After series of Bitcoin businesses being dropped  by their banking partners earlier this year, the Internet Archive Federal Credit Union (IAFCU)  came to the rescue. The New Jersey based credit union, run by the Internet Archive, has been very friendly to the Bitcoin industry and has worked with a number of businesses who have had trouble establishing relationships with banks.

One of the businesses the credit union partnered with was the US based TradeHill  exchange. Late last week Jered Kenna, Tradehill’s founder and CEO, confirmed via Reddit that the exchange had suspended trading due to “operational and regulatory issues” faced by its bank.

IAFCU posted its own statement on the matter , but was not clear on the nature of the regulatory issues.

• As the rupee continues to struggle, Indian officials continue their attempts to curb demand for gold.

Via Reuters…

India is considering a radical plan to direct commercial banks to buy gold from ordinary citizens and divert it to precious metal refiners in an attempt to curb imports and take some heat off the plunging currency.

The RBI will ask the banks to buy back jewelry, bars and coins for rupees. Lenders will have to offer better rates than pawn shops and jewelers to lure sellers.

“We will start a pilot project among some banks where we will allow them to buy back gold from individual households,” the source, an official familiar with the central bank’s plan, said. “This will start soon, we have discussed (it) with banks.”

• From New York to Germany, check out a timeline of August events affecting the crypto-currency community here.

• For those following the Bitcoin Foundation’s board elections Bitcoin Magazine has posted transcripts from Let’s Talk Bitcoin’s interviews with the Individual Seat Candidates

Two new seats are being added to the Board of Directors. One representing Individual Members and the other is representing Industry (business) Members. In order to be eligible to vote in this election, you must be a current member of the Bitcoin Foundation.

Gold jewellery demand rises 37% in Q2 2013, led by Indian and Chinese consumers

Lower gold prices generated a surge in global jewellery demand to 575.5t, the highest volume for five years. In value terms demand was 20% higher than Q2 2012.

Sizeable ETF outflows countered by record bar and coin demand of 508t in Q2 2013

The fall in gold prices led to record demand for gold bars and coins of 507.6t, up 56% in value terms to US$23bn. However, this was mitigated by well-documented outflows from ETFs.

Technology gold demand saw a marginal increase, up 1% in Q2 2013

Demand for gold in the technology sector in Q2 2013 increased by 1% to 104.3t. Price declines and improvements in economic conditions provided a boost to demand from the electronics segment.

Central bank gold purchases slowed in Q2 2013, remain within 70-160 tonne range

Central banks added 71.1t of gold to official reserves in Q2 2013, marking the tenth consecutive quarter of net purchases but 57% down on the previous year.

Total supply shrank 62 tonnes in Q2 2013, driven by 21% decrease in recycling

While Q2 2013 mine production saw a 4% increase year-on-year, the significant reduction in recycling by consumers during the quarter led to the 6% decrease in total supply.

The full report can be read here.

The term ‘backwardation’ has suddenly popped up in the mainstream financial media and is being touted as the signal that the price of gold is on its way back up.

What does backwardation even mean?

Read The Real Asset Co’s “Backwardation, negative GOFO and the gold price“

Jan Skoyles and the Real Asset Company are continuing their look at the global gold market, this time with review of the Shanghai Gold Exchange.

Released last week the review covers contracts, deliveries, Inventory, pricing and SEG members.

In the next part of our on-going look at the global gold market we now turn our attention to the Shanghai Gold Exchange. An exchange which has received more interest of late, than any other in the world of gold and silver.

Previously we have looked at the global gold market, COMEX, and more recently the London Gold Market. The next logical focus of our investigations is the Shanghai Gold Exchange. We also have a great infographic providing you with the top figures.

Given the significant rise of gold exports from Hong Kong to China, 68% yoy, this is a timely and informative research piece which shines a spotlight on the Eastern gold market in a time when many are declaring the end of the gold bull market. Given the huge demand for physical and reportedly high premiums on the gold price, we ask if this market may well be a better indicator of gold demand, and subsequently true gold prices, than either COMEX or London.

  Read the report here. 

In the late 90’s and early 2000’s, e-gold was the industry leader.  As one of the world’s first successful online payment systems e-gold was a pioneer using many now standard practices such as SSL connections and API’s.  Brought down by a run in with regulators in 2008 the e-gold story is required reading for anyone involved in the digital currency world.

