eGold was a remarkable financial institution in that it focused so much on providing a service to their customers. They were a servant, not of the government, not of the regulatory powers that be, but of their customers. This is rare. Try to make a payment to an online poker site from your bank account if you want to see how your bank's commitment to their customers stacks up against eGold.
Sadly, eGold was shut down. It was too dangerous to the authority's power for it to be allowed to exist. Epiphyte corp. can only exist in a fictional universe outside of the watchful gaze of Uncle Sam.
I don't think people grasp how easy and widely e-gold was used to launder money. It was THE premier way to move money if you were involved with any sort of electronic fraud.
All you had to do was cash-out someone's bank account then wire the money to an e-gold affiliate, who deposits it into your online account. All transactions are irreversible. e-gold kept minimal records and after the money enters an offshore account, the government has little chance of recovery.
There were millions of dollars being moved through e-gold with fraud. They purposely made the process easy with as little verification as needed. Their market was criminals. I'm sure most of their profit came out of transaction fees related to fraud.
Where's the innovation? Their site looks like shit. They just managed to find a loophole to look legitimate and survive this long. I'm not surprised that the owners plead guilty to conspiracy to engage in money laundering.
What is surprising to me, is how no law enforcement exists at any level for individuals who get scammed on the Net. I am talking about eBay scams, all those spam emails etc.
Yet create a company where the IRS might not get every penny due either to e-gold's actual gold appreciation or money transfers, and see how rapidly the Feds react.
I'd guess that any service that transfers funds between people would be susceptible to charges of money laundering. Tipjoy doesn't currently make it easy to transfer funds, but they would like to:
I used to think Gold, but fundamentally I've come to believe that debt is probably the better choice as it promotes growth.
Paraphrasing Neal Stephenson debt based currencies are backed by the ingenuity of the people, which is always growing and improving. Asset backed currency such as gold are backed by a finite amount of gold.
Where gold still has it's value is in it's transparency. No one controls gold, but with say the USD or EUR corruptable entities known as governments can either print more money or take more loans devaluing the currencies. The history is littered with cases of this happening. I'm personally pretty bullish on the dollar, but who knows.
Another problem is that they have government enforced monopolies, which kills competition on the local level.
>Asset backed currency such as gold are backed by a finite amount of gold.
Currency units are somewhat arbitrary. If you don't believe that the market needs a central technician for it to run properly (I don't, but I'm in the minority), then I'm pretty sure a modern economy could be run on currency backed by almost any commodity.
What most people fear and distrust about fiat currency is putting one legal monopoly in charge of such an important part of the economy. It's too much power. A gold-backed currency takes that power out of the hands of any one man.
I advocate that we should use whatever currency the market chooses. I want the market to have the legal rights to make that choice. Historically this was the case until legal currency monopolies were created to fund wars.
The problem with picking just one asset with which to back your currency is that you have two options:
a) pick something your country is a net producer of, knowing that producers will create more than the industrial demand to accommodate savings (this is the case with gold).
b) pick something you're a net consumer of, so saving more money hurts consumption (if some people are right and oil is being used as a proxy currency to hedge against the dollar, this is happening now).
I don't know what the solution is -- I see nothing wrong with highly liquid index funds, against which someone can write checks denominated in whatever unit they choose. But a deregulated market would probably out-innovate me pretty fast.
I wouldn't agree with "debt based currencies are backed by the ingenuity of the people". Debt based currencies are backed by the trustworthiness of the debt issuing entity. It doesn't matter how ingenious Americans are as long as the Fed prints money to fund the welfare and warfare state.
Hey, I have a great idea - why don't we take the service of money out of the hands of government and place it in the hands of private citizens on the free market? Then the market will decide which is best.
No, the bits are solutions to hard computational puzzles, and they are securely timestamped and published, so that you always know exactly what the money supply is. More on the markets and economics of bit gold here:
I admit that my understanding of some of these concepts like futures contracts is negligible, but it still seems bad if, say, 90% of all bit gold is generated by criminals at no cost to them, while regular people have to expend their own resources to create (or buy) bit gold.
The bigger problem is that everyone has a incentive to run their computers day and night cranking out solutions, which burns up lots of natural resources and processor time for a zero-sum result.
