E-gold
Abstract: The e-gold system emerged in 1996. For the
first time in modern history, this system, backed by gold,
functioned completely independent of conventional
banking institutions. The e-gold software guaranteed a
secure and efficient method for transmitting value and
maintaining records of payment transaction information.
Each digital gram of e-gold was backed by one physical
gram of pure gold bullion held offline. E-gold transactions
were instantaneous, could not be reversed, and cost much
less than traditional bank payments. Founders of e-gold
sought to create a private gold-based monetary system that
included Internet-based transactions which would perform
better than national currency. The e-gold system was
believed to be operating outside of existing Bank Secrecy
Act regulations from 1996 until 2005.
Mullan, Carl P. The Digital Currency Challenge:
Shaping Online Payment Systems through US Financial
Regulations. New York: Palgrave Macmillan, 2014.
DOI: 10.1057/9781137382559.0006.
E-gold 
DOI: 10.1057/9781137382559.0006
The e-gold system was in operation more than a decade before the
creation of Bitcoin and proved beyond a shadow of a doubt that it
was indeed possible to create and operate a popular digital financial
system completely independent of conventional banking institutions.
Dr. Douglas Jackson recently presented this e-gold innovations time
line.
1996
 e-gold.com online system was deployed in November.
 From day one, e-gold had the capability of using a numeraire for
specification of a Spend amount that differed from that of the
settlement currency. For instance, it was possible to order a Spend
of $10 USD worth of e-gold. Calculation of the actual quantity
to convey was made using table of reference exchange rates
maintained by company (manually, every few minutes during the
day, every hour or two overnight). Reference exchange rate and
calculation were displayed on Spend Preview.
 Strong non-repudiation (finality of settlement) based on Real Time
Gross Settlement (RTGS) and a strict debit rule.
1997
 The Examiner was deployed on the e-gold website. This showed
an unprecedented real-time indicator of e-metals in circulation
(liabilities) and detailed inventory of the underlying assets backing
them. The bullion reserves data could be drilled down to see
unique details of each bar including vault location, serial number,
refiner, purity, and fine weight.
1998
 The Stats page was deployed showing details of system usage
over previous 24-hour lookback period: it included the number
of accounts, broken down by ranges of balance for each e-metal,
and the number of spends, broken down by range of values and
aggregated by range and total.
2000
 The currency exchange was separated from the core
function of issuance and settlement of Spends. A few
months after this separation multiple independent
providers had emerged offering services on a competitive
basis, differing by currencies and payment methods 
 The Digital Currency Challenge
DOI: 10.1057/9781137382559.0006
supported, spreads, liquidity (size of exchanges supported and
timeliness of execution).
 The shopping cart and automation interfaces were deployed, the
former allowing specification of an incoming Spend, the latter
automatic entry of an outbound Spend instruction.
 A Spend fee cap was implemented, initially at 50 cents US equivalent,
which was later changed to 5 gold cents (0.05 g) for e-gold.
2006
 A sheriff-bot was deployed to monitor Spends in real-time to detect
transactions with indices of illicit activity. The value would be
arrested once it had left the payer account and the recipient account
would be frozen; both would then be flagged as to the nature of the
suspected activity, making a permanent discoverable record and
facilitating seizure or forfeiture. This became so sophisticated that
there were instances where the first Spend to or from an account
would trigger the bot, with hardly any false positives (and these
could be released).1
Not included in this timeline, but very important, is the fact that e-gold
permitted mobile fund transfers back in 1999, seven years before PayPal’s
commercial mobile payments.2
E-gold was a secure account-based monetary payment system which
enabled the use of gold as money. The e-gold software guaranteed a
secure efficient method for transmitting value and maintaining records
of payment transaction information. Dr. Douglas Jackson is well known
for having designed and written much of the code himself. The system
operated over the Internet on a global scale completely outside of conventional
banking systems.
e-gold.com was the classic model of a digital gold currency system
from the past decade. It was also the very first digital gold currency
to operate online for public use. Gold & Silver Reserve, Inc. (G&SR),
a Delaware corporation, developed and deployed the e-gold payment
system in 1996 and at that time administered both the payment settlement
and the currency exchange. The company also served as bailee
for the inventory of gold bullion and precious metal held in allocated
storage by third-party custodians. The payment system and website
were both administered by G&SR under the name e-gold. The software
was designed to facilitate both local and global transactions with 
E-gold 
DOI: 10.1057/9781137382559.0006
the same payment convenience. G&SR also offered online e-silver,
e-platinum, and e-palladium which all operated exactly like the digital
gold currency. Every gram of digital metal, including gold, which
circulated online was backed 100 percent, gram for gram, by physical
precious metal. E-gold featured instantaneous settlement of all
transactions at an extremely low cost. Unlike credit cards, payments
across the e-gold system were impossible to reverse. Even in the case
of a legitimate error, the payment remained in the receiver’s account.