Sent in by Wikipedia editor Cadwallader, below is a thoroug review of the e-gold story.

e-gold (deliberately spelled with a lower-case ‘e’) was a digital gold currency operated by Gold & Silver Reserve Inc. under e-gold Ltd. that allowed users to open an account on their web site denominated in grams of gold (or other precious metals) and the ability to make instant transfers of value to other e-gold accounts. The company was founded in 1996 and had grown to five million users by 2009, when transfers were suspended due to legal issues. At its peak in 2008 e-gold was processing more than USD 2 billion worth of precious metals transactions per year ^[1], on a monetary base of only USD 20 million worth of gold (~2.54 metric tonnes) ^[2], indicating an extremely high monetary turnover (velocity) of about 100 times per year (similar to M-PESA). e-gold Ltd. was incorporated in Nevis, Saint Kitts and Nevis with operations conducted out of Florida, USA.

Beginnings

e-gold was founded by oncologist Douglass Jackson and attorney Barry Downey in 1996. The pair originally backed the services accounts with gold coins stored in a bank safety deposit box in Melbourne, Florida.

The company, which was launched two years before PayPal and had obtained over one million user accounts by 2002, and was the first successful digital currency system to gain a widespread user base and merchant adoption. It was also the first website or payment service to offer an Application Program Interface (API) enabling other services and e-commerce transactions to be built on top of it. ^[3] e-gold was used by both individuals and merchants for services ranging from metals trading, online auctions, to online casinos, and a donation platform. By 2001 several dozen companies and individuals began offering third party exchange services between national currencies and e-gold, allowing e-gold to become a company with an international user base.

e-gold, which allowed transactions as small as one ten-thousandth of a gram of gold, was also the world’s only successful micro-payment system. The company’s payment statistics were published live and showed hundreds of thousands of micro-transactions were being made daily by computer programs using the API.

Governance

e-gold was unique at the time in that they created the “e-gold Special Purpose Trust” which held title to the physical bullion on behalf of the users. ^[4] They also created a real-time statistical reports page ^[5] that showed the total holdings of each metal in the trust account, list of gold bars with serial numbers, the total number of accounts, as well as the total number and value of transactions in the previous 24 hours. This transparency enhanced e-gold’s reputation and popularity with their users, and also enabled many observations to be made about how e-gold was being used.

Imitators

e-gold’s market success by 2001 spawned a wave of imitators. These included Goldmoney.com, e-Bullion.com, CrowneGold.com, Pecunix.com, INTgold.com, and several others including a multi-million dollar Ponzi Scheme with no gold at all called OSgold.com. ^[6]

Crime Wave

e-gold’s early success also proved to be the cause of its demise. e-gold’s store of value and large user base made it an early target of financial malware and phishing scams by increasingly organized criminal syndicates in Eastern Europe. The first known phishing attack against a financial institution was made against members of the e-gold mailing list in June 2001. ^[7] The technique was refined with attacks against the digital gold systems like e-gold and later used to attack other financial institutions starting in 2003.

The Rise of the Romanian Hackers

With no effective means of verifying the identity of account holders, e-gold began to suffer from an increasing rate of criminal activity mainly perpetrated by Eastern European hackers against its users. In addition to phishing, the attackers made widespread use of flaws in the Microsoft operating systems and Internet Explorer web browser to collect account details from millions of computers to compromise e-gold accounts. ^[8]

Jackson’s theory was that e-gold is a book-entry system with account histories, making it simple to conduct an investigation to track down misappropriated funds after the fact. ^[9] However, the public perception, similar to that of Bitcoin today, was that e-gold accounts were anonymous. (That perception was erroneous, as is the similar belief that Bitcoin is anonymous.) e-gold accounts were “pseudonymous”, ^[10] allowing the creator of the account to use any name or label he wished to use. However, the account history was permanent, and e-gold could in most cases correlate a person’s real identity to an e-gold account when they funded or liquidated an account with G&SR, e-gold primary exchanger to US Dollars.

Unfortunately, e-gold users did not enjoy the same ability to determine the real identity of the owner of an e-gold account, and this is what facilitated the explosion in auction fraud and other types of identity fraud using e-gold accounts.

