This ground was already covered throughly last Feburary, for a full explanation see this article.
http://www.goldeconomy.com/article.php?sid=169 >>>>>>>>>>>>>>>>>>>>>>>> This article will take a closer look at some of the claims made by GoldMoney and ask some hard questions. The question has been raised whether the term “backed” should be used in reference to digital gold currencies. There is some controversy surrounding this issue. James Turk, the founder of GoldMoney says, “I don't want to sound pedantic on this point, but I think it is important to note that GoldMoney is not a “Gold Backed Currency (GBC)”. GoldGrams are not backed by gold; rather, they are gold. GBC's are a thing of the past, and a throwback to fractional reserve banking. As the inventor of digital gold currency, we believe that to be correct on this point GoldMoney should be called a Digital Gold Currency.” There is a problem with this assertion, however. When I spend 1.0 GoldGrams to another person, a physical gram of gold does not pass through the wires of the Internet. For that matter, a physical 1 gram piece of gold does not exist in the ViaMat vault where GoldMoney stores gold for its account holders. When I make a 1.0 GoldGram spend there is an instruction sent over the wire to transfer my claim on 1 gram of gold in the GoldMoney system (presumably part of an 11 kg bar) to another holding. This is important to think about because the GoldMoney patent that was granted to James Turk by the US Patent Office says that Mr. Turk created a new invention because digital gold extinguishes payment obligation instantly, “thereby eliminating payment risk”. The basis of this claim is that the GoldMoney account holder directly owns the gold in the vault. Can this be possible? There is a significant difference between a claim and a title. A title is a legal instrument giving ownership of a specific asset. You can obtain the title for a particular 1996 Nissan Sentra. The title has a serial number identifying the particular vehicle. Likewise, with land, a non-movable asset, a real estate title is a claim to a specific piece of land defined by meets and bounds. You cannot get a title to “a Nissan Sentra” or a title to “an acre of land”. Title requires a specific tangible asset be identified with a specific owner. A claim can be functionally similar to a title, but it does not attach to a specific asset, because a claim is a liability against a person or organization. A bank deposit receipt can be considered a claim on the money you just put in the bank, but it doesn’t identify which particular dollar bills you own, because the bank owns the dollar bills, and you have a claim against the bank. The bank can give you any dollar bills from its pile to redeem your claim. Likewise, a car dealership could issue a lottery in which they give away a new corvette. The person with the winning ticket can present it as a claim against the dealership for one corvette, the winning ticket is not a title to the “2001 Red Corvette in the showroom.” Not until they fulfill his claim by giving him a corvette does the winner obtain title to a particular corvette that he now owns. The reason that the distinction between claim and title is important in the case of GoldMoney is that the company claims to eliminate currency risk by making the GoldGram holder the actual owner of the gold in the vault with no intermediaries. However, as we will show below, this is impossible with the present GoldMoney infrastructure. The GoldMoney patent for gold as a digital currency defines a “deposit currency” as “the liability of the banks that accept deposits of a country’s national currency.” The patent then goes on to claim that a GoldMoney transaction eliminates payment risk because once the transfer has been made the gold asset itself extinguishes any debt liability and the payee now holds an asset instead of a promise to pay. A one-dollar bill is a “promise to pay” that is a liability to the bank, but a one ounce gold coin in your pocket is an asset. In effect, GoldMoney is claiming that GoldGrams are the same thing as a physical gold coin in your pocket, but safer. However, it is the contention of this writer that the GoldMoney system functions in a manner identical to “deposit currency” the only difference being that the system uses gold by mass instead of national currency to denominate its account liabilities. Whether or not the liabilities are backed by 100% tangible assets or fractional reserve has no bearing on the nature of the “invention” itself, because the reserves backing the claims against the institution are governed by the policy of the issuing institution, not an invention. ViaMat, like all bullion storage vaults, has an inventory list of every bullion bar in its vault with a serial number, exact weight, fineness, and owner for that bar. The bars vary in exact weight and fineness making one different and distinguishable from another. A GoldMoney account holder is not listed with ViaMat as the owner of a particular bar. Rather, GoldMoney is listed by ViaMat as the agent for the particular bars owned by the group of all owners of GoldGram holdings (accounts). So a GoldGram account is a digital financial instrument representing a claim to a certain number of fine grams of gold against the group of all GoldGram account owners. This is actually different from the patent held by GoldMoney, which says: “The balance sheet of the Global Clearing House [GoldMoney] reflects (1) the cumulative deposits of its system users, which are liabilities of the Global Clearing House [GoldMoney], and (2) the identical amount of gold as its assets.” So the patent plainly admits that GoldGram holdings are the liabilities of GoldMoney. But GoldMoney’s governance today is not quite the same as what the patent calls for. (The patent was filed in 1993, so it is natural