Gold rush: opening e-gold account

Metals like gold and silver have been used as commodity money for thousands of years. Eventually the Lydians began coining gold around 560 BC (in some sources 700 BC). The system of commodity money evolved into a system of representative money, occurred due to the banks issuing a paper receipt to their depositors. The receipt was redeemable for whatever precious goods have been stored. Shortly, those receipts were traded as money because everyone knew they were "as good as gold". Keeping in mind this old, as the world, idea the founders of E-gold, Ltd. Douglas L. Jackson, Barry K. Downey had established in 1996 in Nevis a corporation that offered a system which allows the instant transfer of gold ownership between users.

Recent advances in the field of cryptography have made possible secure and privacy-protected transfer of digital information over insecure open communication channels by  using public key encryption methods to a gold-based electronic cash system. It allowed gold to circulate as digital cash. Computer, emit, creates digital representations of gold, e-coins. Each coin represents a weight of gold held in participating secure storage facility and each e-coin receives a unique Digital Hall mark by which it can be distinguished and identified. The sum total of all circulating e-coins denominated in physical measures such as weights in grams and/or ounces and fractions thereof.

 In accordance to recent data as on April 2007 E-gold had 112,188 oz of gold and 138,567 oz of silver which is worth approximately US$86 million. There are typically 66,000 e-gold spends each day, totaling 15,000 oz which is about US $1.5 million. There are over four  million e-gold accounts, although about one quarter is active.

As it has been said above the ownership of gold is not transferred by a computer system executing debits and credits between individual accounts but, instead, by individuals directly transferring e-coins amongst themselves (as if in cash transactions , i.e. without double-entry bookkeeping).

In accordance to the official information E-gold, Ltd  corporation is processing the same volume of transactions and growing at the same exponential pace that PayPal was in the second quarter of 2000 with the difference that PayPal had to give away astronomical amounts of money to build a critical mass of user balances and e-gold, in reverse, is able to attain a circulation larger than Canada's official gold reserve, settling 50 to 60 thousand user-to-user payments per day, with a daily value of $10 million.

What makes e-gold so special that allows company without spending huge marketing budget being so popular among the users. First of all, the idea of gold itself. We would determine it by a single slogan - "In gold we trust". With centuries our historical conscious keeps the idea of gold as a precious metal with a stable market value, available but in the limited quantity, especially taking in view the turbulence of local currency value. Many people around the world lost their trust in the fiat money, i.e. money not backing with any commodity. The other factor is predetermined by the growth of the cyberspace economy and its overpass of countries borders. E-gold as any digital money is transnational and, therefore, is on high demand allowing the sellers and buyers speak unique language and trade with disregards to the location and local currencies.  Thirdly, the e-gold account opening is quiet simple procedure and all the transactions are fast and cost-effective. However, those facts could be considered as both advantages and disadvantages.

Note, that E-gold corporation had faced the same difficulties as PayPal  facing the tentative of the federal American authorities to determine the type of the activities and to frame it by licensed and permits. PayPal has been forced, as the result of the numerous lawsuits charging the company with non-licensing their services, to receive the license as money transferring service provider basing on state-to state base. As to E-gold starting from end 2005 to 2006 the corporation is "exaggerated attention" of respective bodies. In April 2007 Federal grand jury in Washington, D.C. indicted E-gold, Ltd and its owners on charge of money laundering, conspiracy and operating an unlicensed money transmitting business. As the response to the article published in Business week in May, 2006 the chairman and founder Mr. Jackson declared that the government didn't develop the way to regulate the digital cash circulation and affirmed that claims and charges of the federal authorities are groundless.

Opening  e-gold account

First of all, let us mention that in difference to PayPal offering the variety of three major accounts (personal, premium and business, with applicable merchant rate and a special product developed for small and mid-sized businesses - Web Pro Money), e-gold carry only one type of account that could be used for any purposes. In difference to PayPal, Moneybookers, iKobo and other payment processor services e-gold has the application available only in English. So from the user it would require at least a basic knowledge of English.

Step 1 -User's acceptance agreement

Once you enter to the official web site http://www.e-gold.com/ choose at the left side of the page the option "Create an account".