Fourteen Flavors of Fraud

Various fraud artists from Western countries were also able to take advantage of the e-gold system as a means of funding their schemes, enabling for the first time in history, international ponzi schemes, calling themselves “High Yield Investment Programs” or HYIPs. ^[11] DGC Magazine Editor Mark Herpel identified the probable source of e-gold’s mysterious micropayments as automated interest payments made by ponzi schemes to their tens of thousands of members. ^[12]

Perpetrators of auction fraud on e-bay who were based in Eastern Europe and would sell fake or non-existent items on the site. These criminal syndicates preferred their victims to pay in e-gold because it was the fastest and easiest way for them to move the funds overseas. ^[13]

The wave of online crime that engulfed e-gold led to a steady stream of complaints to government authorities by defrauded account holders, who often did not understand the difference between e-gold and the fraudulent person or company that encouraged them to open an e-gold account and wire money to fund it. ^[14]

The Systemic Problem

As an online transactions system with exchange agents worldwide, e-gold enabled criminals and hackers in Eastern Europe the ability to quickly and easily move money from victims in America back to the country from which the attacks were originating. Several of the cyber crime gangs that plagued and used e-gold were based in Râmnicu Vâlcea, Romania. ^[15]

e-gold was unknowingly part of a larger systemic problem with the banking system. The banking and credit system in the United states were not designed for a digital environment, and are therefore fundamentally insecure and highly vulnerable to identity theft and check fraud, as well as trust based attacks such as phishing. The willingness of credit card companies to allow people to apply for a card without being identified in person enabled the massive growth of identity theft. ^[16] (Ironically, not verifying the identities of account holders would be one of the main criticisms raised against e-gold.)

The Internet made it possible for organized crime networks outside the United States to used strategically placed members in financial institutions in the United States to perpetrate billions of dollars worth of financial crimes, primarily through identity theft. ^[17] The money from these crimes then needed to be laundered and transferred back to the headquarters of the perpetrators in Eastern Europe. This is normally done through bank wires from big american banks, such as Bank of America, ^[18] and traditional money transmitters like Western Union. ^[19] However, e-gold and other digital gold systems, with their low cost instant clearing payments and international network of exchange agents, provided a much faster and cheaper conduit for getting the already laundered money back home. Therefore, certain crime gangs started using the digital golds as the return conduit for part of their operations.

The Public Relations Problem

In 2001 Goldmoney.com was founded by James Turk and became a competitor to e-gold. Turk, who had filed patents on a digital gold payment system in 1993 but launched his system five years behind e-gold, took a two-pronged strategy to outmaneuver e-gold. First, he sued e-gold for patent infringement. ^[20] Though this action failed in court, Turk had successfully positioned himself in the market as the “inventor of digital gold” even though Jackson was the one who had taught himself how to program and written the first version of e-gold himself. (Turk sat on his patents for several years, and eventually hired a software company to build his “invention” because he is not a computer programmer.)

Second, Turk recognized the e-gold crime problem and began positioning Goldmoney as the “white glove” gold system that required identity verification to open accounts, versus e-gold as the irresponsible “wild west” operator riddled with crime. ^[21] This marketing strategy worked very effectively for Goldmoney as it drove e-gold founder Jackson to entrench himself in defense of his libertarian principle that the user is responsible for his behavior and the courts are the way for disputes involving allegations of fraud to be resolved. Ten years later, e-gold would be out of business, shut down by the US government, but Goldmoney would be sitting on USD 1 billion worth of gold and millions of users. ^{[22] [23]}

While Goldmoney succeeded in becoming the world’s largest gold storage system, and held four patents for a gold payment system, ^[24] they were never able to replicate e-gold’s success as a payment system, because they were so fearful of replicating e-gold’s success as a magnet for criminal activity. Goldmoney prohibited the development of independent exchange agents, which greatly limited their global reach. In January 2012 Goldmoney turned off the ability to make payments from one account to another citing “insignificant” demand for P2P metal transactions as not justifying the high cost of regulatory compliance. ^[25] It was e-gold’s usefulness and ease for payments combined with their international network of exchange agents that made it a magnet for crime.

