and as the United States sails past the $14 Trillion dollar debt level, I am very surprised to see any intelligent person trying to downplay the importance of sound money like Digital Gold Currency. Credit cards and fiat money are much bigger villains.[2]

1] "Staggering Deficits in a Depressionary Economy", Bob Chapman, March 14, 2009

2] "Credit Card Fraud Is Funding Terrorist Networks: Not Digital Gold Currency", Mark Herpel, American Chronicle, July 14, 2008

Mark Herpel is the editor of Digital Gold Currency Magazine and resides in Panama. This article was also published in DGC Magazine (April 2009).

Regulators Worry About Digital Gold Currency's Potential as Tool for Criminal Activity

By Dorothy Kosich
Mineweb
Wednesday, May 28, 2008

http://mineweb.com/mineweb/view/mineweb/en/page34?oid=53714&sn=Detail

Could digital gold currencies or e-currencies denominated in gold weight be utilized as a tool by terrorist groups? Law enforcement agencies fear the worst may occur.

RENO, NV -- The concept of digital gold currencies (DGC) or e-currency, digital currency or e-money denominated in gold weight is now being offered by such reputable organizations as the London Gold Exchange.

However, digital gold currency has regulators in the United States, Canada and France concerned that it may use a tool favored by ordinary criminal and more sophisticated forms of organized crime to launder money, or utilized in the commission of crime, or even finance terrorism.

In a report originally intended as intelligence for a law enforcement agency, but made public this week by the Globe and Mail through Access to Information requests, Canada's financial regulator, the Financial Transactions and Reports Analysis Centre of Canada, FINTRAC, found Digital Precious Metals Operators "have achieved critical mass on the web."

‘As financial institutions and non-financial businesses increasingly deter money laundering and terrorism financing, adaptable and technology-savvy criminals and terrorist financiers will likely see other unregulated, exploitable avenues to further their nefarious purposes. Digital precious metals may become one of them," FINTRAC warned.

The system works thusly:

1. A user opens an online account with a Digital Precious Metals Operator (DPMO), which are Internet Payment Systems (IPS) providing the user with a digital currency that is allegedly backed by precious metals, which can be used for e-commerce, bill payments, person-to-person payments and other transactions.

2. Most DPMOs often require a username, password and e-mail address to set up a DPM account.

3. Once the account is set up, the user purchases digital currency units via a Digital Currency Exhanger (DCE) to find the user's Digital Precious Metals (DPM) account. DPM accounts are denominated by precious metals weight, rather than cash. The DPM account value fluctuates with the price movements of precious metals.

4. Precious metals e-currencies can be used to purchase goods and services if a merchant will accept them. They can be transferred to another DPM account holder. They can be converted back into national currencies, often paid through wire transfer. And they can be redeemed into physical gold.

"Exploitable weaknesses such as user anonymity and the existence of a network of exchange services-some accepting cash deposits to fund DPM accounts-may facility the placement phase," according to FINTRAC. The anonymity associated with opening the DPM account is maintained through the whole transaction process.

In the layering phase a launderer can ‘cash in' and ‘cash out' his DPM account but does not have to use the same exchange service. Therefore, FINTRAC fears a greater potential exists to "disguise the origin and the destination of funds than with other forms of Internet Payment Systems.

"Moreover, the recent introduction on the market of so called ‘digital gold ATM cards' offers the potential for launderers to re-integrate proceeds into the convention financial system." FINTRAC asserted. The agency fears that the digital gold cards may also allow launderers to "cash out" proceeds, "thereby reintegrating them into the conventional financial system."

G7'S FINANCIAL ACTION TASK FORCE

In October 2006 The Financial Action Task Force on Money Laundering (FATF), an intergovernmental body founded by the G7 nations to combat money laundering and terrorist financing, also raised concern about "new and innovative methods for electronic cross-border funds transfer" which are emerging globally.

The FATF referred to digital precious metals as a relatively new online money transfer value system that involves the exchange of options or the right to purchase an amount of precious metals at a specific price.

"The oldest and best known of the digital precious metals dealers is e-gold Ltd., which claims to have almost 2 million accounts. ...Transactions involving digital precious metals have immediate finality, which may appeal to on-line merchants that must pay high credit card fees due to high fraud rates. Some precious metals dealers also allow users to maintain anonymous accounts. These traits are concerning to U.S. federal law enforcement agencies," FATF noted.

