Part Two: E-gold® and Right Turn On Red

Continuing from the first article, these questions were left open:

Why are the e-gold® operators still allowing this to take place? Isn´t it their responsibility to dictate to all users how their digital units can be used? Why don´t they prevent it?

Why hasn´t someone from the government stopped this crime, surely there are laws to prevent this kind of activity?"

Why wouldn´t the owners of the company move to add customer identification and try to prevent stolen cards being sold with e-gold®? I´ll bet this type of crime does not happen to MSBs like Western Union agents.

If you are reading this, you have to admit, these seem like very valid questions. Questions such as these are posed to me every week and I´ve lost sleep and some hair working over an explanation and examples.

Even if you take a close look at the other DGC industry leaders the companies have customer verification policies and AML polices in place: Crowne Gold–Strong KYC & AML policy one of the best I´ve seen, GoldMoney very solid CAP policy compliant with one of the world´s largest banking jurisdictions and their policies are a model for the industry, e-Dinar has a very strict KYC customer verification and AML policy compliant with Dubai where they are located, PhoenixDollar has a strict US KYC policy I know and they operate as a MSB. All of these online companies offer very legal businesses and they are all doing their best to combat any possible misuse of their systems. This is still a very valid question, how is it possible that the e-gold business model did not change over the past decade and does not require any type of this customer verification…after all they have been through?That is the question of the year.

Please, slow it down a notch and take a much closer look at the type of operation that www.e-gold.com has and we can also compare it to the above industry competition.

1) Unlike PayPal™, e-gold is NOT a payment processor. E-gold and does not accept funds. The e-gold Ltd. company does not have a bank account and most importantly e-gold does not transact ANY business directly with the retail public.

When a new customer opens an account with PayPal™, the creation of an online account is like e-gold. You type in your name, address and some information, but this is where the similarity ends.

To add funds to a PayPal™ account, US customers are sending US dollars (national currency) across the US banking system directly to www.paypal.com.  PayPal account holders fund an account via a credit card (issued by a bank) or using a bank account both of which are regulated by US banking laws. PayPal is directly connected to the banking system and thus regulated by the existing laws. Does anyone disagree? This point, well it´s very obvious to everyone.

Yet e-gold is 100% different in this regard. In total contrast, account holders CAN NEVER never send any national currency directly to www.e-gold.com (e-gold Ltd.). As I said above, they don´t have a bank account and can´t even accept $1 in customer funds. This is a major, major difference from PayPal which is an online payment processor of credit cards and bank wires. There is NO connection between any banking platform and an e-gold account.

With PayPal you are utilizing a federally controlled and regulated banking system. All transactions between customers and a PayPal account are completed directly with the PayPal company. By their terms of service customers may never complete a transaction using a third party. PayPal is right smack-dab in the middle of the customers´ dollar path and a the company operation is part of the regulated financial loop. There is no way to transact with PayPal without directly working through the federally regulated dollar or other national currency system. End of story.

This is a monumental difference, PayPal works directly with the banking system and e-gold has no connection what-so-ever with any bank or regulated money transfer system. E-gold created a private accounting program hosted on a private servers with no connection to any regulated banking industry. How can anyone tell e-gold that they need to police their account holders prior to any transactions? These are totally private digital units circulating 100% outside of any bank, they are not regulated like a bank.

All of the industry competition, Crowne Gold, GoldMoney, e-dinar and PhoenixDollar accept funds like PayPal, directly from customers. All of these companies have bank accounts and all of them operate connected directly to a regulated banking system.

As an example, if a customer funds a GoldMoney or e-dinar account the transaction is identical to PayPal. The account holder sends the funds directly to the GoldMoney or e-dinar company bank account. All customers are sending a national currency over the highly regulated banking system which we recognize for the safety of the public, requires identification and the anti-money laundering policies. This is not up for discussion, it´s the norm and everyone respects that concept.

There is NO such national currency transaction possible with an e-gold account. Please read that statement again, e-gold is not connected to any national banking system and does not accept funds, payments or deposits.

2) The e-gold system is simply a closed end accounting program. It´s a privately hosted, accounting program. There is no direct connection to the regulated banking system. The daily operations at e-gold are simply moving digital units from one account to another.

As a closed system, it´s also important to note that customer funding of an e-gold account does not create new digital units.  Selling e-gold does not destroy any digital units they just move from one account to another within the system.