There were early reports where e-gold had actively helped to catch and collar cyber criminals, such as the one who stole Cisco Systems’ firewall code and offered it for sale to be paid in e-gold. ^[26] And Jackson claimed to have “aided 300 investigations and reported 3,000 suspected kiddie porn buyers to the National Center for Missing and Exploited Children.” ^[27] However, Turk’s PR strategy was highly successful, as first Goldmoney, and then federal law enforcement agencies began to characterize e-gold as the payment system of choice for criminals, terrorists and child pornographers. ^[28] (In reality, the US Dollar is by far the most popular transaction medium for criminals of all types. ^[29] US Banks are the most popular institutions for money laundering, on the order of USD 500 Billion per year, dwarfing e-gold’s transaction volume by two orders of magnitude. ^[30] )

Criminal Prosecution

The Changing Definition of a Money Transmitter

The USA Patriot Act, passed in the wake of the 9/11 terrorist hijackings more than five years after e-gold had been launched, made it a federal crime to operate a money transmitter business without a state money transmitter license in any state that required such a license. At the time a “money transmitter” was in most states defined as a business that cashed checks or accepted cash remittances to send from one person to another person across international borders, such as Western Union or MoneyGram. For example, prior to 2010, California regulated money transmitters under the “Transmission of Money Abroad Law”. ^[31] One of e-gold’s competitors, the e-Bullion company, applied for a money transmitter license from the State of California in 2002, but was informed by the State of California that their business which dealt in gold accounts did not fall under the state’s definition of a money transmitter.

In 2004 G&SR (the parent company of e-gold) requested that the US Treasury Department conduct a compliance examination in order to clarify what regulations, if any, e-gold fell under. ^[32] The Treasury issued a report on January 11, 2006 confirming that e-gold accounts were excluded from the definition of “currency” under the USC and CFR definitions. The Treasury did not want e-gold to be acknowledged as money, which made it impossible to obtain a money transmitter license.

However, in its actions from 2006-2008 the U.S. Treasury Department in conjunction with the DOJ stretched the definition of money transmitter in the USA Patriot Act to include any system that allows transfer of any kind of value from one person to another, not merely national currency or cash. Using this new interpretation they then proceeded to prosecute the USA-based gold systems, e-gold (and later e-Bullion) under the USA Patriot Act for not having money transmitter licenses, even though these companies had previously been cooperating with regulatory authorities and told they did not fall under the definition of money transmitter. (Although the charge of not having a money transmitter license was eventually dropped against e-bullion.) Several years later FINCEN further expanded this definition to apply to foreign companies allowing US persons to open accounts, which forced Jersey based Goldmoney.com to suspend the ability to transfer value from one holder to another in December 2011. ^[33]

e-gold The Black Sheep

e-gold was in many ways the philosophical predecessor of Bitcoin. Unlike PayPal, which ran on top the USA banking system and therefore posed no competitive threat to the banking system, e-gold was a maverick outsider with no allies in the banking establishment, whose founders self-consciously viewed themselves as offering an alternative to the banking system. While banks suffer from the same problems with criminal activity, phishing, ponzi schemes and money laundering on a much larger scale ^[34], and some of the biggest banks have even knowingly participated in money laundering with apparent impunity ^[35], e-gold’s iconic status as a controversial alternative currency system loved by cypherpunks and libertarians made it an attractive target for US law enforcement agencies, with a big pile of assets to seize and few political allies.

While e-gold had begun implementing much stronger controls against abuse by users of the system by 2005, and was actively combating the use of its system for child pornography as a founding member of The Financial Coalition Against Child Pornography ^[36], the Justice Department had apparently made a high level policy decision to blame e-gold themselves for the malignant activities of a small minority of their users. ^[37] 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 and knowingly allowing a transaction to purchase child pornography. ^[38]

The government also claimed that e-gold was a ponzi scheme that did not have the gold to back the accounts. However, that claim was later shown to be false when judge rejected any charges of fraud regarding the e-gold user agreement and confirmed the veracity of the company’s gold reserve audit – showing that e-gold was fully reserved.

Resolution

The case against e-gold was brought under Title 18 USC section 1960 in UNITED STATES OF AMERICA v. E-GOLD, LTD, District of Columbia court. e-gold filed a motion to dismiss the case on the grounds that they did not fit the definition of a money transmitter. The court ruled against e-gold, stating that “a business can clearly engage in money transmitting without limiting its transactions to cash or currency and would commit a crime if it did so without being licensed.”^[39] This ruling enshrined in case law the Treasury Department’s expansion of the definition of a money transmitter to include any system by which stored value of any kind may be transferred from one person to another, even if the stored value is not cash, or national currency.

