The January, 2002 issue of Wired has an article on e-gold, the online payment system founded by retired oncologist Douglas Jackson. Much of the article discusses e-gold's misguided effort to link up with Islamic fundamentalists who want to overthrow capitalism. They are setting up a spinoff, e-dinar, for use in the Muslim world. This brilliant marketing tactic is not going too well even by the modest standards of what passes for success around the e-gold offices, especially since 9/11. Of course the cypherpunk interest in e-gold revolves around its vaunted privacy protection. The article provides a much-needed dose of reality to those who still harbor fantasies that e-gold is interested in protecting the privacy of its customers. Those who participated in the fractious debates between e-gold founders and its customers in the early days will remember the company's sniff of dismissal at "elite ivovy-tower" arguments in favor of its privacy. Alaskan attorney Daniel J. Boone in particular made a number of principled appeals to e-gold officials to hold to their early promises of privacy protection, to no avail. Here is what the article has to say about the use of e-gold by pyramid schemes (euphemistically caled HYIPs, high-yield investment programs):
For his part, Jackson vigorously denies HYIPs account for anything approaching a substantial portion of e-gold traffic. "These are piddly-ass little things," he says. "When you actually run one of these things down, they're pathetic." Still, he concedes, they're a PR liability, and he and his staff have been working hard to squeeze them out of the system. They've instituted "know your customer" rules to identify suspected swindlers, and they've cooperated amicably with law enforcement. When SEC staffers came to G&SR's offices last May to review the accounts of one of the biggest e-gold schemes ever - the self-styled "Christian-based humanitarian organization" E-Biz Ventures, shut down after allegedly inflicting losses of $8.5 million on investors - they were welcomed with coffee, bagels, and a conference room of their own. J. Chris Condren, the attorney charged with recovering E-Biz investors' money, has only good things to say about e-gold. "They've answered every question we've asked them, they've responded to every subpoena, every request for information."
Jackson is lying about the unimportance of HYIPs. Independent e-gold vendors estimate 30, 50 or as much as 90 percent of e-gold transactions go into pyramid scams, and the largest single holding in the system belongs to a shut-down Ponzi. But more importantly, we can plainly see the company's anti-privacy policies in action. Any business has a basic philosophy, implicit or explicit, and their actions reflect and reveal that philosophy. Jackson and e-gold only pay lip service to the goals of financial privacy. Their actions reveal their true feelings: that privacy just gets in the way of business success. It seems hard to believe that a currency which aims to attract libertarians and "gold bugs" would put customer privacy at such a low priority. And no doubt these policies account in part for the slow growth rate of the currency compared to successful ventures like PayPal. Nevertheless this should be a cautionary tale for any payment system which purports to offer privacy as a selling point. Criminals love privacy, they love anonymity. Remailer operators soon find that a substantial majority of the messages they send contain nothing but harrassment and threats. Few customers use anonymity services for positive purposes, to protect their privacy while engaging in legitimate activities. With most people, if they have nothing to hide, they don't hide it. Only paranoids and extremists will adopt anonymity technologies without nefarious purposes in mind. Anyone proposing to offer new services for privacy and anonymity should be prepared to deal with the onslaught of criminals who will use the system for bad ends.