The task force identified the following as potential risk factors for digital precious metals:

· Anonymous accounts

· Anonymous funding and receipt of funds

· High or nonexistent account funding limits

· Offshore service provides may not observe laws in other jurisdictions

However, FATF also suggested several current and potential strategies to mitigate possible DPM risks:

· Identify account holder

· Maintain transaction record with payer and recipient

· Monitor transactions and report suspicious activity

· Limit funding options

· Implement account book

· Limit access to service

U.S. JUSTICE DEPARTMENT INVESTIGATIONS

The U.S. Justice Department has prosecuted several cases where convicted criminals allegedly utilized E-gold accounts and wire transfers reportedly during the commission of their crimes.

An internet investment company founded and established a website at www.ee-bizventures.com (EBV), which claimed to be a Christian-based humanitarian organization that helped individuals to improve their financial situations. The FBI, the Postal Inspection Service and the SEC said participants were required to set up an e-gold account and reportedly transfer their funds from their e-gold account to various EBV and e-gold accounts. The FBI estimated that 26,000 persons throughout the world lost a total of $50 million as a result of the fraud. Two individuals have pleaded guilty.

Six men who administered and operated the Shadowcrew.com website--which the USDOJ said was "one of the largest online centers for trafficking in stolen credit and bank card numbers and identity information"-each pleaded guilty to conspiracy in November 2005. One defendant also pleaded guilty to a second count of unlawful transfer of identification to facilities criminal conduct.

The men said they sent and received payment for illicit merchandise and services via Western Union money transfers and reportedly through digital currencies such as e-gold and Web Money. A moderator for Shadowcrew said site members would send him sums of cash and asserted that he would convert the cash into e-gold electronic currency. He claimed that ‘Shadowcrew members used e-gold to avoid traditional banking systems."

A Mashpee Massachusetts man, David Burgland, told a federal court that he used e-gold to purchase child pornography. The U.S. Department of Justice charged that by June 2006, e-gold "became the only available means of purchasing membership into web sites supplying child pornography."

By April 27, 2007, a Washington, D.C. federal grand jury indicted e-gold and sister company Gold & Silver Reserve with one count each of conspiracy to launder monetary instruments; one count of conspiracy to operate an unlicensed money transmitting business, one count of operating an unlicensed money transmitting business under federal law and one count of money transmission without a license under D.C. law.

The indictment alleged that "e-gold has been a highly favored method of payments by operators of investment scams, credit card and identity fraud, and sellers of online child pornography."

E-GOLD REBUTS JUSTICE DEPARTMENT

However, In an April 30, 2007, news release, Douglas Jackson, Chairman and Founder of e-gold, said both companies vigorously denied the charges "taking particular exception to the allegations that either company ever turned a blind eye to payments for child pornography or for the sale of stolen identity and credit card information."

"With regard to child pornography, the government knows full well that their allegations are false, yet they highlight these irresponsible and purposely damaging statements in order to demonize e-gold in the eyes of the public," he declared, adding that e-gold was a founding member of the National Center for Missing and Exploited Children's Financial Coalition to Eliminate Child Pornography.

Jackson insisted that the government has been confronted with overwhelming evidence that the U.S. Secret Service "had made a horrible mistake in its attack on the e-gold system and its repeated defamatory claims in the media that e-gold is anonymous, untraceable, and inaccessible to U.S. law enforcement."

Along with its attempt to knock e-gold and Gold & Silver Reserve, Jackson asserted that the government has also attacked other prominent exchange services that deal in e-gold type systems including IceGold, the Bullion Exchange, Gitgold, Denver Gold Exchange, AnyGoldNow and Gold Pouch Express. "All of the listed exchange services also follow stringent Customer Identification Program congruent with what would be required of a currency exchange business, if the law supported such a classification," Jackson advised.

"As a direct and immediate result of the seizures, these companies, all of who had built a reputation for honoring their obligations, have been disrupted," according to Jackson.

Most recently, on May 8^th, Montanan Jimmy Ray Jones was sentenced to home confinement for nine months in connection with his guilty plea to money laundering and importation of steroids. The U.S. Attorney's Office said Jones had used an e-gold account, along with Western Union wires, Money Grams and other methods to receive payments for his steroid sales.

Dorothy Kosich is the Americas Bureau Chief for Mineweb.