The economics in this regard are the same as for gold. With gold only the most efficient gold mines can make a profit, so only those profitable operate -- nobody tries to mine all the gold in the world. With bit gold, only those with the most efficient processors and most spare time will be able to make a profit, so again there will just be a handful of a few powerful computers, or many small computers but just using the spare CPU cycles (like SETI@home), solving the mathematical puzzles to generate the bit gold.
Last time I checked, payment startups are not off-topic here at HN. Heck, YC has invested in at least two payment-related startups. So having an interesting article that shows you that laws can sometimes be a bigger barrier than imagined when dealing with online payments, is "reddit material" how exactly?!
The biggest problem that struck me was the reference to "The Man", reflective of the kind of paranoia that you find in the darker corners of the internet.
Aside from that, the article can't really be blamed for the ensuing gold-standard debate.
Pardon me, but STFU. If you want to criticize, more than one sentence is required to convey your meaning.
This story is very relevant in that it warns what happens if you carelessly try to innovate in a regulated field. As far as I know, it is far between every Web company that suffers this fate. The banking industry scores in the world class for lameness, and now we know why. On another note, this could happen in other areas as well..aviation is my own favorite oh-please-someone-get-your-act-together business. This could just as easily have happened if someone made a perfectly good airplane that insulted the wrong officials.
I am aware that the subject of gold-backed vs. fiat currencies is a regular theme on reddit, but this article doesn't even touch the matter.
"Be civil. Don't say things you wouldn't say in a face to face conversation."
In terms of "be wary of regulations"... well... yeah. But do you think anyone would vote for an article about me trying to serve alcohol to 20 year olds in the US? Following the laws should be one of those things that people basically take for granted. Whether those laws are sensible ones is most likely best left to other forums, with, perhaps, the exception of very pertinent things, like software patents.
e-gold broke laws that were not in place when they started. PayPal was accused of pretty much the same things and managed to negotiate their way to compliance. e-gold had pretty much attempted to do that since they first attracted attention.
They like many other startups also went under the misconception that if you structure things outside the US, you're safe (you're not). US businesses like google are facing similar situations in the EU regarding data privacy rules.
How exactly does the US enforce its laws in countries (or on businesses) that exist outside the US? It sounded like e-gold didn't just have some paper corporation, but an entire, multi-national structure of protection.
There is a realm of things that are 'interesting' but 'very controversial', in the sense that most mainstream economists, right or left, view the gold standard as more or less nutty, and of course, the 'nuts' don't like being viewed as such. The ensuing discussion is never pretty, and is completely unrelated to hacker news. Some of us would prefer to just not see it here. You can talk about that kind of thing here:
Whether you believe in the gold standard or not, this article was not about that.
There are many things they did that are very applicable to current startups. In particular governance models and transparency are very much issues that current startups need to worry about.
The point about Know Your Customer is also an important one. In the 90's when e-gold started there was a lot of experimenting with this. Most people in the industry were weary about government involvement, but didn't think it was going to affect them.
At some point it isn't inconceivable that social networks, email service providers and others will be required to follow similar Know Your Customer procedures to banks. Several countries are already starting to institute this.
>most mainstream economists, right or left, view the gold standard as more or less nutty
Sorry for continuing this particular topic of conversation, but that is entirely false. Most economists don't advocate a gold standard, but you will find serious discussion of it in any mainstream economic journal that touches on monetary policy or history. The monetary system that served most of the Western world for several millennia is not considered "nutty" in academic circles.
At least, we discussed works by several modern advocates of the gold standard that regularly publish in mainstream economic journals in my Money and Banking class.
Egold was NOT about the gold standard, although the article makes it out to be. It may have shifted towards that in the very end due to the tightening regulations that forced them to abandon their initial purposes, but gold really had little to do with it. Get it straight.
These regulations are what make online payments that are as easy as cash legally impossible. It's a serious detriment to startups.
It was an interesting read, but it wasn't 'brought down by the man'. A better title should be: know and follow the applicable laws before making a startup.
Sadly, eGold was shut down. It was too dangerous to the authority's power for it to be allowed to exist. Epiphyte corp. can only exist in a fictional universe outside of the watchful gaze of Uncle Sam.