You would see the "Terms and conditions" that you have to accept prior any other further actions of registration process. If you would read attentively you wouldn't find out any mentioning that the service is prohibited for any criminal purposes. In accordance to the federal and state legislation all the companies involved into money transmitting business must establish in writing an anti-money laundering policies, procedures and control. And, unlike any ordinary business, it has to have an independent statutory and regulatory obligation to understand the nature and the source of funds they transmit. The absence of any licenses and any strict determination of the services and type of transactions fulfilled vie e-gold attracts a lot of criminals to use the e-gold accounts to transmit the money at any corner of the world. The number of e-gold accounts per user is limitless as long as he has a valid e-mail address. 

There were a lot of publications in mass media accusing E-gold corporation in facilitating the payment services for child exploitation (pornography), money-laundering, credit card fraud and ID theft. The investigation of the site by FBI showed that many active accounts were registered with the abbreviation "hyip" related to high-yield investment programs and e-gold payment service, in general, was highly appreciated by Ponzi pyramids. Typical Ponzi scheme is related to the model when new members join, advancing funds for investment but the supposed investments are used to pay off old investors. As long as new investors come in, older investors could be paid off and could perpetuate the myth of the high and fast returns. However, in considerable number of cases a system stucks at a certain point and the scam falls apart.

Step 2 -3.  Registration.

A beginner would face some confusion while completing this step. First of all, you have to create both - the "account name" and "the user name".

Account name - a name that would be displayed when you would send or receive the assets. System is offering additional fields for account "description" and "additional description" without specifying what kind of information and how many numbers to be used in these fields.

User name - a name that would appear in the system corresponding to your account, and again it is offering you an option to add " description" to the user's name.

Point of contact

Collects general personal information: name, address, country of residence and etc. In difference to PayPal it doesn't physically check by any way if the personal is real and lives at the stated address, or gather any credit or bank account information, allowing any person from any location to remain anonymous. It could be considered as advantage and disadvantage. Let's say PayPal by requesting the billing, mailing, credit/debit card or respective bank account information matches it with the cardholder or account holder name. It ensures that a person can have only one account linked to a particular bank account or card that would allow to control all transactions made via system and to determine the product or services offered or paid. This verification together with the general e-mail verification is regarded as an additional security limiting the possibility of fraud transactions that e-gold is famous for.

The most interesting thing is that at the end of this part there is the field "Additional passphrase". Make sure that you fill out this field. It isn't marked in yellow as obligatory, so a user would more likely pass it as unfilled, tired to write all the descriptions and additional descriptions, imaging the account, user name and passphrases. However, once you finish to complete every obligatory field at this page and you would try to submit the application, the next page would contain a simple notification that you have filled out incorrect one of the fields or simple missed it and ask you to complete missing field by pressing the "back button", not allowing actually to see the incorrect fields at the same page. Once you click "back" to your great surprise you would find out that all the fields are clear and you have to complete this step again.

Passphrase. Turing number

System as any other online payment and banking services would ask you to enter the password and confirm it. Basing on the same requirements passphrase has to contain minimum 6 elements including  letters and numbers)

Skipping the step 5, simply because it doesn't exist in the application, we are passing to

step 6 - Turing number - a random number -analog of CAPTCHA in PayPal. It allows to determine weather the applicant is a human or computer, eliminating the number of hacking attacks.  The definitive inconvenience you would face is that you need to be patient and attentive as the numbers are falling  with different speed and there's no way you may see all combination at the same time.  Once you finish it, click "Open" at the bottom of the page, in the middle.

If you have completed all the fields in a correct manner, you would see the final page, confirming that the registration is successfully completed. An account number would be send to your e-mail address provided upon the registration. There is a notification to new users with yahoo and hot mail mail services that a respective mail maybe moved automatically to "junk mail"/ "bulk" folder.

The e-mail with account number would come in a minute, you just need to click on the link and it would automatically redirect you to the log to your account.

Once you have entered the account number (consists only of digits), passphrase and turing number you would receive the access to your account and be able to review your balance. You are ready to start to send and receive e-gold on your account.

