Wednesday, April 10, 2013

Bitcoiners: Remember What Happened to eGold

Wikipedia has a decent background report (my highlights):
e-gold was a digital gold currency operated by Gold & Silver Reserve Inc. under e-gold Ltd. that allowed the instant transfer of gold ownership between 1996 and 2009, when transfers were suspended due to legal issues. e-gold Ltd. was incorporated in Nevis, Saint Kitts and Nevis with operations conducted out of Florida, USA.

In 2007 the proprietors of the e-gold service were indicted by the United States Department of Justice on four counts of violating money laundering regulations. In July 2008 the company and its three directors pleaded guilty to charges of "conspiracy to engage in money laundering" and the "operation of an unlicensed money transmitting business" in the U.S. District Court for D.C.[1] The company faces fines of $3.7 million.

As of November 2009 the company's website states, "As e-gold Users are aware, by agreement with relevant authorities including the U.S. Department of Justice, e-gold has suspended all e-metal Spend activity subject to meeting certain licensing requirements. As a result, e-gold Users have been unable to engage in any transactions, including exchanges, that would require either receiving or making an e-metal Spend from the accounts they control. We are, however, working diligently to develop a means by which account Owners will be able to access the value in their account".[2]

As of December 2010 the company states that refund policy has been approved "We are pleased to announce that we have finalized an agreement with government authorities that will permit owners of VAP-Qualified Accounts to be paid in U.S. dollars their proportionate share of the monetized value of the e-metals in such Accounts"[...]In April 2007, the US government ordered e-gold administration to lock approximately 58 e-gold accounts, including ones owned by The Bullion Exchange, AnyGoldNow, IceGold, GitGold, The Denver Gold Exchange, GoldPouch Express, 1MDC (a Digital Gold Currency, based on e-gold), and forced OmniPay's owner, G&SR, to liquidate the seized assets.[14] A few weeks later, e-gold itself was indicted on four counts.[...]On December 31, 2010, e-gold initiated a value access plan that was approved by relevant governmental authorities in the U.S. Users would have access to the value in their accounts after submitting additional information to e-gold, and after a review of this information by the Court-appointed Claims Administrator and the U.S. Government.
If you don't think something along these lines is going to happen to Bitcoins, you are sadly mistaken. There is no central control group for the government to go after, but they will go after those exchanging dollars to bitcoins and vice versa. They are not going to allow loss of control of the medium of exchange, if they can help it. Many will lose big. Consider yourself warned.


  1. Except that the major exchanges are either in full compliance with U.S. AML laws or have no U.S. presence. As you point out, there is no central point to attack. Banning Bitcoin outright will only drive it to smaller, unregulated exchanges and boost the price. Coffee shop exchanges are already very common. The best thing the government can do is ignore it.

    1. Bitcoin-dollar exchanges are NOT in full compliance with the law. LMAO

      It's illegal to participate in a competing currency! It's financial fraud!

      it violates the Constitution, Article 1, Section 8.

      Keep flaunting your Bitcoin address, because you are for sure going to be audited and investigated by the IRS and the Feds.

    2. "As you point out, there is no central point to attack. Banning Bitcoin outright will only drive it to smaller, unregulated exchanges and boost the price."

      Except when all the US Gov has to do is block the internet traffic of exchanges, effectively not allowing transactions except P2P due to violating money laundering regulations.

      As stated yesterday, all that needs to happen is for US gov to drive the BTC value to $0. You raise the barriers and risk until that happens.

      There can be no competition with sovereign legal tender or the state will cease to exist. If anyone thinks that the state will willingly give up control of the very thing that keeps itself alive, you're smoking some seriously good, illegal sh*t.

    3. @Timothy The Federal Reserve is also in violation of the Constitution as Congress is not authorized to delegate its powers. The Constitution is irrelevant.

      @Cory Brickner E-gold is to Bitcoin as Napster was to BitTorrent. The government has been completely ineffectual at shuddering BitTorrent, and the same will be true for Bitcoin. The greatest problems the Government will face (which is the proper angle to consider) is the Streisand Effect backlash and unreasonable enforcement, in other words, convincing juries on a mass scale to convict. Most of the Government's actions against Bitcoin will foster public support for Bitcoin.

