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<nettime> In Gold We Trust, part 1
Julian Dibbell on Sat, 19 Jan 2002 03:22:22 +0100 (CET)

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<nettime> In Gold We Trust, part 1

While we're on the topic of money, I thought I'd post an article of mine
from last month's Wired, about an online gold-backed currency that in some
ways parallels, in some ways diverges from, and in some ways downright
opposes the model being discussed here as "open money." That the
experiment involves a curious alliance between heartily anti-statist
American libertarians and radically anti-capitalist European Sufi Muslims
only adds to the entertainment value, I trust. (Sorta sounds like some
kind of Bizarro World version of the nettime community, actually.)

So: Are these goldbugs out of their gourds? Is the LETS crowd any less so?
Are they all just fetishists of the token of exchange (as Doug Henwood
would have it) or are they on to something? Compare, contrast, discuss.

HTML available at:


WARNING: 6000 words ahead

In Gold We Trust

>From gun-wielding libertarians to radical Muslims, an unlikely global cabal
is plotting financial revolution. And they're putting their money where the
Web is.

By Julian Dibbell

[part 1]

Thirty miles south of Florida's Cape Canaveral lies the town of Melbourne,
home to the Action Gun pistol range, where, on a balmy Thursday afternoon,
James Ray stands calmly firing round after Glock 9-mm round at a
photocopied image of Adolf Hitler. Ray supplied the target himself. He
purchased it on the Web site of one of his favorite nonprofit
organizations (Jews for the Preservation of Firearms Ownership), and its
ideological content is not what you'd call subtle: Against the background
of a standard ring target, the Führer stands in full Sieg heil mode, his
arm up high and his sternum right in the bull's-eye, above a caption that
has had enough of the Glock, the target is nicely perforated. Then he
picks up his .44 Magnum hand cannon and blows Adolf pretty much to bits.

Yes, Jim Ray is a gun freak. But as it happens, the purpose of today's
visit to the pistol range is not to huff powder fumes or celebrate the
Second Amendment. He's here to show that there's a type of money you can
believe in without also having to believe in the authority of the state.
He's here to offer a glimpse of a world in which wealth resides ultimately
not in flimsy pieces of government-issue paper but in rock-solid slabs of
$279-an-ounce metal. He's here, in short, to demonstrate the vanguard of
monetary technology: a 5,000-year-old form of cash called gold.

Or in this case, e-gold, the world's first 100 percent precious
metal-backed Internet currency, with which Ray pays for his outings at the
gun range and a lot more besides. The private currency was launched five
years ago and is now operated by two separate but tightly linked
companies: e-gold Ltd., incorporated in the Caribbean island state of
Nevis as a holding company for the system's assets, and Gold & Silver
Reserve, headquartered in Melbourne, which takes care of everything else.
Both are closely held and managed by e-gold chair Douglas Jackson. In
addition, Jackson has forged a partnership with Islamic entrepreneurs to
launch e-dinar, which is foreign owned.

Jim Ray works for G&SR as "lead evangelist." He draws his monthly salary
in e-gold; each gram sitting in his Web-based account gives him title to a
gram of real gold held in vaults in London and the United Arab Emirates.
Sometimes he trades his e-gold for e-silver, e-platinum, or e-palladium -
the other, far less popular, metal-backed currencies offered in the e-gold
system. More often, he trades it for US dollars through G&SR's OmniPay
exchange service or one of the couple dozen independent exchange providers
who make their living selling e-gold for dollars, marks, yen, and other
national currencies at the standard 4 to 6 percent markup over the spot
price of gold. But otherwise, he spends the stuff like cash, giving it
straight to whoever will take it.

And people do. Ray's .44, his Hitler target, the bullets in his Glock -
all were paid for with instant, online transfers to the sellers' e-gold
accounts. And when he settles up today at the Action Gun cash register,
he'll have this afternoon's $18 shooting fee charged to his tab, which
he'll pay in e-gold when he gets back to his desktop. He'll point, he'll
click, he'll type in some account numbers and a password and, in the blink
of a clock cycle, approximately 2 of the 1.7 million grams of solid gold
in the system's reserves - a gleaming hoard of 141 brick-sized ingots -
will change owners.

