Wired on e-gold

[Nomen Nescio]

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.