After vigorously contesting the charges for a year, in July 2008 the company and its three directors accepted a bargain with the prosecutors and plead guilty to one count of “conspiracy to engage in money laundering” and one count of the “operation of an unlicensed money transmitting business”, in exchange for the other charges against them (allowing a transaction to pay for child pornography) being dropped. ^[40] The company was ordered to pay fines of $3.7 million.

In November Gold & Silver Reserve CEO Douglas Jackson was sentenced to 300 hours of community service, a $200 fine, and three years of supervision, including six months of electronically monitored home detention.^[41] He had faced a maximum sentence of 20 years in prison and a $500,000 fine. Judge Rosemary Collyer said the men deserved lenient sentences because they did not intend to engage in illegal activity. Jackson’s lawyer claimed Jackson was spared the heavier fine because he is deeply in debt – the Judge said “Dr. Jackson has suffered, will continue to suffer, and may never be successful with E-Gold”. Reid Jackson, Douglas Jackson’s brother, and E-Gold director Barry Downey were each sentenced to three years of probation, 300 hours of community service, and ordered to pay a $2,500 fine and a $100 assessment.

Gold Seizure

Initially the US Attorney’s Office of the District of Columbia entered a motion to seize and liquidate the entire gold reserve of e-gold under asset forfeiture law. This would have allowed the law enforcement agency to add the proceeds of the sale to their operating budget. At the time e-gold held more gold in its vaults than the bottom third of the countries on the IMF list of central bank gold reserves, which would have made it one of the largest asset seizures in history, comparable to invading a small country and seizing its gold reserves. However, the federal judge in the case denied the motion and ordered the reserves to be held and liquidated for the e-gold account holders who could prove the origin of their funds.

e-gold was placed into receivership and the gold reserve was liquidated for USD 90 million. The court ordered “Rust Consulting”, a private company in Maryland, to organize refunds to account holders who could prove legitimate sources for the funds. The balance of unclaimed funds will be claimed by the US Attorney’s Office for the District of Columbia under the asset forfeiture law. A three month window has been set from June 3rd, 2013 to October 1, 2013 for e-gold account holders to submit a claim on their funds. ^[42]

Aftermath

After the e-gold and e-Bullion cases, California (2010) ^[43] and several other states amended their regulations to follow the federal precedent to define all digital value transfer systems as money transmitters. However, California’s new law is so broadly worded as to define a very wide range of Internet startup companies, such as the room booking service AirBnB, as “money transmitters”. ^[44] If the law were consistently applied many more Internet start-ups might be subjected to the same kind of prosecution that e-gold experienced.

After the resolution of the criminal case, the directors of e-gold Ltd vowed to continue operations following the new Federal KYC guidelines. They applied for a money transmitter license for the company, but it was denied because the directors are now convicted felons. Jackson and Downey have continued trying to find a way to sell the company to persons eligible for a money transmitter license in order to recoup some value from their once wildly successful internet payment system.

Conclusions

e-gold was one of the first, if not the very first pioneer of Internet payments. While e-gold received a lot of bad press due to the criminal case against them, it is important to recognize e-gold’s place in Internet history as the world’s first successful online payment system which pioneered many of the systems and techniques that e-commerce users now take for granted, including making payments over an SSL encrypted connection, and offering an API to enable other websites to build services using e-gold’s transaction system.

e-gold presaged Bitcoin as an alternative internet transaction system that operated completely outside of and independent of the legacy banking system. This proved that alternate financial systems were possible and that a significant number of people would enthusiastically use such a system.

Though e-gold was ultimately shut down by the US government, the federal judge on the case ruled that the founders of e-gold “had no intent to commit illegal activity.”

