WHAT IS E-GOLD?

e-gold is a digital gold currency operated by Gold & Silver Reserve Inc. under e-gold Ltd., and is a system which allows the instant transfer of gold ownership between users. e-gold Ltd. is incorporated in Nevis, Lesser Antilles.
According to the company's website, as of April 2007, e-gold had 112,188 oz (3,489,436 grams) of gold and 138,567 oz (4,309,923 grams) of silver in storage, which is worth approximately US$86 million. There are typically 66,000 e-gold spends each day totalling 15,000 oz (460 kilograms), which is about US$10.5 million. There are over three million e-gold accounts of which about one quarter are active.
On 27 April 2007, a federal grand jury in Washington, D.C. indicted e‑Gold Ltd and its owners on charges of money laundering, conspiracy, and operating an unlicensed money transmitting business. E-gold, however, considers the charges completely groundless, and has responded to the allegations in their own press release.

History
e-gold was founded in 1996 by Dr. Douglas Jackson and Barry K. Downey [4]. Transactions using e-gold have grown dramatically since 2005. The total amount of gold bars (over three tonnes) in the e-gold system is approaching the size of the national reserves of smaller countries. e-gold now generates a substantial income from spend and storage fees — there is a charge of a few cents to make each e-gold "spend" and e-gold itself now earns well over a million USD per year from fees.
The number of e-gold accounts (as claimed by e-gold) grew from 1 million in November 2003 to 3 million on 22 April 2006.

Role in global commerce
Many small businesses in the U.S., Europe and Asia, each with full-time staff now operate as "digital currency exchangers," doing nothing other than buying and selling digital gold currency for fiat currencies, as gold bugs term national legal tender currencies not backed by hard assets.
e-gold transactions — a "spend" — are completed electronically, usually using the web interface, and they always settle by weight of the metal even if denominated in some other way. A user may send (or "spend") a tiny amount of gold (a fraction of a gram, ounce or kilogram) to another user account instantly, anywhere in the world.
Even though e-gold is careful to not advocate any particular political agenda, as the Liberty Dollar does for example, e-gold could be viewed as a libertarian form of private currency.

Asset protection

e-gold is, according to their website, "100% backed by gold"
Unlike fractional-reserve banking, e-gold holds 100% of clients' funds in reserves with a store of value. Proponents of the e-gold system contend that e-gold deposits are protected against inflation, devaluation and other possible economic risks inherent in fiat currencies. These risks include the monetary policy of countries or territories, which are perceived by proponents to be harmful to the value of paper currency.
The repository of the actual bullion bars with serial numbers and other data can be seen using the live "Examiner" function on the e-gold web site. Bullion is held in allocated storage with Brink's Global Services (part of The Brink's Company), Transguard Security Services (part of The Emirates Group) or MAT Securitas Express AG (part of the VIA MAT Group). Clients hold an unallocated share of this allocated bullion.
The user may take physical delivery of the precious metal upon payment of an additional fee, and provided the user has an available balance of at least the weight of the smallest individual item displayed in the Examiner. This is currently a 32 troy ounce gold bar, which is worth approximately $20,000. However in practice, most users permit the company to store the metal for them.

Bullion investing
e-gold is a form of commodity money, so it is subject to the price fluctuations of that commodity. If the price of gold drops versus a national currency, the value of e-gold drops in that currency. The account balance, which is denominated in gold grams, does not change, but its purchasing power will change in relation to the gold price.
This can, of course, work both ways. Proponents of the e-gold system would argue that the risk of significant price fluctuation is small compared to the risk of value fluctuations among fiat currencies. The opposite argument is that a typical user is more affected by changes in the price of e-gold than of fiat currencies; this is because most people are paid in and spend their local currency, while the use of e-gold will typically involve a foreign exchange transaction each time. In both cases, long-term shifts in the price of a currency or e-gold affect its owner, but anyone who frequently buys and sells e-gold will be exposed to short-term fluctuations as well. The price of gold has increased over the past five years, so this factor has worked out to the advantage of anyone holding e-gold over that period.
As well as digital gold, e-gold also offers e-silver, e-palladium and e-platinum. Funds can be switched between e-metals using their sister company OmniPay. Metal-to-metal (or M2M) exchanges are completed at spot price with no bid/offer spread.

Exchanging for currency
e-gold does not sell its e-metal directly to users. Instead digital currency exchangers, such as OmniPay (a sister company of e-gold), and numerous independent companies act as market makers selling e-metal in exchange for other currencies and a transaction fee. Conversely, these exchange providers will buy e-metal with other currencies, again taking a transaction fee. In this manner e-metals can be converted back and forth to a variety of national currencies. The amount of a particular currency or e-metal necessary to complete a transaction is determined by the spot price of the metal in relation to the value of the currency. e-gold is known as private currency as it is not issued by governments.
Compared to other systems like PayPal, the process of buying e-gold can be confusing to a person unfamiliar with the e-gold system. e-gold, unlike e-Bullion for instance, does not sell digital currency directly to the user. According to their website the reason e-gold does not provide an in-house exchange service is so there can be no debt or contingent liabilities associated with the business, making e-gold Ltd. absolutely free of any financial risk. They claim e-gold Ltd. does not possess currency of any nation or even have a bank account.

Fees
e-gold charges an account fee (or Agio Fee) of 1% per annum (deducted in monthly payments) on all e-metal stored.
Spending e-gold is free, with processing fees (or Spend Fees) deducted from the recipient. As of 2007 these spend fees vary on a sliding scale from about 5% for spending 0.1 grams of gold to 1% for 5 grams of gold. Over 5 grams of gold, the fee is capped at 0.05 grams of gold (about $1.12 with gold at US$700 per ounce).
e-gold spends clear instantly, in contrast to cheques or credit card transactions. Unlike other online payment systems such as PayPal, there are no distinctions between merchant and non-merchant e-gold accounts. Anyone can instantly create a "merchant account" (there is only one type of account). All e-gold accounts carry the same fees and have the same capacity to receive and transmit e-gold account holdings.

Universal currency
Proponents claim that e-gold offered the first truly borderless global currency system which was independent of exchange rate variations. Gold, silver, platinum and palladium each have recognised international currency codes under ISO 4217.

Incentive program
e-gold clients can place a referral link on a website to generate a few cents in referral income. If a new client sets up an e-gold account from someone else's referral link, it is harmless and does not cost the new client any money when performing future e-gold transactions. An e-gold user who recruits a new user, is henceforth compensated with a percentage of all future processing fees that this new user pays. This is a legal multi-level marketing practice, as users are paid from actual payment processing fees rather than simply for recruiting new users.