Digital Gold Currencies – How Safe Are They?

Digital gold currencies are finally entering the mainstream of investor attention, primarily due to the interest in gold and silver as investments in their own right. The recession of 2008 and ongoing, is focusing more and more on what economists call “hard money” (precious metals) as a means of wealth protection. The fact that the US dollar is on a downward path means alternative currencies in precious metals are receiving a lot more attention.

So, if you decide to invest in a digital gold currency, are you likely to lose your money? This is a good question because owning gold this way is entirely dependent on the financial health of the company involved. More importantly, the integrity of the people involved with the company is probably the key to success. Having been involved with the digital gold industry from the early days as an investor, here is what I have found.

Gold currencies are a relatively new form of investing, the rise of them completely paralleling the growth and advancement of the internet. E-gold is considered the “grandaddy” of these companies, but only being around since 1996 shows how rapidly developing the industry is. This company was hugely popular with the online high yield investment program (HYIP) people, which ultimately caused it’s decline. This was due to some rather dubious characters involved with HYIP’s that caught the attention of the US authorities regarding money laundering and tax evasion. Domiciled in the offshore island of Nevis, E-gold was effectively run from the United States by the well respected Douglas Jackson, a reputable pioneer of the industry. Unfortunately the lack of “Know Your Customer” controls on the owners of these accounts led to the US authorities clamping down on the company pending tighter account compliance.

E-gold is still around but with a limited use. You can’t really spend e-gold at the moment as uncertainty with this company is hindering its progress. Interestingly, any money that you have in e-gold will have increased in value due to the rapid rise in the gold price. Remember, with these accounts you own gold rather than dollars. The company is rapidly trying to get all their account holders to upgrade their accounts to reflect true ownership details. This involves uploading proof of residence and proof of identity documents to the company. Considering this is in response to US government requests, the reluctance from many of the previously privacy seeking owners of these accounts to comply is obvious. This seems to have led to significant downtime of the e-gold website, which further erodes confidence of it’s users. As a penalty if you do not upgrade your account, you will be charged a higher holding fee. Interestingly, the fact that the gold backing your account is safe and secure in Switzerland or other offshore centres does not seem to be an issue.

An interesting point is that if E-gold was not based in the USA, it would probably be thriving and be at the forefront of the digital gold industry still. For Douglas Jackson, the founder, being arraigned and the threat of a criminal conviction for “money laundering” in the US was enough for him to fold to the pressure and comply.

Safety in a digital gold currency account depends on a number of factors. Being based in the US does not mean that it will survive and prosper. A very similar account to E-gold called C-gold based in Malaysia seems to be thriving, with very good auditing of the gold owned easy to see on the website. The integrity of it’s owners remains to be seen, as it is very new, but they are off to a good start.

Diversification of gold digital currency accounts that you intend to own is important.

For further information on some more options, have a look at [].

Michael Lyon has been involved with the digital gold industry since it’s early days. He is also an active investor in both gold and silver and precious metals mining shares.

His website [] has more information in owning gold in your own digital account.

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