Founder Douglas Jackson failed to foresee the ways in which criminals and hackers could exploit an internet payment system by manipulating the appearance of identity (identity theft and fraud). Their payment model failed to include a web of trust that would enable users to have some degree of confidence of whom they were dealing with, and to eliminate bad actors. In retrospect e-gold’s tardiness in addressing the identity issues allowed the criminal syndicate to grow so large that the resulting crime wave ruined the company.

e-gold’s failure was ultimately due to the inability of their business model to provide a system of reliable user identification and the failure to provide a workable dispute resolution system to identify and cut off illegal and abusive activity in their user community. Other transaction systems such as Webmoney.ru ^[45] and Goldmoney.com ^[46] learned from e-gold’s mistakes and were able to successfully field similar systems with low rates of abuse by addressing these deficiencies. While PayPal has done a better job of addressing abuse than e-gold did, they now suffer from ^[47] and battle against the same crime wave that took down e-gold. ^[48] Financial cryptographer, Ian Grigg, has observed that Bitcoin has repeated the same fundamental errors that e-gold made and that despite its decentralized nature the cyber crime-wave may bring Bitcoin to a similar ending.^{[49] [50]}

]]> http://www.dgcmagazine.com/the-e-gold-story/feed/ 0 http://www.dgcmagazine.com/part-ii-of-goldbrokers-interview-series-on-gold-market-manipulation/ http://www.dgcmagazine.com/part-ii-of-goldbrokers-interview-series-on-gold-market-manipulation/#comments Tue, 18 Jun 2013 04:24:21 +0000 Julia Dixon http://www.dgcmagazine.com/?p=1514 Continue reading →]]> In part two of a three part series on market manipulation GoldBroker’s CEO Fabrice Drouin Ristori interviews Jim Willie. Via GoldBroker.com

Fabrice Drouin Ristori: How long can the manipulation of the precious metal markets last ?

Jim Willie: Rather than focusing on the time spectrum, think instead on the event spectrum. Focus not on a sequence of time, but instead on an event schedule in a chain. Systems are sustained by the corrupt players, institutions, and policies. The Gold manipulation will continue until the Gold market is totally broken, until the big banks that control it are totally broken, or until the USDollar & USTBond structures are totally broken.

Personally, I am encouraged by the mid-April events to crash the Gold price. It has resulted in exposure of the criminal element, in exposure of the COMEX & LBMA as being desperately low in Gold inventory, in exposure of the great difference between paper Gold price (futures contracts) and physical Gold price (actual high volume sales), and in tremendous motivation by the very wealthy to reclaim their Gold in Allocated Gold Accounts. The bankers have brought to the table a Prima Facie case that their corrupt Gold market attack was motivated by having no Gold for contract delivery. The Jackass forecast is for the next great scandal to be centered upon the Allocated Gold Account thefts, which my excellent source informs me involves the improper usage, leasing, and theft of over 20,000 metric tons of Gold bullion. The German Government formal request for repatriation is the tip of the iceberg. The banks will not break first since far too protected. It is a contest, a race, between the breakdown of the USD/USTBond structure and the COMEX & LMBA Gold market structure. The former is in the process of being rejected by the Eastern nations, now organized. The latter is in the process of being recognized as an empty arena with no Gold in inventory.

FDR: What will put an end to it ? Physical demand ? Geopolitical event (BRICS) ?

JW: My strong suspicion is that the COMEX & LMBA corrupt schemes will continue ad nauseum, despite the growing recognition of their corruption and empty inventory. Those in control of the Gold market are not subject to regulatory rules or legal prosecution, operating as essential parts of the sprawling fascist system. So they will continue. However, the end will come with the global isolation and then rejection of the USDollar in trade settlement. The recent G20 Meeting in Turkey brought attention to the bypass of the USD/USTBond system. The Eastern nations are working fast to create an alternative system, frustrated and angry at the abuses and corruption in the open. The Jackass forecast is for the new Gold Trade Standard to come, which will arrive within several months. It will not create a standard for banking and currency, as in SWIFT rules and FOREX rules. It will involve a new BRICS Development Fund, which will transform into a USTBond processing plant, converting the toxic USGovt debt into Gold bars. The trade settlement will work toward Gold payments, with an important intermediary function provided by Turkey. When crude oil abolishes the USDollar as the standard payment vehicle, the game is over. The G7 Meeting hastily called in emergency session in the first week of May demonstrated that the Western nations have noticed that time is almost up completely. The death of the Petro-Dollar defacto standard will coincide with the death of the USDollar global reserve currency. The end is being driven by China & Russia working within the BRICS, the G20, and the Shanghai Coop Organization.

