e-gold

[R.A. Hettinga]

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At 10:17 AM -0400 10/21/04, Somebody wrote:
>"R.A. Hettinga" <rah at shipwright.com> writes:
>> So, what kind of problems are you having?
>
>I can't seem to figure out how one deposits or removes gold from
>e-gold.

They got out of the business of exchanging other forms of money into
e-gold a long time ago. Think of them more as an on-line book-entry
central securities depository, ala DTC
<http://www.dtc.org/dtcpublic/html/>, CREST
<http://www.crestco.co.uk> (now apparently part of Euroclear
<http://euroclear.com>), etc.

The minute they got out of the business and spun their own exchange
department off into its own firm, literally tens of companies, if not
hundreds since, popped up and started competing. As far as E-Gold was
concerned, it was a hell of a lot better than taking in people's
Kruggerands etc., and turning it into debits and credits into a
database, and the size of their reserves went up accordingly. Imagine
being an individual investor in the US, going to DTC and trying to
figure out what they do or whether you can do business with them.
Same problem with E-Gold, anymore. Actually, CREST *does*, last time
I looked at them, have retail accounts, so maybe they're more
applicable than the strictly-institutional DTC.


The companies that do the in/out exchange (for a fee) are now called
"exchange providers". There are lots of them, and they range from
professional, like IceGold <http://www.icegold.com>, who I talked
about, to, well, anyone who'll take your check in the mail, wait for
it to clear, and then click you some gold to your e-gold account. The
big ones do more different kinds of money from wires to credit cards
etc., but not PayPal, because it's against the PayPal user agreement
to buy and sell securities. PayPal freezes exchange provider accounts
whenever they show up. In the meantime, expect to wait for the money
you send them to completely and irrevocably clear before you see an
increase in the account at E-Gold.

> They post no information on that at all, and when I've asked
>them, they've more or less evaded the question. An operation like
>this, if it was on the up and up, would have to be taking bailments
>and permitting removals of gold on a frequent basis, but they're
>apparently set up to do nothing of the kind.

See above. They're taking large wholesale in/out orders only, mostly
from the aforementioned exchange providers, who then click you retail
amounts of E-Gold for a fee, sometimes less than E-Gold would on a
hypothetical retail rate, sometimes less, depending on how they
gold's moving that day.

>Their online examiner shows exactly the same amount of gold in the
>system over a very extended period of time -- call it $25M worth --
>and shows perhaps $1.5M a day in transactions. That transaction
>level is surprisingly high given that no gold comes into or out of
>the
>system at all so far as I can tell.

See above. The transaction level is surprisingly high given the
transaction costs as well, but remember what I said about storing
gold, etc., and, of course, the fact that they're doing book-entry
transactions and their attendant, non-repudiation, auditing, etc.,
costs.

>Overall, I'm wondering a lot about whether there is funny business
>of some sort going on -- but I can't tell what the nature of the
>funny
>business might be.

I don't think so. If you count up all the fees, they're making enough
money on the throughput, storage, in/out exchange fees, and so on.
Since they're only handling the depository management function
anymore, they don't have nearly as much overhead as you would think.

The larger and better firms in this business, like E-Gold and
Goldmoney, have sufficiently complicated arrangements with their
storage firms, governments where they're domiciled, and so on, that
there is probably sufficient oversight for all this. They are doing
book-entry trades, remember. They have to call the cops for
enforcement themselves if someone rips *them* off somewhere. E-Gold
and Goldmoney's officers are US citizens residing and working, for
the most part, on US soil. Everyone knows who they are and where they
are. We're a long way from TCMay's Cryptopia here, um, Toto.


Obviously, caveat emptor, and all that. There's always lots of risk
in any kind of financial intermediary business, up to, and including
the risk that the entrepreneurs dodging off with the reserve assets,
and all you have in terms of risk prediction -- in the absence of
financial controls -- is what David Hume called "constant
conjunction": they are honest today, were honest yesterday, and every
other day so far, so we can, in theory, expect them to be honest
tomorrow.

As for the lack of growth of the reserve pool, after bursting
internet bubbles, terrorism attacks, and wars on same, the bloom is
certainly off the rose. We're way past the whizzy, "holy cow, we can
do *gold* transactions, on the *internet*, isn't that *kewl*" stage,
and the business is now cruising along on the people who actually
find it useful, and/or profitable, to do business that way, and less
on enthusiasts, privacy, theological, political, financial, or
otherwise. Jesus didn't come, or he wasn't pissed, or the date didn't
quake, or the state didn't collapse, or whatever. It's just a
business now.

For a while there were lots of scamsters getting paid in digital gold
currencies, exploiting the "gee-whiz" factor for the rubes, but that
seems to have died down a bit, between the efforts of various
federales, the just-plain mundane ubiquity of the internet increasing
the pervasivity of net.clues, and, I expect, the judicious expulsion
from the system by an operator or two.

Being more financial gold-bugs than um, apocalyptic eschatologists
(libertarian, anacharcapitalist, or otherwise -- okay, a gold-bug, by
definition, is a *financial* apocalyptic eschatologist, sue me :-))
Goldmoney is particular about the know-your-customer stuff, and about
kicking potential scamsters off their system than e-gold is, but
e-gold isn't about to lose their shirts by associating themselves
with scamsters either, modulo an early investment in them by a
cryptofundamentalist disaster-maven who ended up by the feds and/or
in their custody, and, IIRC, much of whose investment in E-Gold has
since been returned to the people who were originally scammed. Live
and learn, and all that.

Speaking of that, I think, in e-gold's case, at least, they have been
more e-sheep than e-goat, certainly at the hands of various
cypherpunks and fellow travellers, who saw them coming, proposed
yet-another-crypto-currency, :-), managing to score some seriously
nice temporary villa-digs in erst-Crypto-Paradise in the process,
resulting in one now famous c-punk bailing out (persona-no-grata in
hand on the ferry leaving Blowing Point) in the pure horror at the
sheer complexity of the algorithm involved, and the rest literally
suing each other off the island and into several other subsequent
jurisdictions.

Learning occurs, as I said before.

So, sure, after more than a decade in business, E-Gold is, and has
been, legitimate. Goldmoney's legitimate, too, though a little
younger, and for the same reason.

Doesn't mean that you shouldn't be careful, and, for the most part,
you shouldn't be using *any* internet transaction method, including
credit cards over SSL, unless you have an excellent business case for
doing so.

The cost of anything is the foregone alternative, and all that.
Getting paid in E-Gold costs money for the seller and they buyer of
the good or service traded for it, especially if your customer
converts to E-Gold to pay you, and you immediately convert out of
E-Gold to get actual dollars to buy stuff with.

Cheers,
RAH

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-- 
-----------------
R. A. Hettinga <mailto: rah at ibuc.com>
The Internet Bearer Underwriting Corporation <http://www.ibuc.com/>
44 Farquhar Street, Boston, MA 02131 USA
"... however it may deserve respect for its usefulness and antiquity,
[predicting the end of the world] has not been found agreeable to
experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'