"It's the only foreign currency without a nationality," says e-gold's
Jackson. On an average day, his company's clients make 8,600 transactions,
trading roughly $1.6 million worth of e-gold for goods, services, and cash
worldwide. Those numbers are more than double what they were 18 months
ago, and so are most other statistics. As of November, there were 287,965
accounts in the system, up from 134,150 at the beginning of 2001, and the
amount of emetal in those accounts, worth more than $16 million, was close
to twice what it had been the previous November. In a sector littered with
the corpses of failed online currencies and other exotic emoney systems -
Beenz, Flooz, DigiCash, CyberCash, CyberCent - e-gold is quietly thriving.

Ray calls it "the little payment system that could" - the operative word,
of course, being little. The company's financials ($5.47 million in
revenue; 114,000 funded accounts) are Popsicle-stand caliber compared with
the figures posted by emoney media darling PayPal, with its $80 million to
$100 million in revenue and its 10 million customers. But with fewer than
two dozen employees and a marketing budget close to zero, Jackson's
corporate structure runs lean and, as of the summer of 2000, profitable.
The company finally got its first competitors in 2001 - GoldMoney,
E-Bullion, 3PGold, OSGold - attracted to the gold-backed digital currency
space by low barriers to entry and the smell of black ink.

The product's appeal? "Fundamentals," says Ray. For online consumers,
especially those making international purchases, e-gold offers an ease of
use and a degree of anonymity that credit cards can't match. And for some
merchants, of course, the only selling point e-gold needs is that there
are people who want to spend it. After a German customer inquired about
e-gold, Vince Lee, president of TealPoint Software, added the payment
option. "It's not a big part of our business," admits Lee, whose company
is probably the largest of the couple hundred mostly mom-and-pop
operations that take e-gold online. "But in this climate, you can't really
afford to turn any customers away."

Ray argues, though, that the advantages for merchants go further. A
transaction fee of 1 percent, capped at 50 cents per spend, comes in well
under the 2 to 5 percent fees charged by credit card companies. And as for
that bane of online businesses, the credit card chargeback, e-gold is a
silver bullet. Unlike almost any other form of online payment, e-gold
clears instantly and finally, with no chance for the spender to cancel
after the fact. Or as Ray puts it, "When you get paid, you stay paid."

Still, Ray knows better than to pretend that these are the only reasons
most e-gold users have bought into the system. Or even, perhaps, the main
ones. For most consumers, the ability to reverse online credit card
charges is decidedly a feature rather than a bug. And if you're going to
pay a nickel for every dollar you turn into e-gold - as the going rate of
exchange requires - you're probably not doing it because you want to help
some online merchant save the same nickel in transaction fees. More
likely, you're doing it at least in part for the one thing e-gold offers
that no other digital payment system before it ever has. You're doing it
for the gold.

Which is to say, you're doing it for any of the complex cultural,
psychological, and above all political reasons that make gold, in Ray's
words, "the most emotional spot on the periodic table - never mind

As a onetime Libertarian candidate for the Florida House of
Representatives, Ray is well aware, for instance, that a large percentage
of e-gold's early adopters come from the ranks of the laissez-faire
radicals for whom gold has long been an icon of economic freedom from
government. Others are goldbug investors, desperately bullish on the metal
despite years of declining prices. Still others come to e-gold via
e-dinar, looking to honor Islamic financial commandments and subvert the
Western economic system.

But all the same, Ray insists gold's philosophical baggage doesn't stand
in the way of its being a technically superior currency. It frustrates and
baffles him, for example, that the only advocacy groups currently taking
e-gold donations on their Web sites are outfits like his cherished Jews
for the Preservation of Firearms Ownership or the cyber libertarian
Electronic Frontier Foundation. "I would love," he says, "to go up to some
offensive antifreedom group like Handgun Control Inc. and say, 'Look, you
morons: You're taking plastic. They're taking a percentage out. Take
e-gold and sell it for a profit. It's better money! Even if you're not a
libertarian, it's better money.'"

Ray sighs, as if summoning the patience to wait for civilization to catch
up with him. "Gold," he says, "has always been better money."


