The Alt-currency Martyr
Reason magazine|April 2021
Before the feds feared bitcoin, they feared e-gold.
By Brian Doherty

IN THE MID-1990S, just before the arrival of PayPal and more than a decade before bitcoin, an oncologist from Florida named Douglas Jackson created a system by which people could send each other digital payment tokens backed by gold. Jackson’s e-gold became the world’s first truly successful digital currency, serving over half a million customers and doing billions of dollars’ worth of business.

But after a decade of success, the feds came after him, raiding his company’s office, taking computers, freezing bank accounts, and ultimately extracting a guilty plea for conspiring in an “unlicensed money transmitting business.” Once trailblazing, e-gold was quickly forgotten, derailed first by legal hassles and then by the tsunami of interest in blockchain technology.

Now Jackson has uncovered information that he thinks can not only overturn his conviction, and thus ease the path to him restarting his business, but help wean alt-currency from what he regards as a ruinous addiction to Satoshi Nakamoto’s brainchild. While the value the markets place on cryptocurrency keeps rising precipitously and no e-currency model closely emulating e-gold has grabbed significant market share in its wake, Jackson remains convinced that if he could only get back in the game, things would be very different. The guilty plea that he now insists was squeezed from him through government trickery blocks his doing legal business in the e-currency space.

“It’s as if I’m the only person in the world not allowed to go and compete in this area where I’d pioneered the industry,” he says. “It’s like everything came off the rails and it’s been a decade of unprecedented malinvestment.”

SENDING GOLD AROUND THE WORLD

MOST ONCOLOGISTS DON’T bandy about classic Austrian economics terms such as malinvestment. But Jackson in 1994 came across a Thomas Sowell article in Forbes celebrating the 50th anniversary of the publication of F.A. Hayek’s Road to Serfdom. His newly minted interest in Hayek led him to the Laissez Faire Books catalog, and then he was off and running toward his dream of a universally usable, cheap, and easy way to exchange value across the globe that didn’t depend on governments making wise monetary policy choices.

Though he had never taken an economics course and barely understood accounting or double-entry bookkeeping, Jackson was soon on a monetary mission to save civilization from itself. “Many of the worst real-world calamities, wars, in particular,” he told Barron’s in 2001, can “be causally traced back to economic dislocations—booms and busts—that in turn could be traced to monetary manipulations.”

So Jackson created a system whereby anyone with access to the internet could transfer ownership of digital tokens backed 100 percent by, and transferable into, physical gold (or, later, its cash equivalent), which he either received in bailment from customers or bought in the usual world gold market and kept stored in his office. The company made money off transaction fees, at first a flat 1 percent, then for a time, Jackson says, “capped at the equivalent of 50 cents, very inexpensive.”

Still later, “we refined the fees to a sliding scale formula,” he says. “The 1 percent made no sense for micro-spends, and 50 cents was too generous for large spends.” Eventually, the maximum fee, which kicked in for transactions amounting to more than about $200, was a gold equivalent which tended to be about $2 at the time. A referral program paid out 10 percent of the company’s transaction fee to any new customer brought in.

Jackson “didn’t have a clue” how to find customers at first, he now admits. He talked up e-gold on cypherpunk-oriented mailing lists and placed some print advertisements in libertarian-oriented publications (which will “probably go down in history as the dumbest, most opaque, confusing print ads ever,” he now says) and even a radio ad on an NPR affiliate in his hometown of Melbourne, Florida.

But rather than just hard-money hoarders in the rich West, many of e-gold’s customers turned out to be people, often from poorer countries, who were looking for a low-cost, low-hassle, and quick means to, say, send money back to family in India, shop online without a credit card in the Arab world, or sell goods without the fear of clawbacks from buyers that credit cards make possible.

“The only pathway to business success was to target high volume payment activities,” Jackson explains: “Online retail, bill payment, and remittances of international guest workers.”

E-gold started gaining media attention around 1999, then “2000 was the breakout year, when exponential growth was clearly evident,” Jackson says. “By February 2000 we had processed only 50,000 payments. Two months later we’d doubled that and by October we passed the million mark.” The gold coins, which were starting to make the office floor groan in Florida, were soon supplanted by gold bars stored in London and Dubai vaults.

In 2000, the e-gold project split its functions into two separate companies: E-gold, which managed digital e-gold accounts and made income solely from user fees; and Gold & Silver Reserve (G&SR), which exchanged currency for e-gold and was thus capable, in monetary policy terms, of engaging in “open market operations,” expanding or contracting the overall supply of e-gold according to market demand.

This bifurcation of functions was vital to moving forward, Jackson says via email. “The model of would-be competitors entailed them buying and selling their medium themselves, effectively engaging in currency exchange. This exposed them to the risk of payment reversal...exchange rate risk...and perhaps even more importantly, if the provider of the system is also the one selling the medium, virtually all of them resort to touting it as an investment (gold is good! Blah blah) and independent providers of exchange are disinclined to compete with them.” A consequence of separating those two functions was that “dozens of independent businesses found it in their economic interest to promote e-gold.”

As Jackson later bragged in a July 2020 online essay, written as part of a public comment process launched by the Financial Stability Board (an international body providing analysis and advice about the global financial system), “e-gold went on by 2006 to serve active customers in over a hundred countries, settle 3 billion (USD-equiv.) worth of P2P payment per annum and amassing gold reserves surpassing those then backing the Canadian Dollar or Mexican Peso.” At its zenith, the altcurrency was backed by 3.8 tons of real gold.

“To say Doug was pioneering,” says Kevin Dowd, a Durham University professor of finance and economics who specializes in monetary alternatives and competing currencies, “is an absolute understatement.” Dowd draws attention to e-gold’s market-leading provision of digital payments not tied to any government’s currency with “instantaneous trade at almost zero cost, and that almost 25 years ago.”

‘HE SHOULD HAVE BEEN ON THE FEDERAL PAYROLL’

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