that the company has progressed its state of the art.) I recently had a friendly exchange with James Turk, who was as always, quite helpful in explaining how GoldMoney works: Gold Economy: Are the GoldMoney bullion bars listed on ViaMat's books as being owned by GoldMoney, Inc.? Turk: No. GoldMoney is listed only as a principal/agent for the owners of the bars. Gold Economy: Is there some kind of contract between GoldMoney and ViaMat so that ViaMat recognizes the GoldGram account holder as the title holder on the bar, instead of GoldMoney? Turk: Yes. We in essence provide the accounting for VIA MAT. As you can see, GoldMoney today claims that the GoldGram account holders are the actual owners of the gold bullion. So, the company is not actually operating according to the patent in this regard. This change represents an improvement in governance in order to back up the claim that a GoldGram is an asset and not a liability. The validity of the GoldMoney patent hinges upon the accuracy of this claim. However, despite the improvement, the claim is still impossible under the existing GoldMoney system. Here is the reason why: The owner of the GoldMoney bullion bars is the aggregate of all GoldGram account holders. It is impossible to identify which grams of gold in the vault belong to which account. So a particular gold gram holding represents a claim on a quantity of gold in the vault equal to the total of all the GoldMoney bars multiplied by the balance of the GoldGram account, divided by the sum of the balances of ALL GoldGram accounts. It so happens that GoldMoney has fine-tuned their governance so that the result of the above equation comes out to the exact number of gold grams in the particular account. But the problem is that a GoldGram account is still a liability (claim) against the asset owned by the aggregate of all GoldGram account holders. A GoldGram does not exist outside of the GoldMoney server. Other than gold coatings on some of the computer parts, there is no gold inside the GoldMoney server. This means that GoldGrams are “paper” gold. Granted, they are 100%-backed paper gold, but they are nonetheless claims of liability against the aggregate of all GoldGram account owners. GoldMoney certainly represents an improvement in currency governance, a great reduction in risk if you will; but there is one fact that appears to be impossible to get around. If I do not own title to a specific piece of gold in a specific vault, then all I own is a gold account, which means the gold is owned collectively by a group of people, of which I own a claim or share of the total. The gold is the group asset, and my claim for a certain quantity of gold is the group’s liability. A GoldMoney account is the same thing as a gold certificate, except that it is stored in digital book-entry form on the GoldMoney server. GoldMoney digital cash, even though it hasn’t been implemented yet, is also a digital gold certificate that is instead stored on the holder’s computer. It still represents a legal claim for a quantity of gold that is owned by someone else, in this case, the aggregate of all GoldGram account holders. The only way that the claim to extinguish payment risk made in Turk’s patent could be true would be if each account is a digital title to an identifiable, physical piece (or pieces) of gold that can be identified individually in the vault as belonging to that particular account owner. It would theoretically be possible to do this using bullion coins and some kind of grid system so that each coin was identified with a position in the vault. Each account would be the owner of a certain number of coins, whose positions would be associated in the database with that account, so it could be proved WHICH PARTICULAR COINS each account holder was the owner of. The only problem with this kind of system is that it does not allow fine divisibility. That is, the smallest practical size to mint a gold coin is probably 1 gram. This type of system could not allow transactions smaller than the minimum coin size. To solve this problem you could take the concept even further and have a 3-dimensional grid map of each bullion bar in the GoldMoney storage vault, so that each milligram of gold could be mapped by its position to a specific GoldGram account. The only problem with that is if I want to take out the gold milligram owned by GoldGram Account #A34-567-39Z it cannot be removed from the bar without destroying the bar. In fact, if it is in the center of the bar, there is no way to even identify it without destroying the bar. The bar could have an air bubble inside (or tungsten), so there could be no gold in the spot where a particular gold milligram is supposed to be. So the idea of mapping the gold to parts of a bullion bar would not solve the requirement for each account to own individual, identifiable pieces of gold. Since GoldMoney does not in fact identify each account with a particular piece of gold in the vault, it is not accurate for them to claim that the account holder is the actual owner of title to a piece of gold in the vault. On their website they do make this claim: Is GoldMoney a collective investment scheme? No. GoldMoney is not a collective investment scheme because there is only one user asset, i.e., a specific number of gold grams, so there are no commingled assets. In any case, participants in the system hold gold (perhaps for as short a time as just a few minutes) to pay for goods and services. Since a given gold gram is part of a 11 kilogram bullion bar (400 oz, or whatever minimum bar size they use) it is impossible to identify which of the 11,000 grams in that bar belongs to a particular account holder. Therefore the gold bullion bar itself IS a commingled asset, because there can be up to 11 million different GoldGram holding owners with a claim against that particular bar. (11,000,000 