There are those who would beg to differ - among them, the most influential
economist of the 20th century, John Maynard Keynes, who 78 years ago
declared the gold standard a "barbarous relic," unfit for the complex
monetary demands of modern economies. In Keynes' now widely held view, the
problem with pegging currencies to fixed amounts of gold was that it
limited government's ability to adjust the money supply, which among other
things made economic crashes much more brutal than they had to be. The
onset of the Depression drove the point home, and central banks spent the
next 40 years gradually weaning themselves off gold. Finally, in 1971,
President Richard Nixon pulled the plug on the world's last metallic
national currency: the gold-backed dollar. Ever since, the major
currencies have all floated anchorless, backed only by "the full faith and
credit" of their issuing governments.

Encountering 141 solid bars' worth of gold-backed currency circulating on
the Internet, therefore, is a little like hauling a wriggling, gasping
coelacanth up from the bottom of the sea: It's a financial fossil come to
life, calmly going about its existence despite decades of expert consensus
that it couldn't be anything but dead.

Don't be fooled, though. The convergence of gold and the Net - of the
oldest of low tech and the newest of the high - isn't nearly the freak
encounter it appears. When Douglas Jackson first conceived of e-gold in
1995, he had barely heard of the Internet. Likewise, when longtime
gold-market analyst James Turk founded GoldMoney last February - Jackson's
most serious competition - he was making good on a concept he'd started
thinking about in 1979, back when he still doubted that the technological
infrastructure to support it would exist in his lifetime. But both men
knew as soon as they encountered the Net that their currency belonged
there - and not least because classic gold money and the core mechanisms
of the Internet are in fact strikingly analogous technologies.

The international gold standard was one of the technical wonders of the
highly globalized late-Victorian era - a sophisticated, elegant mechanism
for transmitting value from one end of the civilized world to the other.
National monies existed, of course, but in effect were just local network
protocols running on top of the internetwork layer that connected them
all. Or as the Nobel Prize-winning economist Robert Mundell has put it,
"Currencies were just names for particular weights of gold." The dollar,
for instance, was fixed by statute at 23.22 grains (about one-twentieth of
an ounce), the pound sterling at 113.0016 grains, and so on. Local
payments were made in local units, but all cross-border deals ultimately
were settled through international bank-to-bank shipments of the universal
currency - bullion.

Today, in a world just now returning to Gilded Age levels of economic
interdependence after a century of hot and cold global warfare, the
closest thing we have to a universal money is the US dollar. But as with
most proprietary standards, many argue, the dollar introduces costly
inefficiencies into the system - from the distorting influence of US
monetary policies on non-US markets to the simple fact that final
clearance of dollar payments still takes place only during East Coast
banking hours.

Clearly, says Turk, if the Internet is going to become the engine of
global commerce it's cracked up to be, it needs a currency it can call its
own - a currency as nonproprietary and international as the Internet
itself. "And gold seems to be the logical candidate," he says, "because
after all, that's gold's traditional role. It's international money."

But if gold does good things for the Internet, says Jackson, the Internet
does even better things for gold. E-gold isn't your great-grandfather's
gold standard. It's new and improved, Jackson argues, fortified by the
rigor of free-market discipline and the openness of digital networks. And
if you think that's no big deal, well, Jackson - a 45-year-old former
oncologist and entirely self-taught economist - would like you to know
that his invention represents "an epochal change in human destiny" and
"probably the greatest benefit to humanity that's ever been thought of."

How so? Invulnerable to government manipulation and subject to the kinds
of market forces only a worldwide, 24/7, open-ended network can bring to
bear, e-gold promises not simply better money but the best: a money supply
kept so straight and narrow that it has room for neither bubbles nor
crashes. And "this," as Jackson is fond of claiming, "fixes something
that's been screwed up since before the pharaohs." After millennia in
which the boom and bust of the business cycle has washed ceaselessly over
human affairs - playing havoc with the lives of rich and poor and even now
blackening capitalism's good name - e-gold has arrived to still the
waters. E-gold is here to bring capitalism to a kind of perfection.

Not that it's a foregone conclusion. Some of Jackson's closest business
colleagues, after all, like to think e-gold might actually bring
capitalism to its knees.

[end of part 1]

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