It might seem easy and fast, however, be ready for some complicated matters that are ahead. First of all, e-gold doesn't provide the direct service to buy e-gold. In order to deposit assets to your account you have two choices - either to receive it from other account or to buy it through independent exchanger. Most of the exchangers are small businesses or even physical persons that are not related to companies managing actual system. Every independent exchanger has his own terms and conditions, regulated by applicable local legislation, dealing with different exchange rates depending on currency value. Some of the independent exchangers accept bank account information or credit card details (that are provided via open communication channels and that, in return, increases the fraud and the number of the identity theft cases), other would require money orders, checks and cash (in this case be ready to wait from couple days to a week to let the exchanger to receive your money, exchange it to e-gold and to deposit to your account). Be aware that is your sole responsibility to choose the independent exchanger and to accept its services at your own risk, i.e. nobody can guarantee you that the e-gold you'll receive is backed with real gold. There is a huge risk that you wouldn't receive it at all, as if the exchanger or you in providing the account number would missed up in one number - there is no way you would reverse the transaction and withdraw your money back. All transactions are final and there is no chargeback policy applicable. It was the reason why eBay had rejected in a categorical way to include the e-gold as payment option despite the fact of easy shopping cart integration and rewards of 10% of each transaction fee as part of the account referral program (analog of affiliate program in iKobo.com).

 E-gold offer you as one more option to earn money to provide your own services as an independent exchange, in other words, any user, whose identity determined but not confirmed may offer you a service to exchange you money at a favorable rate, but who can predict the result, there is no step back, no right for mistake. Talking about backing with 100% gold bullion as stated in the official site, there is no even a single word about the name of authorized audit that can confirm that the gold assets do exist in reality in the volume as stated by the Estimator, neither than the exact place where the gold bullions are stored. So it is up to you weather to believe or not that your e-gold coins do exist in reality and not just a fiction.

As to fees and charges table- there are no fee for the opening an account. E-gold would charge you with Agio Fee (maintenance fee) - 1% per annum, deducted monthly, based upon the average daily balance since last assessed. And Spend Fee -deducted automatically from the Recipient Account upon receipt of the Spend. It is calculated by the following formula:

If you spend >= AUG 0.0004 <  AUG 0.1      it would cost you 5% +AUG 0.0002

If you spend >= AUG 0.1       <  AUG  0.5  it would cost you 1.25% + AUG 0.00375

If you spend >= AUG 0.5       < AUG 1       it would cost you  AUG 0.01

If you spend >= AUG 1          < AUG 5       it would cost you 1%

Spend over AUG 5                                        it would cost you AUG 0.05

*AUG (e-gold measured in grams)

In difference to popular money transferring services as Western Union, ManeyGram, iKobo where it is the sender's responsibility to cover the expenses occurred in money transferring. PayPal would charge you from 1.9% to 2.9% + $0.30 per each transaction. 

There are couple more options that we would point attention at -options widely used by fraud likely accounts. E-gold doesn't disclose any information on account activity but by the court order. The amazing thing is that even after the receipt of the notification that account activity is regarded as suspicious and the frozen account actions may be applied, in some cases user was still able to withdraw the money. So by the time the lawyer would receive the relevant court order the money would be already gone and IP address wouldn't exist any more.

The other surprising thing is that there are limits on inflow but there are no outflow limits. Moreover,  e-gold is extremely popular in offshore countries, many account holders are transferring assets there to avoid high taxes and questions of IRS, FBI on source of those funds and by its policy the company globally avoids  law enforcement scrutiny and circumvent banking regulations and reporting. In case of account closure and frozen assets there is no way to determine or allocate the person involved in money-laundering, child exploitation, or any other type of the criminal activity (financial scams, identity theft and etc). To your information, basing on statistics provided by National center for Missing &Exploited Children the demand for child pornography has fueled a multi-billion-dollar per year business that is increasingly web - based, so you can simply imagine the approximate turnover through the payment services accepting the payment for such goods and the profit said companies are making. The most favorable payment service is e- gold. During the FBI raid in 2005 over 48 accounts were closed and over $800,000 in assets were seized. Some of the users' names contained the abbreviation that revealed the idea of the services provided. In addition, E-gold, as well as Moneybookers could be a payment solution for refilling e-wallets in gambling.

Due to the main characteristic of gold - it's fractional; it could be easy split in mince shares and send to recipient.  It could be an ideal solution for the small payment under US$10 (analog to PayPass), not favorable by credit cards. It is a payment option for any person who doesn't have credit card; e-gold can be exchanged into PayPal, MoneyBookers money or used to pay for the online purchases. However, despite the fact of transnational character of e-gold the number of buyers it accepting is quit limited.

 E-gold can be also considered as an investment tool for the short period of time due to the constant high demand on gold that possesses a relative stability in comparison to representative money harmed by inflation and denomination. It could be taken as a competitive payment service used in cross-border financial transactions or as initial step for the beginners who decided to open a new horizon for themselves.  

  Natalia, reporter of Ecommerce Journal