What is Digital Gold Currency?

Basically, it is a very simple concept.  Gold is currently (at the time of writing) around 775 USD per ounce. Of course the value compared to fiscal (dollars and cents) currency varies and has been as low as 265 USD per ounce and as high as 1000 USD per ounce. But the variation is usually only a few cents or a dollar or two each day and not particularly significant for people using gold as an immediate currency. It does become important when one is using it as an investment or holding onto it for any length of time and transacting in large amounts perhaps. However, carting around even an ounce of gold is not very convenient. If you wish to purchase a product or service for 100 USD, then it is difficult to break off a slice of gold to that value and hand it over to the merchant.

There is another method however.  Corporations such as Liberty Reserve, e-gold, GoldMoney and Pecunix operate on a basic principle of accounting. Without going into the technicalities of this, all that happens is that you open an account with either Liberty Reserve, e-gold, GoldMoney, Pecunix or another gold issuer and then you can fund your account with gold. Gold is obtained from exchange providers who make a business simply converting or transacting fiscal funds to gold and visa versa. More on exchange providers later.  The currency supplier holds in trust a quantity of gold bars. These are usually 400 troy ounces (1 kilogram is equivalent to 32.1507 troy ounces), the size of the internationally traded London Gold Delivery bar. The term “small bars” refers to bars weighing 1000g or less. So gold issuers such as Liberty Reserve, e-gold, GoldMoney and Pecunix for example, supply and act as custodians on behalf of clients who own a specific quantity of gold metal. With this system, an account holder, who can be a consumer or a merchant, holds a quantity of gold which may be anywhere from fractions of an ounce to entire 400 ounce bars and their holding is represented as accounts which display the value of gold held by that account holder. Transactional history and balances are available upon inspection and a small fee is charged for each transaction and for storage. This gold is in the form of actual gold bars and held in escrow in banks around the world. Each account holder actually ‘owns’ an amount of that gold and this holding is reflected in his/her account. A consumer can fund their account through one of the exchange providers set up for this purpose and then ‘spend’ any amount, even as low as a penny, to a merchants account. The value of gold is then transferred from the consumer’s account to the merchant's. The merchant can redeem his gold or ‘cash it in’ with an exchange provider when he has sufficient funds available.

Having opened your account with one of the currency suppliers (usually for free), you then ‘fund’ the account through an exchange provider. If for example, you wanted 200 US dollars worth of gold, you would supply that amount of dollars to the exchange provider and he or she would fund your account with the gold to that value less his commission. Your account would then show gold to the value deposited in your account by the exchange provider. This is simply a transfer of Gold Currencies and ownership. The gold is not moved. It stays in the bank vault. All that has happened is the portion of one of those gold bars which was ‘owned’ by the exchange provider has now been transferred to you.

You would own a sliver of one of those gold bars resting in the bank vault. The value of that 200 dollars worth of gold may go up or down. If gold goes down compared to the US dollar your gold ‘holding’ would reflect this in a slightly less value, perhaps 190 dollars worth of gold. The actual gold does not change. It continues to sit there. Only the value of it may change. By the same token, if the price of gold rises dramatically then your small sliver might suddenly be worth 240 dollars. But let’s say that having acquired the 200 dollars worth of gold, you then decide to spend it on a nice up market DVD player available across the country for 150 dollars. You don’t want to pay by check or use your bank account. The retailer accepts "digital" gold so you simply spend the 150 dollars to his account. This is an instant transaction so the retailer is happy, he has his gold without waiting and at a relatively small cost, (usually the currency issuer will charge a few cents for the transfer to the recipient). The ownership of that amount of gold has now changed again. You still own a tiny sliver of gold worth 50 dollars but the retailer now owns that portion of the gold bar in the vault worth 150 dollars which you owned. When you make your spend, the currency supplier's software makes the record in both accounts of the transfer of ownership. Sometimes it is called gold credits. Presumably of course, you will get your DVD. There are some variations to the above and one can go into a lot greater technicalities of how it works. There are some important factors to be aware of however.

Firstly, although the transactions are not expensive, especially when compared to conventional systems such as banking, credit cards, Western Union and the like, there is still a cost to be considered. Exchange providers traditionally charge anywhere between 2% and 15% depending largely on how you fund them. If you use a credit card to buy gold you will incur higher charges naturally. If you pay cash then the charge will be less. Second, the transaction is instantaneous. There is no ‘waiting period' for any party. Once the ’spend’ as it is called is done, the debit from your account and the credit to the account you have spent to is also done. So it pays to ensure you do it accurately and not make any mistakes. Third, the ‘spend’ is irrevocable. That is to say irreversible. Not like a bank check which one can claim was falsely issued or a credit card payment which one might claim was unauthorized by doing a 'charge-back'. The currency issuer will not reverse a transaction you make. One should therefore be completely certain that one wants to make the spend and that one is spending to the correct account. You cannot rely upon the person you are spending to reverse it in the event of an error.