It was only a matter of time before the success of Bitcoin led to a new attempt to create a digital currency backed by gold. It seems as if that day has now arrived.
Douglas Jackson is the founder of e-gold, which was shut down by U.S. authorities a little over five years ago under accusations of money laundering. While I fully think the ultimate monetary solution will be a decentralized payment protocol that merges Bitcoin-like technology with the ability to back it with gold, silver or whatever people want, I am of the view that it cannot be done from an overly centralized authority or protocol. There are several reasons for this.
First, when you have a centralized single issuer of a currency who also is responsible for vaulting the gold within the payment system you have an enormous degree of counter-party risk. The vault itself could be seized by “authorities” in whatever jurisdiction it is located in.
Second, the human beings or company behind any currency system can themselves be pressured or threatened in order to comply with more powerful interests. The beauty of Bitcoin is that there is no “Bitcoin corporation.” It truly is decentralized and anarchic in nature. It basically puts “the powers that be” in a position that if they want to completey destroy it, they’d have to destroy the internet itself.
That said, I do believe the evolution of money is headed to a Bitcoin type system with the ability to have whatever backing is desired by the market. So at this point my questions to Mr. Jackson would be:
1) How decentralized is this currency system intended to be if at all?
2) Will there be an open source protocol available to all?
3) Are the units of currency distributed to those that own gold in a particular vault or vaults under a the custodianship of a particular company?
4) Is the currency limited to those who own gold in the currency issuer vaults, or will they be linking vaults all over the world if such vaults care to be linked.
While I love the idea, it would have to be done right or it will be doomed to fail. I’m very curious to learn more about this and I’d also love to hear reader feedback on this.
From the Financial Times:
The founder of one of the earliest virtual currencies has re-emerged with a rival to Bitcoin, more than five years after his first venture, e-gold, was shut down by the US Department of Justice
Douglas Jackson is consulting for a membership organisation called Coeptis that hopes to launch a new version of his gold-backed currency, which attracted millions of users at its height.
Coeptis’s “global standard currency” would be fully backed by reserves of gold, held in a trust, in effect turning the precious metal into a medium of exchange.
Full article here.
In Liberty,
Mike
Donate bitcoins: 35DBUbbAQHTqbDaAc5mAaN6BqwA2AxuE7G
Follow me on Twitter.
This is what Peter Schiff suggested in his debate with Stefan Molyneux about bitcoin vs. gold. http://www.youtube.com/watch?v=mFcTJAQ7zc4
Having a centralized system is going backwards, why would you trust some people saying that their hold your gold? Is there any difference with the current system in the long term?
To have something like this centralized is a point of weakness, it already happened to liberty reserve and others. It’s the same mistake.
A much simpler, and easily verified return to a hard money standard would be to make the so-called “security thread” not printed mylar, but gold, silver, or an alloy. Those looking to deceive prefer tangled webs
“it cannot be done from an overly centralized authority or protocol”
This is the real world, where real people are responsible for real contractual engagements.
If you want out, just jump off the roof.
Or get a clue, and read about free banking.
You can’t eat bitcoin or put it in your fuel tank; you still need to trust that others will purvey you with the necessities of life. Trust is essential, and bitcoin does not change anything about it.
“an enormous degree of counter-party risk”
As opposed to no counter-party … I’ll take my chances. There are funds who specialize in buying distressed debt to sue, which gives a natural floor to most liquid bonds. But BTC has no issuer, which means it has no one to sue for repayment, which means it can go to zero, and probably will as soon as velocity deteriorates.
Remember, Crypto-currencies are debt instruments without issuers; very risky.
My company has a decentralized e-money issuer system (called Ricardo) that we’ve been putting on the android phone for Africa. It allows you to issue in any currency or instrument that can be defined by a contract. Gold was the first issuance we did. See http://dinero.sc and http://systemics.com
Someone above said “this is the real world, where real people are responsible for real contractual engagements”. Unfortunately, what you describe is not the real world of the 21st century. The FACT is, no individual human being is CAPABLE of being responsible for his “contractual engagements”. I mean that seriously and literally. Even the most honest and ethical of individuals is subject to arbitrary, unethical, unilateral interference with his agreements (and all those he makes agreements with) by predators-DBA-governments, predators-DBA-corporations (mostly financial related), and predators-DBA-organizations (mostly supposedly international ones like IMF, BIS, UN, etc).
It used to be that phrases like “acts of god” were reliably tiny risks, and not often subject to utterly insane, infinitely arbitrary interference (and full-spectrum dominance and full-spectrum monitoring/spying on everyone and everything). This is no longer true in spades in the modern world of super-aggressive super-high-tech predators-that-be who cooperate with each other in order to run roughshod over every honest, ethical, benevolent, productive individual.
This understanding has huge ramifications for human trade in the future. While I am very much NOT an advocate of bitcoin (because it has zero intrinsic value), the bitcoin technology does indeed have many very valuable characteristics that address many problems in this new high-tech predator-dominated world we live in today. I too have speculated about how technology similar to that in bitcoin can be applied to a “hard money” backed up by gold and/or silver and/or other tangibles with intrinsic value.
Here are some of my primary observations and suggestions:
#1: Individuals should again become comfortable and habituated to trading and accepting real, physical gold and/or silver for goods. This is the ONLY fundamentally viable, reliable, non-corrupt (and non-corruptible) way to trade. 99% of objections against this are completely bogus, and most simply derive from lack of familiarity in modern times. But the fact is, gold and silver coins are just as practical and even more convenient (all things considered) as checks, debit cards and credit cards.
