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Here is a very good description about Digital Gold Currencies, Enjoy!

CIRCUMVENTING THE BANKING SYSTEM, WHAT IS DIGITAL GOLD? 

Throughout recorded history, one precious metal, gold has been a preferred store of wealth and a medium of exchange. But it's inconvenient. You don't want to store gold bullion in your home and then have to shave a little piece off an ingot to go grocery shopping. Of course in places like Thailand, they do something similar—even today. Some women wear necklaces with easily detachable tiny sections of standard weight. When they need to dip into their savings, they break off a link and spend their jewellery. Chinese merchants have scales to weigh and instruments to verify purity. Yet for everyday transactions, even in Thailand, standardized coins or banknotes are more convenient. The notion that we cannot move our own money abroad when we want to would have been dismissed with derision by Marco Polo as he forged his way around the globe. But we certainly don't need to go back to Marco Polo. Today, in everywhere but police states, individuals and investors can still move their assets in and out legally with some reporting requirements and few other restrictions. The problem is that it looks like under U.S.A. pressure, this golden age is coming to an end…Thus, new alternates like digital currencies should be considered by PTs. Paper money first developed when gold traders found they could issue “receipts” or IOUs payable to the bearer, in return for gold deposited in their vaults. People found these slips of paper more convenient than the physical gold itself for purposes of settling day-to-day debts. Then if anyone wanted to cash in, they would simply take the paper money to the vault and demand their gold. (Of course this system didn't last long as issuers found they could easily issue more paper than they actually held in their vaults… but that is another story.) 
Digital gold operates on the same principle. The physical gold is [HOPEFULLY!] stored in a central vault, but ownership is transferred by logging in to one's digital gold account using a secure internet connection and password. This allows the legal right to a certain amount of the gold to be transferred in an instant to somebody on the other side of the world - and it also allows the gold to be divided up into almost infinitely tiny fractions of an ounce or gram if necessary, which is much more convenient than using physical gold. 

USING YOUR DIGITAL GOLD ACCOUNT

Logging into your digital gold account is quite similar to logging in to an online bank account. You can see the balance, check your statement, and make a transfer to any third party who has an account on the same system. If a third party has your account number, they can make a transfer to you. 
You cannot write checks, you can just make transfers - but these transfers cost almost nothing and clear in fractions of a second, unlike transfers made in traditional banking systems. 
The main difference is that the balance is held in actual gold, not in money. So it is accounted for by mass (weight). Most systems will allow you to view your balance in, or make transfers for, an equivalent amount in US dollars, euros, pounds etc - but these equivalent balances can change from one moment to the next based on movements in the price of gold on world markets. 
The only definite, fixed balance is the one you can see in either TROY ounces or grams, depending which you prefer. So, just as if you were buying physical gold, you can lose if it goes down, or gain if it goes up. The good news is that gold prices are relatively stable and don't tend to change significantly from one moment to the next. 

WHY DIGITAL GOLD IS SO USEFUL TO PTs

Digital Gold has existed since 1996 and is now sufficiently mature that we can recommend it as part of an overall PT banking strategy. There are three different types of transaction for which a typical PT might want to use digital gold: 
- Anonymous money transfer: making small value payments anonymously. For
example, you might want to pay to host a website, rent server storage space, or to pay for an anonymous email service, or even buy a controversial book. This is now the definite first choice payment method for most PTs when they do little deals between each other. 

- Pass-Through: Moving larger amounts of money fast and anonymously around the world. You might wish to move money from your onshore identity to your offshore account, or vice versa, without leaving a trail by transferring the money directly. As you will read later in this chapter, digital gold can help you accomplish this anonymously, cheaply and efficiently. As a trusted system linking exchangers in many different countries, each with access to their local banking systems, digital gold can be compared to something like a high-tech, internet-based Hawala money transfer system. 


- Golden Egg: as a longer-term store of wealth or speculation. As a
place to store your wealth offshore, buying gold without governmental interference. 

Each of these types of transactions requires slightly different strategies in order to obtain maximum security and privacy at minimal cost. 
HOW YOU CAN DEPOSIT AND WITHDRAW MONEY 
In many ways, digital gold accounts operate like bank accounts. But because your assets are in real gold, you need a way to buy and sell that gold in order to interact with the traditional banking system. 
You cannot, for example, send ounces of gold via SWIFT wire transfer to an account in US dollars. Instead, you must first sell the gold to someone who will give you dollars in exchange, and then you can have the buyer send the wire in dollars for you. 
There are many currency exchange businesses on the internet which will do just that for you. The gold market is very liquid so you will have no problem cashing in or out at any time. It is no more difficult than dealing with a transaction which involves two national currencies. It's really quite simple. 
To get funds into the system in the first place, you have three options:

1. You can receive payment from somebody else in digital gold. This may
be difficult if you are new to the system, but it is now the number one preferred payment method between PTs when they make deals between themselves. It's extremely efficient because the transaction costs are low, and there is currently no reporting of such transactions to any government. 

2. You can buy physical gold bars and ship them to the vault of the
Digital Gold system (possible but rather complicated and probably better avoided - only practical on large transactions) 

3. Finally, you can just pay money in dollars, pounds, euros or your
local currency to an exchanger who will then credit your digital gold account with the appropriate amount. Obviously the exchanger will charge a small fee for this. 

What is very useful is that there are many exchangers located in many countries around the world, all competing for your business. Besides the obvious payment methods of check or wire transfer, they will accept almost any other form of payment imaginable: cash, money and postal orders, credit card, Western Union, Moneygram, domestic internet bank transfers, etc etc. 
Withdrawing money into a regular national currency is subject to a similar process. You can spend it to another digital gold user, you can request physical gold from the vault, or you can go through an exchanger. 
For accounting purposes and for the sake of explanation, we choose to think of gold as just another currency, AUG (Gold Grams) Just as we have USD, GBP, EUR, AUD etc. Indeed, gold is a currency in its own right. 

CHOOSING YOUR DIGITAL GOLD PROVIDER

There are quite a few competing systems but generally it is free to open an account, and there is no commitment. There is nothing to stop you having as many accounts as you like. 
The established market leader is e-gold (www.e-gold.com) They have been around since 1996. It is a common and well founded complaint that their customer service is somewhat lacking, but the system functions well and they have a reliable track record of stability. Everybody who accepts any kind of digital gold accepts e-gold (rather like everybody who accepts credit cards accepts Visa) so it's probably the best one to start with. 
A more recent competitor is GoldMoney (www.goldmoney.com). GoldMoney is very professionally run, more so than e-gold we believe. They have a more transparent audit system, and better customer care. However GoldMoney is smaller (that has changed since July 2004: they now have more gold bars in storage than e-gold!) and less widely accepted, something more like Diners Club in the credit card business - you are limited in the places you can use it. Nonetheless, because of their more professional management, we think GoldMoney is ideal for storing larger amounts of wealth on a longer-term basis. 
For advanced users who would like to combine the digital gold world with traditional offshore banking services there is a bank called First Digital International Bank (www.1stdigibank.com) which piggy-backs on the e-gold and goldmoney system. It is run by privacy oriented PT's and has its servers offshore. Effectively, it's a way of spending and storing e-gold or goldmoney without themselves being aware of it. On top they don't charge storage fees AND even pay interest on gold holdings - a very progressive approach! It is something you should explore by yourself when you are comfortable with the first two. 
Then finally there is Pecunix (www.pecunix.com), a competing system which seems reliable, highly secure and very efficient, but is not widely used as of yet.

UPDATE January 2004: Pecunix has become a major player as of this date, they also offer a free shopping cart module to enable the merchant to accept 4 different digital gold currencies within one interface, it's called http://gold-cart.com/


There are quite a number of other smaller Digital Gold operators. Some of them may be genuine, but others may be unstable or even fraudulent. After all, anyone with a bit of programming experience and a server can set up one of these systems. So in the unlikely event that you consider it necessary to use a digital gold system that is not one of the three mentioned above, we most emphatically recommend that you do some serious background checks on it first. 

OPENING YOUR ACCOUNT

Neither e-gold nor GoldMoney will openly admit to opening “anonymous” accounts. Remember that they are seeking mainstream business as internet payment systems, and the last thing they want to be seen as is an anonymous payment system. In fact, when opening an account you are required to submit an individual's name together with verifiable contact details and these are quite likely to be checked, especially if you conduct large transactions on a relatively new account. 
At the very least, you can be sure that a human being will look at the data you have provided to check it appears realistic. So if you open your account in the name of Pamela Anderson with an address in Silicon Valley, you will soon find it blocked. 
On the other hand, the requirements are much less onerous than those of opening a bank account these days. As for e-gold, an alter ego with a maildrop on the other side of the world should be just fine. You should have some piece of ID ready to fax to them if they ask, and your address should be capable of receiving a letter via regular mail containing a “verification code”. But if your address looks genuine and you keep your transactions below, say, $10,000 they will probably not even bother to ask you to go through this process (note: obviously this policy of theirs could change at any time) 
GoldMoney has a clearer, more rigid policy. Up to a certain limit, they don't need any ID from you. If you want to exceed that limit, you are required to email them a scanned photo ID and utility bill. They post details of the limits on their website. 
The only other thing to remember is that the systems will track and record your IP address (see the chapter on communications security). This is mainly for their own security and to prevent fraudsters from using their systems, but of course the information will be there on file if anyone should ever find out about the existence of your account and obtain a court order. Bear this in mind: it is best to use an anonymizing service, or to carry out your transactions from a public internet terminal. 
None of the systems we mentioned have a Big Brother mentality, but you have to remember they are functioning within the system, so to avoid being closed down they MUST make the right noises about co-operation. You will not find them promoting confidentiality as a marketing proposition. As far as we are concerned, that is so much the better for us. PTs should not be associated with systems that openly promote anonymous transactions, because “secret accounts” will inevitably attract the attention of Big Brother. Perhaps more importantly, the payment systems have to protect themselves against being used in fraudulent transactions, of which are abundant on the internet. For this reason they are likely to be suspicious of anyone actively seeking anonymity. Blend in with the average user, though, and we think you will do just nicely. 

EXAMPLES OF TYPICAL PT DIGITAL GOLD USERS

Danny Makes a Small Anonymous Payment:

It's often easier to illustrate using examples, so we will start with Danny. Danny is in Phoenix, Arizona - just testing the water, having never used digital gold. He is aware that the encrypted email provider Hushmail accepts e-gold, and he wants to use this payment method to pay them $100 for services, rather than having a link to Hushmail on his credit card statement. 
First he will need a throw-away email account, or at least one not directly related to him. With this, he will sign up for an e-gold account, which will be opened online in seconds. 
Then he locates the website of a suitable exchanger (some are recommended in our resource section). In this case, let's assume he selects an exchanger based in Florida, and their fee for this transaction is 4%. 
He buys a money order for cash in Phoenix for $104, mails it to the exchanger, and within a few days they have received it and transferred $100 to his e-gold account. 
Then all he has to do is log in to his email account, transfer the money to Hushmail's e-gold account, and voila! Transaction completed. 
If Danny is really security conscious he can now ditch the e-gold account and use a new one for the next transaction, but that's probably unnecessary. He can keep the same account for the coming months and maybe use it to receive some money anonymously for little trades he does on Ebay. 


Rory Wants to Move Money Offshore:

Rory from Dublin, Ireland already has an e-gold account and wants to use it to transfer funds to his secret account in Latvia. Obviously if he wires the funds direct from Ireland, that would not look good. 
Instead, he visits the websites of some exchange businesses and locates several which he thinks would be suitable: in the UK, the USA and Australia. Wires to these countries, he figures, will not attract attention because they fit into the normal pattern of his business, and are not headed for known offshore locations. 
Over the course of some months, he randomly sends wires and bank drafts of between $3,000 and $7,000 from his business accounts at several different Irish banks, to each of these three exchangers. On receipt of the money, they credit his e-gold account as instructed. All in all, he wires out maybe $100,000. 
At the same time, he has located another couple of reputable exchangers located in Estonia and Finland to complete the other end of the transaction. Periodically, Rory logs in to his e-gold account and makes a transfer to the accounts of these exchangers, then he fires off an encrypted email to them giving his Latvian bank details. The exchangers send Euros to Rory's Latvian bank account. 
Of course, if the Irish tax authorities were really desperate to unravel this set of transactions they could. But it would require court orders in the UK, USA, Australia, Estonia and Finland, and it is very unlikely they would bother. 
For extra security, Rory could pay a nominal fee (perhaps 1%) to a straw man who would claim ownership of the e-gold account if required, and he would have a contract with Rory for consultancy services, programming work, website design or something similarly intangible. 
How much does this cost Rory? Buying and selling of e-gold depends on market conditions, but a fair estimate suggests that he could get quite a decent rate by emailing the exchangers in advance and explaining that he needs to make regular transactions. In this case he might be able to pay 2% in and 1% out. That's a total of 3% (ignoring any movements in the gold price) which we think is a very reasonable price to pay for the privacy afforded. 
Note that in the above case, if Rory is simply transferring his own, tax-paid savings, then he is doing absolutely nothing illegal. Like most civilized countries, Ireland has no restrictions on what you can and can't do with money you have legitimately earned. 
But if he is involved in making false tax declarations or trying to avoid court orders, the above process could quickly be construed as money laundering. Needless to say, we strongly recommend against that. If you do everything in good time when you have no tax emergencies or claims pending, then you can do everything by the book and totally legally. Much better. 


Giles Wants a Golden Offshore Nestegg:

Giles is seriously, independently wealthy. His family founded one of London's landmark department stores and made their fortune before selling out to an international chain. Giles is British but now lives in Monaco. 
Giles would like to keep some assets in gold, as part of a diversified portfolio. But he's what his friends call a “privacy freak” so he wants to avoid buying it through the more conventional channels. 
Because what he wants is a long-term holding, he decides to go for GoldMoney rather than e-gold because of their better corporate governance. He opens an account with them, named G-WIDGET ACCOUNT, and provides them, unbeknown to her, with a copy of the passport of his Filipina maid. 
He locates an exchanger in nearby France and calls him on the phone. Although the exchanger doesn't normally take cash, he's a small businessman out to make a buck and sees now harm in doing so, given the profit potential of the situation Giles offers him. 
Giles therefore loads up 100,000 euros in his car, drives to meet the exchanger, and the transaction is carried out then and there. Giles watches as the exchanger transfers the GoldMoney to G-WIDGET, and then he logs in from his laptop as a double check. 
The transaction goes well and Giles makes a mental note to repeat this transaction soon and increase his holding in GoldMoney. 

DEALING WITH EXCHANGE PROVIDERS

There are quite a number of exchangers which make it their business to get your money into and out of the digital gold systems. Most are small businesses and are not related to the companies managing the actual systems. 
Some of these outfits are better than others. If in doubt, try to check around on internet chat groups or with other PTs on the reputation of a specific exchanger. We are including a list of exchangers who we believe are reputable and well-established in the resource section. 
The other issue to consider is that exchange providers are subject to different regulations in different countries. For example, those in the USA are treated as money transfer businesses and are required to obtain ID on clients for most transactions. Nonetheless, you might still want to use a US exchanger, though, if you are doing business in the US - obviously getting money to and from them in such a case would be quicker, cheaper, and more private than using a foreign exchanger. PTs know how to be creative and solve the ID problem. 
Some of the exchangers in other countries are prepared to conduct business anonymously but they will need to be reassured that you are not just another internet fraudster or hacker trying to launder your ill-gotten gains. We suggest you email several and only deal with those you seem comfortable with, who are on your wavelength. 


DOES THE GOLD REALLY EXIST?


This is an obvious question to which any prudent user requires an answer. Since you cannot physically see or touch the gold, how can you be sure it really exists? How can you be sure you are not just placing blind faith on someone's word? (as is the case for example when you pass US dollars around) 
But there is no general answer to this question digital gold as a whole. There are a number of competing digital gold systems and some are more secure than others. Before using them, it is important to carry out “due diligence” and satisfy yourself as to the authenticity of claims. Clearly the amount of time and effort you put into this will vary depending on whether you are depositing $100 or $1 million. 
What we really like to see is an independent, regularly updated third party audit by a trusted name such as a major accounting firm. At the moment, there is only one digital gold system which offers this: GoldMoney, which is audited by Deloitte and Touche. Additionally their gold is stored in the UK by a third party of international repute - the secure storage company ViaMat - who are able to confirm this. 
Therefore, we consider GoldMoney to be the best for long-term storage of value if that is your aim. You could keep your “mother load of gold” or “golden egg” with GoldMoney. 
E-Gold has published audits in the past but they are now out-of-date. Nonetheless, e-gold is a well-established system that our associates have been using for several years without any problem. On the internet reputation is everything because bad news travels very fast - and e-gold has developed an excellent reputation. Therefore we can cautiously but responsibly recommend it. 
An example of what can go wrong was a scam called Osgold, which ran for well over a year and developed a huge following. To any logical PT observer, it was clear from the beginning that Osgold was a scam - typical signs were that it was not clear who ran it, it was impossible to speak to anyone on the phone, and the gold that supposedly backed the system was held at some secret location which they never revealed for security reasons. 
Needless to say, eventually Osgold went belly-up and a lot of people lost money. But it would not have taken a rocket scientist to figure out it was a scam from day one. A five minute visit to the Osgold website revealed many dubious claims to anyone with an ounce of common sense. So it would be unfair to tar other digital gold systems with the same brush. There are scammers in every business. 


SURVEILLANCE OF DIGITAL GOLD TRANSACTIONS


At present Digital Gold is a relatively free economy, small enough to be unregulated. Because it is so international in scope, it would be very hard for any government to regulate. Most governments have no idea it even exists. 
There is no known reporting of transactions within Digital Gold systems. However at the time you are cashing in or out, your transactions do have to go through the regular banking system of some country or another, and there of course they could be monitored. 
We imagine that all systems will keep permanent records of the IP address (that of your internet provider) so anyone with access to those records will be able to ascertain exactly where the transaction was made from. We can also assume that they monitor the part of the world you are in. For example, if you have an address in the USA on file but the account is accessed from the Ukraine, that could be cause for further investigation. 
The other issue you need to be aware of is security. If a hacker or Big Brother has installed a malicious program such as a keyboard logger on your system, it would be possible for them to steal your passwords. But of course this risk applies to all forms of internet banking, not just to Digital Gold. It is therefore very important for users to maintain good levels of computer security (see the separate chapter on computer
security) 

BLENDING IN

What is a typical transaction size? Most digital gold transactions will be relatively small, but low five figure dollar amounts are not unusual and should pass below the radar. Six or seven figure transactions (over
$100,000) certainly happen quite often too, but they are probably big enough to stand out and maybe receive some extra attention. If you were seeking privacy, you would not want that unless you had a well-established account with a history of larger transactions. 

FURTHER HINTS:

We also offer a FAQ about intelligent use of e-gold. We offer free advice on how to structure and use e-gold so you stay in the anonymous, we ourselves have tried out e-gold with transactions as high as $ 250,000 with no problem or unpleasant surprises. Just send an email to webmaster@privacy.org.cn or go to our contact sheet

And: We also offer on a small scale anonymous first funding (exchange provider) of your newly created e-gold account. The offer is mentioned in our e-gold FAQ.


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