milligrams in a bar. 1 milligram is the smallest permitted GoldMoney account balance.) Unfortunately for the Turk Patents, this seems to be a quandary similar to the electron paradox - you can never know the position and velocity of an electron at the same time. A digital gold system can be created that allows the account owner to be the actual owner of specific identifiable bullion coins in a vault, but this does not allow divisibility below the smallest coin size. OR, a digital gold system can allow infinite divisibility (ten thousandths of a gram or as small as you want to go), but it must become a deposit currency in order to do so. A commingled asset is owned corporately, by definition, which means in this case that each of the account owners has a claim against the bullion bar, but none of the account holders is the title holder to the bar. Therefore the gold in the vault is owned by the aggregate of GoldGram account holders, and an individual account holder owns a share in the total gold asset owned by the group. As long as the accounting in the GoldMoney system is done properly, 1 GoldGram will always have an asset backing of 1 gram of gold in the vault. Therefore, GoldMoney does not eliminate liability in a transaction, because a GoldGram account is a liability to the aggregate of GoldGram account owners, who corporately own the gold bullion. GoldMoney merely reduces liability by removing all but one intermediaries between the account holder and the gold asset backing the account. The patent itself uses this language and is therefore self-contradictory. In three different places the patent describes the gold currency accounts as “liabilities of the Global Clearing House.” This is the same definition that the patent uses to define “deposit currency” in section 3, lines 33-34. So by its own definition of terms, Gold Money is a deposit currency denominated in gold. It is possible to have a deposit currency bank that maintains 100% backing for its paper or coin money and only charges for storage and transaction fees. Therefore whether or not the institution has a fractional reserve is a matter of the policy of the institution, and is not inherent to “deposit currency”. So, deposit currency is any money that is kept in book-entry form using accounts that represent claims against the issuing institution, where value is transferred from one account to another via transactions. GoldMoney is most definitely a deposit currency, as are e-gold, E-Bullion, and Standard Gold. In an attempt to move closer to the claims of its patent, GoldMoney has moved the liability from the Global Clearing House (GoldMoney) to the actual aggregate of GoldGram account holders. But the fact remains that a GoldGram account is still a liability against the total asset backing of the GoldGram accounts. Since the gold bullion is owned by the aggregate of GoldGram account holders with GoldMoney acting as the agent, there is a very small risk that GoldMoney or it’s operators, Eurodutch Trust Services, could make an accounting error, be subject to inside theft, or any of a number of possible events that could negatively affect the value of a GoldGram holding. Risk is not completely eliminated, and the GoldGram is still a liability, not an asset. What it all boils down to is that a GoldGram is still a promise to pay, just like any other note issued by a central bank. The difference is, GoldMoney has the goods to back up the promises and the governance to keep it that way. GoldMoney has not invented anything new. It has merely assembled a permutation of the prior arts of book-entry accounting, information networks, “deposit currency”, and gold bullion storage to allow the easy transfer of gold-denominated liabilities. It is the author’s opinion that GoldMoney, Inc. has provided the most innovative and high quality governance to date for any digital gold currency. This article is in no way meant to demean an excellent company. This is merely an attempt at calling for intellectual honesty with regard to the GoldMoney patent, which as it stands today, is being used to attempt to bar other companies from entering the gold economy. Unfortunately for GoldMoney, they do not even meet the conditions of their own patent to extinguish payment liability. Yet GoldMoney has sued E-Gold and sent lots of nasty letters to other gold backed currencies that they are infringing on GoldMoney's patent. Since the GoldMoney patent claims that the invention of digital gold currency is distinctively different than a deposit currency because the account holder is the title owner of the gold in the vault, then as long as the other gold backed currencies do not make this claim, they cannot be in violation of the Turk Patent. In other words, all E-Gold has to prove is that they ARE INDEED A DEPOSIT CURRENCY. If the gold in e-gold is owned by the trust, and each e-gold account is a claim against the trust, then e-gold is very simply and obviously a deposit currency. Mr. Turk cannot honestly claim that his invention is NOT A GOLD BACKED CURRENCY (deposit currency), but e-gold IS A DEPOSIT CURRENCY and still say that e-gold is infringing on his patent. Of course I am not a patent lawyer and the US court system is infamous for rendering daft decisions, so it will be impossible to predict the outcome of the GoldMoney suit against e-gold. But let us hope for the sake of the free market that e-gold wins. _________________________________________________________________ Get your FREE download of MSN Explorer at http://explorer.msn.com/intl.asp. --- You are currently subscribed to e-gold-list as: archive@jab.org To unsubscribe send a blank email to [EMAIL PROTECTED] Use e-gold's Secure Randomized Keyboard (SRK) when accessing your e-gold account(s) via the web and shopping cart interfaces to help thwart keystroke loggers and common viruses.