#2: Some moderately common situations do exist where exchanging physical gold and/or silver is not practical. The most obvious example for individuals is so-called e-commerce, where an individual purchases products from a web-site or by means of a skype/phone conversation. In such cases the parties simply cannot hand each other the real, valuable goods simultaneously (exchange your gold coins for a product from amazon-dot-com). For these situations, and for many B2B situations, inherently virtual mechanisms can be convenient and worthwhile. This is where something like “bitgold” or “goldbit” would be valuable.
#3: The experiences everyone has with modern actors, especially predators-DBA-fictions like “government” and “corporation” make clear the need for some mechanism that inherently CANNOT be influenced, much less controlled, by any predators-DBA-fictions (organizations).
#4: Furthermore, the mechanism must absolutely, completely, inherently and reliably PROHIBIT [re-re-re-re-re]- hypothecation of the underlying physical good (gold, silver, etc). While such a characteristic CAN be implemented in the virtual/digital side of “bitgold”, doing the same on the real, physical piece of gold or silver is… problematic. I see ways to attempt this, and perhaps do an adequate job of it, but in practice how can the holder of gold/silver coins or bars be made incapable of offering them as collateral of some kind? I mean, this can be done contractually by simple agreement, and the physical bars/coins can even be engraved with a statement that collateralization of that bar/coin is prohibited. But nothing can stop the holder from signing agreements that CLAIM to assign interest in the physical gold/silver, thereby invoking a legal problem, and thereby involving utterly arbitrary predators-DBA-judges and entire legal systems. One lesson we need to at least attempt to retain from bitcoin is… INHERENT complete independence from any so-called “authority”. This can be done on the face of it, but we must look for ways to make multiple ownership impossible, and make even the appearance of multiple ownership impossible.
#5: I would like to incorporate a mechanism by which each “bitgold” is one specific gram of gold with a specific, unique identifier (serial number) — and with a corresponding physical gram of gold somewhere in the world with that same serial-number on it. Furthermore, I would want some mechanism by which any individual could [perhaps interactively on the internet] have a robotic camera move to the location of that gram of gold and actually demonstrate that the corresponding gold exists. I believe 0.001 gram is the appropriate quantity of gold to make equal one “bitgold” unit, while each physical engraved piece of gold needs to be at least 10 grams, and probably 100 grams or 1000 grams, to reduce the overhead of production costs to an insignificant level. So I propose that the physical bars of gold that correspond to each “bitgold” are 100 grams, which makes each “bitgold” correspond to 0.001% of one specific physical gold bar. This retains the 1-for-1 physical backing with the practicality of 1 unit of “bitgold” being worth roughly 5 cents, and lets us require that bitgold transactions are always and forever integer units (which solves a great many annoying practical problems). So when anyone asks to see “their gold”, they actually see the bar of gold that contains their gold. And when anyone redeems their “bitgold” for gold, they do not receive the serialized piece of gold their bitgold is backed by… unless for some reason no other gold can be acquired to fulfill the request within 48 hours (or some reasonable time frame).
#6: The biggest problem I see with my approach is making sure 100% backing is inherently and always enforced and also inherently and always verifiable. The problem is (perhaps surprisingly), the physical nature of gold and silver. Any real, physical good with intrinsic value must be stored in some real, physical place. Which means, predators-DBA-government and other predators-DBA-bigshots can attempt to locate one or more of the “bitgold vaults” and send their SWAT teams in to steal the physical gold and/or silver… even if all the vaults were located under the ocean floor in international waters. We must be 100% clear about the nature of the predators-that-be all across the world. They are predators, and they have only one guiding principle (actually, a “modus-operandi”), and that is “get away with whatever we can”. So we can be certain that they WILL [attempt-to] steal the gold and/or silver that backs “bitgold”, and we must devise a system that makes that inherently non-viable.
And THAT is a challenge!
I do have some ideas that could work, but they need refinement. I’ll mention a couple of my ideas.
One is to locate the physical gold in millions of separate “vaults”. Each vault would then contain only a few hundred or thousand dollars worth of gold, and make them fairly uninteresting targets for predators-DBA-anything. I’ll leave the HOW of this approach to your imagination for now… maybe you have better ideas than I do! 🙂
Another idea that has difficult to predict advantages is… tagging all gold with DNA identifiers. If you scrape a few micrograms of skin off one of your fingers (or elsewhere), and that is somehow embedded into the gold bar, the source of any 100 gram bar can be recovered even if the bar is melted down, even if the melted bar is diluted by mixing with other gold bars. This provides some ability to track theft, though hopefully this ability isn’t needed in practice, and is only one more reason for predators not to attempt anything nefarious.
Oops, gotta run. I’ll leave this message cut short here. I welcome any additional ideas. Anyone who wants to [help] implement such a system can feel free to brainstorm with me privately. Anyone who wants to get rich by implementing such a system can… do without my help. The benefits we all will receive are a better life, more free from manipulation, enslavement and destruction by predators.
The problem is all gold backed coins are tied to the London Fix price so why don’t I just buy the gold from bullion by post & bury it in may garden
I have a Biz Plan that I have agreements with miners to acquire production term of the life of the mine under a loan agreement at $400 per oz thus I have a gold commodity stream with a markup of $1000 to back a coin not only that I have a geolgist survey on my own mine of many billions of $ I need a team to work out the deal.