If you send money to PayPal, you are creating digital value in your account which was not there the day before. PayPal takes deposits of national currency from customers. e-gold does not!  A PayPal customer deposit creates new digital units and the banking reserves which ´back´ PayPal fluctuate all day long up and down as customers move their money in and out of the system. The PayPal system accepts deposits through the highly regulated banking industry, then creates digital units while maintaining national currency deposits on behalf of customers. That is the total opposite of the e-gold closed system.

As a closed system an e-gold customer cannot create anything. The account holder can only accept incoming existing digital units from another user. The customers don´t send deposits into e-gold and e-gold does not maintain national currency deposits on behalf of any customer. When a customer receives digital units into their account, they originated from another existing retail account, no new units were created and the transaction was a one-for-one swap with another existing account.

Each day, if we take into account all the customer transactions taking place on e-gold, these are simply digital units moving from one account to another…no customer transaction is permitted to create value. E-gold operations are simple, if you start the day with 1 million units and they move back and forth 100 times between 1000 accounts, you still end the day with 1 million total units. This is a simple accounting program and Dr. Jackson has figured out a sharp way to back the digital units with gold so all transactions are free from default risk. It is not a payment processing business like PayPal and no customers deposits are ever accepted.

I don´t understand how anyone in the world, could ever begin to compare PayPal with e-gold. The differences are very large.

Banking´ systems, that accept national currency and transact business through regulated banking channels such as the Fed wire system, are required to be regulated with AML and KYC policies. Everyone agrees with this policy.

A closed end private accounting system, that does not transact ANY national currency EVER, simply moves units from one account to another for their public customers…why would they have to actively police their users?  How can anyone say, these private digital accounts need to verify their customer´s ID and home addresses, this is not a bank!

There is no regulation on the books that specifies a private online accounting system with no bank connection and no deposits from customers would be required to follow existing banking laws. There might be some in the coming years and most people might argue, it´s just good practice to follow the ´spirit of the law´ and mirror a regulated financial institution…but it is certainly not required.

Western Union moves all funds via the Fed wire system. If I send $100 to my wife´s second cousin in Russia or my ex wife in Michigan, both transactions are transmitted over the Fed wire system, a regulated banking system. Herein is the requirement for ID, the AML policy and and some additional verifications. These are of course in place to protect us all, it´s the norm and I´m sure everyone reading agrees on this one. Western Union is very connected to the banking system. E-gold is not.

All transactions on the e-gold system are done on a private web server there is NO connection to any national currency banking system. Even the gold bars held by their trust agent are located in non government insured vaulting services. There is no FDIC for the gold backing an e-gold account. Those are not kept in a bank either!

There is NO banking connection, no national currency, no transactions crossing any government controlled banking system. e-gold Ltd, is out of that loop. How about the previous questions?

Q) Isn´t it their[e-gold] responsibility to dictate to all users how their digital units can be used?

A) NO, e-gold is not required to police users as other payment processors online because of all the reasons stated above. If they choose to…that is their policies.

Q) Why hasn´t someone from the government stopped this crime, surely there are laws to prevent this kind of activity?"

A) NO, there are no US laws on the books to regulate closed end private Internet systems. NO, AML and KYC regulations do not apply to a home made, closed end accounting programs that are NOT in any way connected to the banking industry. These are NOT financial companies, they never handle any national currency and have no bank account!

It´s pretty simple, when you look at this objectively: tomorrow, there could be 1000 new e-gold style closed end system web sites up and operating….none of which are connected to any banking platform and none of which accept national currency.  In fact there are about a dozen others already in wide operation today, some are even open source and you can have your own system tomorrow! Are regulators going to compare all of these to PayPal? That is a big waste of time and effort.

Outside the US, online systems are operated jurisdiction by jurisdiction and so far outside the US….the e-gold model is as strong today as the day it began operation.

Anyone can take the e-gold software model, set it up on a server in Cyprus, Malaysia, Egypt, Panama etc. and operate this closed end system legally and ethically anytime. There are no "global Internet" regulations to prevent this type of system and it is highly effective for global cross border transactions and e commerce.

The next article will take a look at the unit denomination of the DGC account, grams and Troy ounces. NOT dollars, yen or euro…not national currency….a digital unit backed by a commodity…hmmm, money transmitting? I think not.

Plus an answer will be put forth to in an attempt to answer the all important question number 3 above.

One last point before you move on to part 3, a majority of right turns on red before 1980 while they were technically illegal in some States, they were legitimately safe turns by responsible drivers.

Comments appreciated. To be continued.