      Beyond BitTorrent, the other common method for underground distribution of music is called the 'sneakernet'. From Wikipedia: "Sneakernet is an informal term describing the transfer of electronic information, especially computer files, by physically moving removable media such as magnetic tape, floppy disks, compact discs, USB flash drives (thumb drives, USB stick), or external hard drives from one computer to another." Bitcoins can be transferred in this same method, without use of an exchange. Yes, there has to be a transaction logged in the servers, but this in-person transaction is much more difficult to track than an online transaction due to the difficulty prosecutors will have in proving the chain of ownership.

  2. So no one thinks that I am suggesting throwing good money into Bitcoin, let me state categorically that I am not. Bitcoin is an alpha-state project with no fully understood outcome. It is also extremely volatile due to the current thinness of the market., the group overseeing the project, warns that you should not put in any funds you can't afford to lose. I agree completely. With that caveat, this is a fascinating experiment that deserves support. However, we need less FUD and more facts to understand what is actually occurring here.

  3. Yes,Bitcoin will be attacked and it will survive.

    Here's what I wrote a year and a half ago:

    "The Coming Attack On Bitcoin And How To Survive It"

  4. The major exchange is in Japan.

    Consider that if the US government bans dollar trades for bitcoins, I can simply buy yen with dollars, then buy bitcoins with yen, or any other currency for that matter.

    The US government would have to ban all foreign currency exchanges to prevent people from being able to buy bitcoins.

    1. The U.S. will make it illegal to participate in a competing digital currency. At some point, by tax law, you'll need to report your transactions if you made capital gains.

      Expect an audit and prosecution if an official sees you were converting Yen to Bitcoins.

  5. I don't know much of the technical side, but I do have a tech background. The main weakness of Bitcoin, assuming no exploitable flaws, seems to be the audit chain. As Wikipedia says:

    "Because Bitcoin transactions are broadcast to the entire network, they are inherently public. Using external information, it is possible, though usually difficult, to associate Bitcoin identities with real-life identities.[85][86] Unlike regular banking,[87] which preserves customer privacy by keeping transaction records private, loose transactional privacy is accomplished in Bitcoin by using many unique addresses for every wallet, while at the same time publishing all transactions."

    Sophisticated software does exist that could potentially glean relationships and identities based on clusters of transactions and the like. This page linked to from the above paragraph make for interesting reading:

    1. This is an excellent link!

      1) The average non-technical user of BTC is certainly not anonymous.

      "It is possible to use Bitcoin in a way that is almost certainly anonymous, in the same way it is possible to get almost certain anonymity on the Internet, by using encryption, onion routing, and never associating your identity with your actions.

      Our point is that you don't get this anonymity automatically, and that most casual users of Bitcoin may not be anonymous, even though many of them may believe they are.

      The system looks more anonymous than it is."

      2) Theft of BTC happens, so the system can be, and has been compromised. Just like the Federal Government can freeze your accounts, so can they take your BTC if they see fit.

      3) Just to reinforce the above, put together the WikiLeaks link in the theft. If you don't believe that the CIA, FBI, or other sovereign sponsored hackers were involved in, or have studied this case, you are again smoking that seriously good sh*t I was talking about above. WikiLeaks is being monitored 24/7 by US Gov. My bet is that the probability is extremely high that this theft was intentionally high profile enough to make sure it was reported in order to undermine the system.

      4) If you've had any doubts that BTC could not be compromised by .GOV this should put all doubts to rest. The theft shows an inherent understanding of the BTC network and how to circumvent its protections along with the fact that even individual transactions and their amounts can be readily tracked.

      5) Time and again we are reminded of investment bubbles and the irrational exuberance that surrounded them. There is no substitute for physical possession of tangible assets. In this fashion, BTC, like the stock market, is the perfect bubble case. The only question is going to be who's left standing without a chair when the music stops.

  6. So then you don't exchange bitcoins for dollars. DUH!!! You exchange it for some other commodity like gold and then exchange the gold for dollars if one really needs dollars for something. You can even go to states like Utah where gold and silver have been confirmed as legal tender. Maybe you should do a bit of research in countries that have useless toilet paper currencies like Zimbabwe and see how people transact business. You'll find the overwhelming majority of it never touches the Zimbabwe dollar.

  7. Robert, as a bitcoiner and a veteran of the e-gold wars and the Liberty Dollar (I still have some Ron Paul silver liberty dollars), I can tell you that this was taken into account when creating Bitcoin. In fact the entire purpose of Bitcoin was to make e-gold like government clampdowns impossible.

  8. The difference between bitcoins and e-gold is that bitcoins are not centralized.

    There are no "headquarters" or central control offices for the state to take over.

    The author of this piece is just ignorant of bitcoins.

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