Monday, February 16, 2009

What is a Digital Gold Currency?

Digital gold backed currency bankA digital gold currency, or DGC, is described as an electronic form of money that is completely backed by gold. When you open a digital gold account, you freely buy gold and silver online at any time of the day, from anywhere in the world with internet access. It is also a very cheap way to own gold with low storage fees [and a narrow bid/ask spread]. This low cost convenience makes digital gold currency and gold pool accounts seem similar. The difference is that while gold pool accounts don't really
back your investment with real physical gold bullion, digital gold currency is 100% backed by physical gold, and that gold is allocated to you (meaning that specific pieces of physical bullion are reserved for you) and owned by you. There is no danger of your gold not being there when you try to cash out, because there is gold guaranteed to be set aside for you.

The concept behind a digital gold currency is to offer a global gold backed currency as an alternative to the world's fiat currencies. Your digital gold account is
envisioned to function as a bank account containing real money, money that can be transferred to others and used in transactions. You can pay digital gold to anybody who has an email address.

Within your digital gold currency account you can normally also hold digital fiat currencies, and again this money is 100% held in reserves and not lent out.

There are some drawbacks to be aware of when considering buying digital gold. One drawback is that even though the ability to pay or transfer your gold to another person seems like a big convenience, it's important to note that these payments or transfers can not be reversed. If you make a mistake and pay the wrong amount, or if you pay someone for goods or services that you don't end up receiving, there is no way to correct or dispute the payment. Because of this it's important to only send payments you've fully thought through, to vendors you feel you can trust. On some internet sites you may encounter something called an "Escrow service", which is basically a middleman service that holds the money in a transaction and only proceeds to make the payment once both parties have fulfilled their commitments.
This provides added security, as you will get your money back if the vendor doesn't fulfil his obligations.

Another thing to be aware of is that while the major digital gold currency providers are reputable and their gold allocation transparent, it is still important to do your homework to make sure that you learn about the company you intend to open an account with. Between 1999 and 2004 a number of digital gold companies arose and collapsed, mainly because they were not really selling gold backed currency and keeping it in reserve for you, they were taking your money and using it to fund their
high yield investments, much like gold pool accounts are suspected of doing. Also, in 1997 the U.S. government ordered one DGC called "egold" was indicted with money laundering charges and was ordered to liquidate a large amount of its gold reserves. But when this happened, many account holders cashed out their accounts and egold was able to pay everyone promptly and remain in business, which is good evidence that they do indeed keep your entire investment in reserve. Today egold is still in business and cooperating with the US government to prevent its platform from being used for financial crime.

As with any online transaction, there is a small digital security risk of hackers and malicious software, etc. The DGC providers normally do not insure you for loss due to the security violations, so make sure you read through the security measures that each company takes before deciding on the best one.

Owning digital currencies fully backed by gold is an easy way to own real money whose value won't be debased by inflation, and to make transactions with that money.
If the worlds' fiat currencies continue to lose their value, maybe digital gold will even become a de facto global currency that effectively returns the world to the gold standard. But it is important to become fully educated about this new medium of exchange and your currency provider before you start making purchases and transactions.

A few of the most popular and trusted DGC companies are:



Goldmoney.com


E-gold


Gold Exchange

3 comments:

goldbug42 said...

It now seems that everyone is trying to sell some type of investment product that duplicates the investment results of physical gold. I can tell you that there's nothing like the real thing. If you want to know you have a safe investment than buy the actual gold and hold it in your hand. There are to many online schemes to sell gold paper or gold pools.

I own several different types of gold bullion coins. I started my gold investment 2 years ago by picking up several Krugerrands. I now own gold Canadian maple leaf's and some Chinese Panda bullion coins.

I also think that buying gold bullion coins is probably the best way to invest in gold. Buy gold coins from different countries and at some point some of those counties may run low on their supply of coins and your investment will go up. There's nothing wrong with buying gold coins from different countries. Take a look at the following article which shows various gold bullion coins available from many countries.... http://www.goldnewswire.net/gold-bullion-coins#gold-bullion-coins

joanarca said...

i am bit cynical to this. what if there will be a worldwide internet crash down... after all those are digital money and can easily be wiped out.

GoldMarketBlog said...

It now seems that everyone is trying to sell some type of investment product that duplicates the investment results of physical gold. I can tell you that there's nothing like the real thing. If you want to know you have a safe investment than buy the actual gold and hold it in your hand. There are to many online schemes to sell gold paper or gold pools.

Basically I agree with you goldbug42, but even physical gold has its drawbacks. If you store it home, you could be robbed. If you keep it in an allocated storage account, what happens if gold is nationalized again? Basically I think that allocated storage is the best, but I like the idea of digital gold being a new international currency that is fully-backed by gold. And all the major digital gold currencies are fully-backed by gold. These aren't the same as pools, which I have a lot less trust for.

Of course, I would never join a digital currency provider I hadn't fully researched.

Joanarca, the buying and selling platform is digital online, but your money is real gold that is kept in a vault for you, and they do offline accounting and audits.

I'm not selling digital currencies by the way. Those are not commission links in the article, just for information.