What is Digital Currency?

The term "digital currency" is not a phrase referencing or describing online banking. Unlike government issued money which moves through conventional banks and financial institutions, digital currency is issued by private parties and only circulates over the Internet. It has some similar features of bank transfers, however, unlike credit cards and bank accounts, digital currency transactions are not plagued with fraudulent charge backs, high fees or long wait times for cleared funds.

Private companies are the underwriters and issuers of digital currency not government agencies. Consequently, these accounts are not FDIC insured as you would find in a regulated U.S. bank. Thus, it is important to understand that digital currency accounts are only as safe as the private company issuing the units and the governance of the assets backing those digital units.

In contrast to massive government agencies which issue national currencies on a grand scale, private digital currency companies are often extremely transparent. These online payment companies go through regular third party audits and publish all the information online. Most digital gold currency companies publish a list of the actual precious metal bars from the quarterly audited bar count. It is not unusual to find posted on the DGC company's web site a copy of the accountant's certification and a list of bar numbers.

Digital currency accounts offer global users convenience and freedom by permitting the electronic movement of funds from anywhere in the world using a personal computer or mobile device.

No bank or bank account is ever required. From the convenience of home, anyone can establish a digital currency account without jurisdictional restrictions and without the expensive hassles of a personal bank visit. Accounts in one jurisdiction may be instantly created by a consumer who lives just a kilometer away in a nearby town or another one thousands of miles away in a far away country. No office visit required. The financial freedom and opportunity that digital currency offers to both individuals and global businesses far exceeds the utility of a conventional bank account.

Digital currency accounts are unlike conventional bank accounts. Digital currency accounts are free, easy to set up plus all the transactions clear instantly and are irreversible.

Unlike credit cards, digital currency offers an "ease of use" which encourages both local and global online commerce. A simple account set up process, paired with the easy access provided by personal computers & cell phones, plus the lower costs of account operation gives digital currency a large advantage over banks. Outdated bank products such as credit cards, which were first introduced in the 1950's and never intended to be used online, prevent entry for new online merchants, restrict online commerce to those lucky enough to "qualify for a card" and widespread card industry fraud creates massive additional expenses.

The operation of a digital gold currency system is completely different from the present day fractional reserve banking system. Today's banks only require a tiny fraction of the money represented by a bank account to be actually held by the institution. Digital bank deposits and bank loans are created from thin air in a "ponzi like" structure with no assets backing the paper. Modern banking is debt built on top of debt over decades and decades of time. In total contrast to modern day banking, there is no debt created when digital gold currency is issued.

Digital gold currency offers a clean break from conventional bank debt. In total contrast to the "ponzi like" structure of fiat national currencies, privately issued digital currency units are at all times 100% backed by precious metal. DGC accounts are denominated in gold by weight not dollars, yen or euros.

Digital gold currency units are a representation of the allocated physical gold held in the vault. Unlike a conventional dollar denominated bank account which remains constant with the value of a dollar bill, DGC accounts fluctuate in value with the daily price of metals. The value of a user's DGC account as priced in national currency will change each day because of the changing spot prices.

Unlike a bank wire or a credit card transaction, digital currency transactions clear instantly and 100% of the received funds are available for spending.

Additionally, all transactions in digital currency are final and irreversible. There is no such thing as a digital currency "charge back". Digital currency accounts are not subject to expensive foreign currency conversions as is often the case with cross border bank transfers or overseas card charges. These privately issued electronic value transfer systems represent a huge leap forward in global financial services. Without traditional bank delays and high fees, digital currency account holders can transfer funds internationally in a manner that approximates traditional bank wires.

A cost savings is especially obvious when using digital gold currency accounts. Since digital gold is denominated into internationally recognized weights of precious metals, the inconveniences traditionally associated with international financial transactions, such as calculating exchange rates for another nation's currency, are eliminated.

Payments between DGC accounts are measured by amount of gold by weight transferred between accounts. DGC users understand that a gram of gold in one country is equal to a gram of gold in any other country. No floating national currency conversion or exchange loss ever occurs on any DGC transaction as it would in a bank transfer. Pure gold holds the same value everywhere in the world and can effortlessly move between countries around the world.

The ability to conduct transactions in digital currency is constantly available 7 days a week. This feature makes digital currency more accessible and convenient than other methods of bank transfer which may be limited by normal business hours and international time zones. Unlike a bank customer, the digital currency account holder may send or receive funds from anywhere in the world at anytime secure in the knowledge that those funds will clear only moments later.

Additionally, digital currency transactions can be conducted from any location or device which permits Internet access. GoldMoney even offers an iPhone application providing customers convenient & secure mobile access. Webmoney offers Telepat phone access and Keeper Mobile software. All of today's popular digital currency systems can be accessed by web enabled devices. Even as far back as the late 1990's e-gold was offering customers convenient mobile access.

Internet digital currency systems empower non-bank customers, encourage trade and advance business relationships around the world. Conventional bank accounts have the opposite effect. Because of jurisdictional restrictions and a selective application process which prevents many merchants from operating online-- bank accounts, credit cards and traditional credit products act to restrict trade and block access to global Internet markets. The ability to provide an instantly clearing easily accessible method of transferring funds and conducting business on a global scale gives digital currency an extraordinary advantage over conventional bank products.

Several of the emerging countries around the world which presently lack accessible bank and credit card merchant services already contain large populations of new Internet users. These global territories are digital currency's present day emerging markets.

Elements such as wide-spread cash use, distrust of local banks and low credit card penetration represent prime opportunities for expansion of the global digital currency business.

In the decades ahead, non bank populations of Internet users around the globe will increasingly rely on digital currency to assist them in local and global non bank financial transaction.

Properties of Digital Currency
Cash refers to money in the physical form of currency, such as banknotes and coins. Digital currency is a representation of cash born from the emerging technology of the Internet. Digital currency was originally created as a electronic mirror image of cash and is sometimes loosely referred to as money that circulates online but does not move through a bank or financial institution. Online digital currency user's are not required to have a bank account. This type of digital currency Internet account is often viewed as a bank alternative.

Digital currency is an electronic method of value transfer. Since digital currency was created in the "image" of cash it carries most of these same qualities:

• readily acceptable
• transferable
• untraceable
• anonymous
• portable

Digital currency enables standardized international financial transactions without the red tape or high fees required by traditional banks. The ability of an individual or businesses anywhere in the world to conduct complex, immediate, and irreversible international financial transactions is of great benefit to modern day society.

During the 1990's, a majority of digital currencies held no distinction between a personal or merchant account. Whether the customer was a company, merchant or individual the "one-size-fits-all" account worked well for all users. The original model of a digital currency account was very quick and easy to open and this model is still in wide use today. The ability of a merchant to instantly open and use an online retail sales account is a huge advantage in favor of digital currency systems.

Privacy

For a few computer experts, such as digital cash pioneer David Chaum, online privacy means anonymity for the payer during payment and un-traceability of the payment such that the issuer or "bank" cannot tell whose money was used in a particular payment.

However, today's users and observers should understand that all of the present day widely used commercially successful online digital currency systems are closed account systems. This means that when one transaction occurs a permanent record is made of value in that account being debited from the sender and credited in the receiver's account. In the large retail commercial digital currency operations of today, there is no such thing as anonymity, all transactions, large or small, are identifiable and traceable.

While many new software programs for the font>anonymous transfer of value have been created over the past decade and are still being developed today, this kind of system is not yet in wide commercial use.

Designs for anonymous value transfer systems have only recently moved from the drawing board to working Open Source models. This type of software is still evolving and will definitely be a big part of future online commerce, however, from the functioning anonymous value transfer systems now available online none are yet commercially viable projects.

As compared to the online commerce giants of today, large anonymous transfer systems might be viewed as "still in the development phase". Because of today's post 9-11 regulatory environment around the world, large commercial companies do not undertake the development of anonymous value transfer projects.

These systems are created by individual software designers. Today there are many individual systems in development and beta release. These are discussed later in this document.

Complete privacy and commercial viability are two features which exist at opposite ends of the online payment spectrum.

History shows that as the smaller systems become commercially accepted by retail merchants and users, these systems also tend to evolve into highly regulated enterprises. Over the last decade, this has been the case with all of the large popular digital currency platforms now operating on the Internet.

Digital currency companies grow and evolve or they simply die. During this evolution, some the original privacy features which grew from David Chaum's model often get "lost in the shuffle".

Unfortunately, growth in the digital currency business means new products, innovation and more regulation.
Unlike physical cash transactions which leave no records and are "unconditionally untraceable", today's commercial digital currency transfers always leave a detailed transaction record. The entire path of value transfer from start to finish on every digital currency account for the last decade can be found on the operator's backup files.

In the early years of this industry and even during the past decade, account anonymity was touted by the government prosecutors and the press as a heavily marketed characteristic of digital currency.

With the large successful digital currency companies of today, this is simply not the case Based on years of experience, the popular digital currency issuers recognize that a high degree of user identification is needed to comply & compete in today's online e-commerce marketplace.

Why would anyone bother using digital currency when we have banks and credit cards?

When compared to 'traditional' online payment methods, such as credit cards or online payment services like PayPal, digital currency can sometimes seem cumbersome and risky. Why would anyone choose digital currency over a credit card? Fortunately, with a decade of market data now available, it is possible to examine a customer's motivation for using digital currency products and digital gold currency.

As online commerce has generally required a bank account, credit cards and a merchant processing account, a primary reason today's users are attracted to digital currency is a lack of basic access to these traditional banking products. Digital currency has emerged as an excellent alternative to conventional bank products.
In past decades before the Internet, regions of the world which did not offer local bank options were dominated by alternative value transfer systems such as hawalas or other payment products including Western Union money transfer. With the invention of the commercial Internet and the low cost of personal computers, alternative online payment products have been quickly becoming the dominant method of payment in global markets where:

1. local banks and traditional banking products are not available
2. the average income of the local people is too low to afford expensive bank accounts
3. there is a great distrust of banks causing the local population to seek out Internet alternatives
4. the local government currency is not stable and subject to wide fluctuations in value thus driving businesses to seek online foreign alternatives
5. historically a region follows a culture-of-cash where conventional banking products such as credit cards are not accepted because of social values or religious beliefs

Today, the world's most successful digital currency system is Webmoney Transfer. Webmoney's system emerged after the 1998 collapse of the Russian banking sector. The reasons behind the birth of Webmoney Transfer illustrate almost all of the above points.

Costs

A compelling reason to use digital currency instead of bank products is cost effectiveness. Compared to processing credit cards online or even using a card based service such as PayPal, digital currency transactions are on average about 1/3 of this cost.

This same reasoning is used when choosing digital currency over a bank wire. On average a domestic wire transfer will cost $20-$25, However, sending the same amount through a digital currency system might cost less than five dollars. This is about 1/5 of the bank's cost. By using digital currency, any online business can experience a significant savings over expensive bank card products and bank fees.

The second compelling reason to choose digital currency is efficiency. Digital currency transactions including digital gold currency, clear instantly and the funds received are immediately available to be withdrawn. A domestic bank wire transfer may require 2-7 days for the funds to clear into an account and international wire transfers are even longer. Bank delays can occur due to holidays, weekends or time zone differences. Digital currency companies are open for business 24/7.

A third reason digital currency trumps bank products is reliability. All digital currency transactions are final and there is no possibility of a reversal. Anyone who has done business using credit cards is aware of the massive fraud which occurs each day in stolen credit cards. It is a common event for merchants to have a fraudulent card transaction reversed and that amount removed from the company bank account.

Credit card reversals or "charge backs" can happen anytime, even weeks after the transaction. Comparing unreliable credit card "charge backs" with the finality of a digital currency transaction, the more reliable means of accepting payment is clearly digital currency. Online merchants can greatly benefit from using digital currency over a credit card merchant service.

Complex international bank transactions, which might involve a client's local bank, the correspondent bank, the main office of a foreign bank and a local branch office of the recipient's foreign bank have the potential for mistakes. These type of business payments, large international transactions or foreign commercial transfers, have been known to get "lost in transit" for several weeks.

In total contrast, global digital currency transactions occur online between just two parties, the sender and the receiver. No matter where customers are located around the globe, each digital currency transfer takes only moments. Furthermore, each party has instant verification of the completed transfer without the possibility of any funds being lost or reversed.

In countries with large non-bank populations, digital currency offers a key service by providing consumers with a means of completing cross border financial transactions to and from a user's home country.

These digital currency systems provide an extremely cost effective global method of transferring money to family members and business associates. This combination of cost effectiveness, efficiency and reliability makes digital currency the preferred alternative to conventional banking for many of the world's citizens.