A 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: