e-gold logo

E-gold was a digital gold currency operated by Gold & Silver Reserve Inc. (G&SR) under e-gold Ltd. that allowed users to open an account on their web site denominated in grams of gold (or other precious metals) and the ability to make instant transfers of value (“spends”) to other e-gold accounts.

The e-gold system was launched online in 1996 and had grown to five million accounts by 2009, when transfers were suspended due to legal issues. At its peak in 2006 e-gold was processing more than US $2 billion worth of spends per year, on a monetary base of only US $71 million worth of gold (~3.5 metric tonnes), indicating a high monetary turnover (velocity) of about 28 times per year (for comparison, annual velocity of USD is about 6 for M1 and less than 1.6 for M2) . e-gold Ltd. was incorporated in Nevis, Saint Kitts and Nevis with operations conducted out of Florida, USA.



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e-gold was founded by oncologist Douglas Jackson and attorney Barry Downey in 1996. The pair originally backed the services accounts with gold coins stored in a bank safe deposit box in Melbourne, Florida. By 1998, G&SR (the system operator) was an Affiliate Member of NACHA and a Full Member of NACHA’s The Internet Council.

The company was launched two years before PayPal but did not manifest exponential growth until 2000. By 2004, there were over a million accounts. It was the first successful digital currency system to gain a widespread user base and merchant adoption, noted July 13, 1999 in the Financial Times as “the only electronic currency that has achieved critical mass on the web”. It was also the first non-credit-card payment service provider to offer an application programming interface (API) [1] enabling other services and e-commerce transactions to be built on top of it.

After initial demonstration of an e-gold Spend via Palm Pilot in February 1999, e-gold introduced support for wireless mobile payments.

e-gold was used by both individuals and merchants for services including metals trading, online merchants, online auctions, online casinos, political organizations, and non-profit organizations.

From 1996 through 1999, currency exchange services referred to as “InExchange”and “OutExchange” were directly supported on the e-gold platform. This arrangement exposed the system’s operator, G&SR, to the financial risks attendant to provision of exchange services. It also tended to inhibit third parties from offering exchange services on an independent competitive basis.

In 2000, the system was re-structured to effect a separation of currency exchange activities from the core functions of e-metal issuance and settlement of transfers. G&SR devolved ownership and responsibility for these core functions to e-gold Ltd., a newly formed offshore company organized for that express purpose. G&SR itself, now a customer of e-gold, continued to offer exchange services under the newly created OmniPay brand.

Beginning spring 2000, there was a proliferation of independent exchange services marking the first emergence of an industry providing exchange between conventional national currencies and a privately issued brand of money. By 2001, several dozen companies and individuals from around the world were offering third party exchange services between national currencies and e-gold, further extending e-gold’s international user base.

e-gold, which allowed transactions as small as one ten-thousandth of a gram of gold, was also the world’s only successful micropayment system. The company’s payment statistics were published live and showed hundreds of thousands of micro-transactions were being made daily by computer programs using the API.

From its inception in 1996, e-gold pioneered the decoupling of the numeraire for specifying a payment (Spend) instruction from the native unit of account of the settlement currency. For example, while AUG® (the trademarked designation for e-gold) was denominated in grams and decimal fractions (or in troy ounces since, as weight units, both are related by fixed arithmetic ratio), a Spend Instruction might be specified as “Pay recipient account 10 USD’ worth of e-gold”. Calculation of the actual quantity to convey was made using a table of reference exchange rates maintained by the company, reflecting current actual exchange rates published by exchange providers.

By the early 2000s (decade), the capability of immediate settlement, as implemented by e-gold, was recognized as key to the emergence of systems for peer-to-peer transfers of digital rights such as “smart contracts”.


e-gold was unique at the time in that they created the “e-gold Special Purpose Trust” which held title to the physical bullion on behalf of the users. They also created a real-time statistical reports page that showed the total holdings of each metal in the trust account, list of gold bars with serial numbers, the total number of accounts, as well as the total number and value of transactions in the previous 24 hours. This transparency enabled many observations to be made about how e-gold was being used.

Criminal abuse

E-gold’s early success may have contributed to its demise. E-gold’s store of value and large user base made it an early target of financial malware and phishing scams by increasingly organized criminal syndicates. The first known phishing attack against a financial institution was made against members of the e-gold mailing list in June 2001. The technique was refined with attacks against the digital gold systems like e-gold and later used to attack other financial institutions starting in 2003.


Failing to prospectively verify the identity of account holders, e-gold began to suffer from an increasing rate of criminal activity mainly perpetrated by Russian and Ukrainian hackers against its users. In addition to phishing, the attackers made widespread use of flaws in the Microsoft Windows operating systems and Internet Explorer web browser to collect account details from millions of computers to compromise e-gold accounts.

Jackson’s theory was that e-gold is a book entry system with account histories, making it simple to conduct an investigation to track down and identify users who had engaged in illicit activity after the fact. While the public perception was that e-gold accounts were anonymous, e-gold accounts were pseudonymous, allowing the creator of the account to use any name or label he wished to use. However, account and transaction records—even failed log-in attempts—were permanently recorded, enabling linkage of seemingly unrelated accounts secretly under unified control. The data mining this enabled, combined with inputs from independent exchange services, enabled law enforcement to identify numerous criminal users of the service.


Various fraud artists from Western countries were also able to take advantage of the e-gold system as a means of funding their schemes, enabling for the first time in history, international Ponzi schemes. Perpetrators of auction fraud on eBay would sell fake or non-existent items on the site. These criminal syndicates preferred their victims to pay in e-gold because it was the fastest and easiest way for them to move the funds overseas.

The increase of online crime linked to e-gold led to complaints to government authorities by defrauded account holders, who often did not understand the difference between e-gold and the fraudulent person or company that encouraged them to open an e-gold account and wire money to fund it.

Systemic problems

As an online transactions system with exchange agents worldwide, e-gold enabled criminals and hackers in Romania to move money quickly and easily from victims in America back to the country from which the attacks were originating. Several of the cyber crime gangs that plagued and used e-gold were based in Râmnicu Vâlcea, Romania.

e-gold was unknowingly part of a larger systemic problem with the banking system. The banking and credit system in the United States were not designed for a digital environment, and were therefore fundamentally insecure and highly vulnerable to identity theft and check fraud, as well as trust based attacks such as phishing. The willingness of credit card companies to allow people to apply for a card without being identified in person enabled rapid growth of identity theft (Ironically, not verifying the identities of account holders would be one of the main criticisms raised against e-gold.)


There were early reports where e-gold had actively helped to catch and collar cyber criminals, such as the one who stole Cisco Systems’ firewall code and offered it for sale to be paid in e-gold. In June 2007, Jackson claimed to have “aided 300 investigations and reported 3,000 suspected child pornography buyers to the National Center for Missing and Exploited Children”. Goldmoney, and then federal law enforcement agencies began to characterize e-gold as the payment system of choice for criminals, terrorists and child pornographers.

Criminal prosecution

G&SR (e-gold Operator) office, 1998-2014

Changing definition of a money transmitter

The USA Patriot Act, passed in the wake of the September 11 attacks more than five years after e-gold had been launched, made it a federal crime to operate a money transmitter business without a state money transmitter license in any state that required such a license. At the time a money transmitter was in most states defined as a business that cashed checks or accepted cash remittances to send from one person to another person across international borders, such as Western Union or MoneyGram. For example, prior to 2010, California regulated money transmitters under the “Transmission of Money Abroad Law”. One of e-gold’s competitors, the e-Bullion company, applied for a money transmitter license from the State of California in 2002, but was informed by the State of California that their business which dealt in gold accounts did not fall under the state’s definition of a money transmitter.

In 2005, G&SR requested that the IRS SB/SE Division conduct a BSA (Bank Secrecy Act) Compliance examination in order to clarify what regulations, if any, e-gold fell under. The United States Treasury issued a report on January 11, 2006 titled U.S. Money Laundering Threat Assessment which G&SR believed was evidence favorable to its legal case as explained in its January 20, 2006 Letter, apparently confirming that e-gold accounts were excluded from the definition of “currency” under the United States Congress and Code of Federal Regulations definitions.

However, in its actions from 2006-2008, the U.S. Treasury Department in conjunction with the United States Department of Justice stretched the definition of money transmitter in the USA Patriot Act to include any system that allows transfer of any kind of value from one person to another, not merely national currency or cash. Using this new interpretation they then proceeded to prosecute the USA-based gold systems, e-gold (and later e-Bullion) under the USA Patriot Act for not having money transmitter licenses, even though these companies had previously been cooperating with regulatory authorities and told they did not fall under the definition of money transmitter. The charge of not having a money transmitter license was eventually dropped against e-bullion. Several years later FINCEN further expanded this definition to apply to foreign companies allowing US persons to open accounts, which forced the Jersey based Goldmoney.com to suspend the ability to transfer value from one holder to another in December 2011.

A November 2013 article in Financial Times noted that “For several years, Mr Jackson had hoped to resurrect e-gold himself, but it became clear he would not be able to obtain the money transmitter licenses required in most US states.”[2]

Allegations against e-gold

Banks suffer from the same problems with criminal activity, phishing, ponzi schemes and money laundering on a much larger scale, and some of the biggest banks have even knowingly participated in money laundering. e-gold’s status as a controversial alternative currency system made it an attractive target.

While e-gold had begun implementing stronger controls against abuse by users of the system by 2005, and was actively combating the use of its system for child pornography as a founding member of the Financial Coalition Against Child Pornography,the Justice Department indicted the e-gold directors on four counts of violating money laundering regulations and knowingly allowing a transaction to purchase child pornography. The government action against e-gold was a case of first impression. As noted by the prosecutor, “Digital currencies are on the forefront of international fund transfers. e-Gold is the most prominent digital currency out there. It has the attention of the entire digital currency world. That world is a bit of a wild west right now. People are looking for what are the rules and what are the consequences.”


The case against e-gold was brought under Title 18 USC section 1960 in UNITED STATES OF AMERICA v. E-GOLD, LTD, District of Columbia court. e-gold filed a motion to dismiss the case on the grounds that they did not fit the definition of a money transmitter. The court ruled against e-gold, stating that “a business can clearly engage in money transmitting without limiting its transactions to cash or currency and would commit a crime if it did so without being licensed.” This ruling enshrined in case law the Treasury Department’s expansion of the definition of a money transmitter to include any system by which stored value of any kind may be transferred from one person to another, even if the stored value is neither cash, nor national currency.

After vigorously contesting the charges for a year, in July 2008 the company and its three directors entered into a plea agreement. Dr. Jackson pleaded guilty to “operation of an unlicensed money transmitting business” and “conspiracy to engage in money laundering”. The agreement detailed actions required to bring the companies into compliance with laws and regulations governing operation of a Money Transmitting Business. Concurrently, the companies agreed to a consent order of forfeiture, dropping their action to recover funds previously seized by the government.

Sentencing was scheduled to occur 120 days following entry of the Plea Agreements in order to afford a 90-day interval to implement compliance requirements. A status report detailing progress with regard to mandated compliance measures was filed November 8, 2008.

In November 2008, Gold & Silver Reserve CEO Douglas Jackson was sentenced to 300 hours of community service, a $200 fine, and three years of supervision, including six months of electronically monitored home detention. He had faced a maximum sentence of 20 years in prison and a $500,000 fine. Commenting on her substantial deviation from Federal Sentencing Guidelines (in the direction of leniency), Judge Rosemary Collyer, having already noted “no doubt that Dr. Jackson has respect for the law” and that “the intent was not there to engage in illegal conduct”, determined: “there is no reason to shut down e-Gold and G&SR, and every reason to have them come into legal compliance”. Jackson’s lawyer claimed Jackson was spared the heavier fine because he was deeply in debt – the Judge said “Dr. Jackson has suffered, will continue to suffer, and may never be successful with e-Gold”. Reid Jackson, Douglas Jackson’s brother, and e-Gold director Barry Downey were each sentenced to three years of probation and 300 hours of community service, and ordered to pay a $2,500 fine and a $100 assessment.

Suspension of service and e-gold Value Access Plan (VAP)

The 2007 e-gold indictment was accompanied by seizures (and forced redemption) of the e-gold balances of multiple exchange providers, resulting in an almost overnight decline in the amount of e-gold in circulation (and gold reserves) from 3.5 to 2.6 metric tonnes. [No exchanger except G&SR was charged with any crime and the seized value was subsequently returned to them.] Additionally, the government filed a Post-Indictment Restraining Order (PIRO) which prohibited redemption of e-gold for gold bullion without the approval of the prosecutor. The primary purpose of the PIRO was to prevent dispersion of assets (the gold reserves) which the government had been unable to seize due to the custodial arrangements whereby the e-gold Bullion Reserve Special Purpose Trust held title to the gold.

The combination of adverse publicity and disrupted exchange markets led to a precipitous decline in e-gold usage and demand. Whereas under normal circumstances a decrease in demand would have resulted in a decrease in circulation (without impacting exchange rates), this combination led to e-gold Users being unable to exchange their e-gold for conventional money and discouraged any potential recipient from accepting payment in e-gold.

In 2008, the Plea Agreement detailed requirements for e-gold to resume operation as a regulated financial institution. While e-gold had already complied with the majority of requirements by the time of sentencing, it was discovered that the guilty Plea itself effectively precluded the companies (or any company controlled by the e-gold directors) from being licenseable in any US state. In accordance with the Plea, e-gold suspended all remaining Spend activity, in effect locking up all e-gold account balances.

The challenge was then how to restore customer access to the value in their e-gold accounts. Lacking licenses as a money transmitting business, any plan to liquidate the system and distribute value to customers would risk being construed as an additional violation of operating without required licenses.

In 2009, the e-gold directors approached the US government with a proposal whereby the government might serve as middleman for disbursing the value due to e-gold customers. Following a year of negotiation, the e-gold VAP was approved calling for monetization of reserves and a claims mechanism, under the authority and oversight of Judge Hollander. The VAP protocol entailed the companies consenting to a voluntary seizure action of the aggregate e-gold. The companies were then responsible for “monetizing” the value, that is, redeeming the e-gold, liquidating the bullion released from reserves and turning over the proceeds to the Secret Service.

Due to a fortuitous drop in USD value relative to e-gold, the net realized monetization rate for VAP was $1583 per troy ounce, over twice the maximum e-gold exchange rate during the interval Spend activity was curtailed and then suspended c. 2007-2009. Altogether, G&SR turned over more than $92.8 million to the Secret Service in 2012.

Some of the e-metal in e-Gold accounts was criminally derived, but much of the e-metal was owned by innocent account holders. The court ordered Rust Consulting, a private company in Maryland, to process refunds to account holders following validation of their identity by e-gold. The balance of unclaimed funds will be forfeited to the US government. A three-month window was set from June 3, 2013 to October 1, 2013 for e-gold account holders to submit a claim on their funds, then extended to December 31, 2013.


After the e-gold and e-Bullion cases, California (2010) and several other states amended their regulations to follow the federal precedent to define all digital value transfer systems as money transmitters. However, California’s 2010 law is worded as to define a range of Internet startup companies, such as the room booking service Airbnb, as “money transmitters”.[3]

e-gold was an early pioneer of Internet payments. The company was the first successful online payment system which pioneered many of the systems and techniques of e-commerce, including making payments over an SSL encrypted connection, and offering an API to enable other websites to build services using e-gold’s transaction system.

Though e-gold was ultimately shut down by the US government, the federal judge on the case ruled that the founders of e-gold “had no intent to commit illegal activity.” After the resolution of the criminal case, the directors of e-gold Ltd vowed to continue operations following the new Federal know your customer guidelines.

e-gold’s failure was ultimately due to their inability to provide a system of reliable user identification and the failure to provide a workable dispute resolution system to identify and cut off illegal and abusive activity in their user community. Other transaction systems such as Webmoney.ru and Goldmoney.com learned from e-gold’s mistakes and were able to successfully field similar systems with low rates of abuse by addressing these deficiencies. While PayPal has done a better job of addressing abuse than e-gold did, they now contend with the same kind of Internet fraud that took down e-gold. Financial cryptographers have observed that Bitcoin has repeated the same fundamental errors that e-gold made, and that despite its decentralized nature the cyber crime-wave might bring Bitcoin to a similar ending. According to GoldMoney’s website, BitGold announced [4] the acquisition of GoldMoney on May 22, 2015.

External Links

See Also on BitcoinWiki


  1. archive.org capture of e-gold Shopping Cart Interface Specification, ver. November 6, 1999
  2. Stephen Foley, November 28, 2013 E-gold founder backs new Bitcoin rival, Financial Times
  3. This Innovation-Killing California Law Could Get A Host Of Startups In Money Trouble
  4. BitGold announces acquisition of GoldMoney