Consequently, merchants were happy to accept e-gold knowing that
there was no charge back risk. The terms of use of the e-gold account
very clearly stipulated that all “Spends” were final. In this respect, an
e-gold transaction was very similar to a cash sale. In total contrast, a
PayPal transfer is fully reversible and can be considered more like a
credit card transaction.
E-gold payments were highly divisible. G&SR’s computerized book
entry system was organized using a transaction model that allowed
payments as small as 0.0001 oz. Behind the customer interface, amounts
of metal stored in the e-gold database tables were accurate to 15 digits.
The recognized “Issuer” of the currency was e-gold Ltd., a Nevis W.I.
Corporation. This offshore company was independently created to serve
as the general contractor specifically responsible for the performance of
the e-gold account user agreement. The e-metal system functioned to
protect the online customer payment mechanism from the problems of
conventional financial systems.
All precious metal backing the digital currency was held by the e-gold
Bullion Reserve Special Purpose Trust. This separate trust, which was
formed and operated from Bermuda, existed for the purpose of collectively
retaining all e-gold account holders’ bullion. After a few years
of operation, all metal was held in the form of certified good delivery
bars in allocated storage at repositories certified by the London Bullion
Market Association.
OmniPay was also owned and operated by Gold & Silver Reserve, Inc.
It acted as the primary dealer of digital currency to the public marketplace.
OmniPay was also the largest e-gold exchange operation in the
world. The company exchanged national currency for digital currency,
working between the issuer, e-gold Ltd., and all other third-party independent
exchange agents. As primary dealer, OmniPay maintained both
cash and digital currency liquidity at all times.
 The Digital Currency Challenge
DOI: 10.1057/9781137382559.0006
As a move to further assure e-gold’s freedom from default risk and
finality of settlement, the company structure changed in 2000 by
separating the currency exchange business from the core functions of
issuance and settlement of transactions. This move further dissociated
the e-gold issuer from business risks relating to the exchange operations.
Independent third-party exchange agents in various countries
around the world performed transactions exchanging digital currency
for national currency on behalf of retail customers. This retail customer
group included additional third-party exchange agents. Since retail customer
national currency transactions never occurred at the issuer’s level,
in this classic model of a digital gold currency, the issuer e-gold Ltd. held
no customer financial transaction records. All sales of digital metal from
e-gold took place directly with OmniPay which in turn interacted with
the public.
While e-gold Ltd. maintained the online system, the company never
accessed or handled any customer financial transactions. Financial
transactions containing customer information were exclusively held
by third-party agents. This helped e-gold to guard against the possible
financial loss and risk which accompanies conventional bank products
and practices. No financial transaction information on e-gold account
holders, such as where a wire originated or the date on an outgoing
check, was ever accessible to e-gold Ltd.
An e-gold transaction, also known as a payment order, differed from
bank-issued checks and credit card payments. A paper check is an order
of withdrawal, which becomes a draft when endorsed by the recipient. A
check pulls the payment from a bank account by someone other than the
owner. Additionally, a credit card payment is the settlement of a prior
approved amount withdrawn from the account by someone other than
the account owner. Conventional bank products such as bank drafts
and card payments both pull the payment from the user’s account. An
e-gold payment did not work in this manner. It had to be pushed from
the account by the account owner. No draft or prior approval could draw
upon another person’s e-gold account. Only the e-gold account owner
could initiate a payment which was also labeled a “spend.” This is an
important distinction between e-gold transactions and conventional
bank products.
An Army veteran and graduate of Pennsylvania State University’s
Medical School, in the mid 1990s, Dr. Douglas Jackson was a practicing
oncologist in Melbourne, Florida. His career path and work 
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DOI: 10.1057/9781137382559.0006
experience did not include any positions in banking or commercial credit.
Dr. Douglas Jackson is a libertarian, a fan of the gold standard, and critical
of conventional banking systems. A 1998 text from the e-gold website,
which was composed by Dr. Jackson, reflects some of the reasoning and
goals behind the creation of e-gold.
The Gold & Silver Reserve is founded on the conviction that gold and
silver are superior (in the long run) to fiat legal tender. We have developed
the e-metal System of Indirect Exchange; a privately administered transnational
monetary system. It combines the enduring value and desirable
monetary characteristics of gold and silver with the robust efficiency of
digital technology.3
Further evidence of “why” Dr. Jackson created e-gold is found in a quote
from a 2006 interview with Brian Grow for BusinessWeek Magazine.
Dr. Jackson is quoted as saying he believed the e-gold system would
“advance the material welfare of mankind.”4
 Today, with the e-gold
system sidelined by US Regulations, Dr. Jackson confirms the quote
was accurate but further describes his view from the early days of
e-gold, “That element emphasizes the level playing field aspect of clear
contractual constraints as opposed to a discretionary policy that leads to
winners and losers.”5
 He further states,
I started e-gold as the outgrowth of my own private study and interpretation
of historical events. It appeared to me that many of the worst real world
calamities, wars in particular, could be causally traced back to economic
dislocations—booms and busts—that in turn could be traced to monetary
manipulations. Over time, with discretionary control over monetary policy,
such interventions—which were supposed to attenuate destructive excesses
of credit cycles—ignited and amplified them instead. While there were
some glimmers of a rule-based system with the classical gold standard it too
was fatally flawed and certain to be abrogated when it proved inconvenient.
The system I envisioned was informed by analysis of historic and contemporary
models, one consistent flaw of all of them being the impracticability
of binding a sovereign to inconvenient obligations. Even if a seemingly
airtight system could be devised, a successor regime would have no qualms
about repudiating it. The courts never award damages to those injured
when a state reneges on its monetary obligations. Only a private enterprise
can truly be held accountable to contracts of that nature.6
The creation of the e-gold system was more than a new business or
money-making venture for Douglas Jackson. He felt it was his role to 
 The Digital Currency Challenge
DOI: 10.1057/9781137382559.0006
release this digital currency system into the world. “The belief that it
was now possible to develop and implement a system that could avoid
the embedded flaws and contradictions which had undermined money
since its earliest emergence carried with it a duty to try to accomplish
it.”7
 Unlike the development of other digital currencies during that
time, such as WebMoney Transfer which targeted specific demographic
consumer markets, Dr. Jackson stated that e-gold’s global target market
from day one was all “people who use money.”8
 E-gold was considered to
be an alternative digital currency. The founders of e-gold sought to create
a private gold-based monetary system that included Internet-based
transactions which would perform better than national currency. This
service was to be available for all users at every level of society around
the world. The system operated as an alternative to national currency
and was designed to directly compete with government-issued money.
The term Better Money TM became a trademarked phrase featured on the
website.
Many digital gold currency and e-gold early adopters during the
mid-to-late 1990s were advocates for a single gold standard currency.
These users were often referred to as “Goldbugs” and viewed e-gold as
a technically superior currency. They strongly believed that commodity
money was a better solution than fiat currency. Other early users leaned
toward laissez-faire economics and viewed e-gold as private competition
for government money. People doing business with e-gold’s privately
issued digital currency often viewed themselves as working to restore a
natural economic system unrestricted by government. E-gold was seen
as creating healthy competition in an otherwise government-controlled
fiat currency world. Another segment of those early e-gold users was
considered to be economic anarchists or those who believe in no government
regulations. Today, some of the same groups using Bitcoin can
be closely aligned with these original e-gold users.
Until the mid-1990s, it was understood that banks had a tight control
on the movement of funds around the world. During the 1990s, for
anyone to stop using conventional banks and government-issued money
in favor of a little known private digital gold currency circulating on
the Internet required a strong personal conviction or an overwhelming
desire to reform the monetary system. In all of these cases, during
those early years, many e-gold users were viewed by the mainstream
media as extreme. While much attention had been focused on e-gold
early adopters, there were not many of them. Approximately two years 
E-gold 
DOI: 10.1057/9781137382559.0006
into operation, in April 1998, there were fewer than nine hundred active
e-metal/e-gold accounts.9
In late 1999, a new product came into the digital currency marketplace
which can now be seen as a contributor to e-gold’s popularity and
growth in the years 2000–2005. This product was known as a High Yield
Investment Program or HYIP. In reality this type of investment program
is simply a Ponzi scheme, but the widespread popularity of these
schemes ballooned using the e-gold payment platform. Online High
Yield Investment Programs were a force in the growth and popularity of
digital currency and e-gold.
In hindsight, it is important to review certain statements expressed
by e-gold’s management in the early years of operation. Because
e-gold’s technology was developed far ahead of present day US financial
regulations, the e-gold operators had provided some disclaimers
and offered their viewpoint regarding existing government regulations.
Since the defining act of banking is to circulate more demand
claims to cash than there is cash in the bank, the e-gold operators
made it clear e-gold was not a bank. From the early years through
2005, Gold & Silver Reserve highlighted this fact. In several instances
of text which had appeared on the e-gold website in both the FAQs
and Terms of Service, e-gold operators published statements describing
how digital gold was different from a bank or bank deposit. It
was their opinion at the time that by operating outside conventional
banking the e-gold system remained outside of existing Bank Secrecy
Act regulations. Here are some examples of this sentiment, from the
e-gold.com website in June 1998:
It is important to note the difference between a digital currency balance and
a bank deposit balance. Deposits in a bank are regarded legally as loans to
the bank. A bank is permitted to make investments (loans) using the money
belonging to their depositors. Metal entrusted to G&SR is not a deposit at
all: it is held as a bailment (like grain in a grain elevator). G&SR may not
allow any encumbrance or lien to be placed on customer metal. G&SR is
not borrowing it from you but rather safeguarding it for you for a fee. The
banking system in general, operates on a fractional reserve basis. This is
perfectly natural and legitimate for money in a savings account or time
deposit. You, as an individual, may do what amounts to the same thing;
borrow money from some people and use it to make loans to other people.
In our view, however, “checkable deposit” is a contradiction in terms. It is
just like in the old days when banks issued more banknotes (purportedly
redeemable in precious metal coin) than they had coins to back. In contrast, 
 The Digital Currency Challenge
DOI: 10.1057/9781137382559.0006
any metal entrusted to the Gold and Silver Reserve constitutes a spendable
bailment—every gram of e-gold and the other e-metals is backed 100 by
physical metal.10
Found in both the e-gold user agreement and the Terms of Service for
OmniPay, e-gold’s primary dealer, were statements that e-gold’s operation
was not a bank and did not hold deposits for customers. From the
December 2001 e-gold user agreement, this paragraph is found under
section 2.
Conditions of Use
User acknowledges that (i) the e-gold service and Issuer are not a bank
(ii) e-gold accounts are not insured by any government agency and (iii) the
e-gold service and Issuer are not subject to banking regulations.11
This statement is found in the Terms of Service for Omnipay from
February 2003. “User acknowledges that G&SR is not a bank, is not
subject to banking regulations and does not hold any value on account
for User.”12 It is unfortunate that these types of declarations are still being
made today by some new companies in the virtual currency arena. Under
US regulations, today’s virtual currency transactions are considered to
be very similar to e-gold payments. The business of exchanging or transmitting
value online, whether backed by national currency, gold bullion,
or considered a substitute for currency, is a regulated US activity.
Notes
 D. Jackson (djackson@e-gold.com), 2013. E-gold History a Few More Questions.
[email] Message to C. Mullan (carl@pdxcurrency.org). Sent September 15,
2013.
 C. Mullan, 2006. E-gold Mobile Payments 7 Years Before PayPal? Available at:
http://www.everyjoe.com/2006/10/29/work/e-gold-mobile-payments-7-yearsbefore-paypal-162/
(accessed: December 13, 2013).
 Web.archive.org, 1998. Philosophy and Purpose. [online] Available at: https://
web.archive.org/web/19980627133939/http://www.e-gold.com/unsecure/
gsrvision.htm (accessed: December 13, 2013).
 B. Grow, 2006. Gold Rush. [online] Available at: http://www.businessweek.
com/stories/2006–01-08/gold-rush (accessed: November 18, 2013).
 Jackson, E-gold History a Few More Questions.
 Ibid.
 Ibid.