FDR: What will be the signs proving that the manipulation is ending ?

JW: When the COMEX & LBMA are turned into an empty arena, with very few players and very little activity and a storm of controversy about contract fraud with growing lists of lawsuit cases. When the COMEX shows no posted Gold price at all, amidst broad controversy as to why, an implicit invitation for lawsuits over contract fraud and cases to recover past losses by investors. When the COMEX official Gold price shows not a small discrepancy with the actual physical Gold price from known publicized transactions at the major trading centers, but rather a gigantic and embarrassing discrepancy. My term is the great price spread between the paper Gold price and the physical Gold price. It is growing, since very tiny supply is available at the paper price, and high premiums are required at the physical price. Shortages will become a major problem, a desired problem for the gold community. When the spread widens further, the Jackass forecast is for the debate to enter the room on whether the COMEX price is an anachronism, an artifact from a corrupt era, a recognized den of thieves under financial press scrutiny, a point in fact as evidence for legal court cases (lawsuit damage or criminal prosecution). Expect court cases long before regulatory action.

FDR: Do you anticipate an overnight ending of the manipulation or a progressive process ?

JW: A progressive degeneration is far more the case, the pathogenesis of a cancerous organism. The Jackass expects the manipulation to continue far beyond what most people anticipate. The manipulation will soon become absurd. Another Gold market ambush attack is likely soon. When the paper Gold price is $600 to $800 per ounce lower in the paper COMEX price, the banking authorities will continue their charade, but have a difficult time maintaining credibility or a straight face before public questioning of Congressional grilling. Remember their motive, which in the Jackass opinion is to escape the clutches of their mountain of short Gold futures contracts by means of a declared Force Majeure. The true Gold price might be several $100s higher than the COMEX price, but the banking cartel does not care. They wish to escape the consequences of the short Gold futures contracts with a legally recognized COMEX Gold price, even though corrupt. If the courts recognize and endorse the corrupt lower paper Gold price presented by the COMEX, then the big bankers can legally escape from catastrophic losses and slither like snakes into the forests of Paraguay. That is their goal, and they do not care if the public laughs at the process, or if the financial analysts harshly criticize them. They care about the legal escape route offered by Force Majeure, then establishment of a fascist police state.

FDR: Is the gold/silver paper spot price still relevant to value physical gold and silver ?

JW: Not at all. It is a guideline which is becoming more and more ignored. Rather the spot price is becoming more understood as the starting point, the reference point, in a negotiated price. That price will vary in different parts of the world, already the case. The remarkable fact to the Jackass is that premiums on physical Gold purchases (whether bars, coins, talens) is coming down from the rising levels seen in mid-April right after the Gold market smash assault attack with a flood of paper rubbish slamming the market. The big challenge to the banker cartel will be to bring Gold to market in order to meet the growing demand. They must avoid grand and even grotesque shortages. The bankers will be drained. Recall back in March through July, the London banks were drained of 5000 metric tons by angry motivated Asian entities. The event was kept out of the news, but not out of the Hat Trick Letter. If price is to be kept stable, then supply must meet the heightened demand. The banker cartel has two choices: to continue to bring supply to market and be drained dry, or to refuse to bring supply to market and watch the physical price premium grow toward $1000 per ounce amidst well advertised shortages and an empty COMEX.

FDR: What direct consequences would a free gold/silver market have on people worldwide — not investors, people in general ?

JW: The consequences could fill an entire book. But the Jackass would write the chapter headings as follows. People could save in a true sense with a proper legitimate store of value, in instruments which do not represent a counter-party risk like in debt securities or gold certificate holders. People could be protected from central bank actions that exhibit extremely destructive policies toward the debasement of money itself. People could be assured that their life savings could not be leased, assigned, subjugated, hypothecated, or otherwise stolen by banking and government officials. People could build more effective barriers from the ravages of price inflation. People would not have to constantly search for investment vehicles that act as inflation hedges from the endorsed ruin of money. People could be protected from banker thefts, hidden and overt.

Via TheRealAsset.co.uk

On April 12^th 3.4 million ounces (100 tonnes) of gold was sold in the US futures markets. This was just for starters, the main, side and dessert appeared over the following hours and the next session on the Chicago Mercantile Exchange (COMEX).

As those in the West holding paper gold stood frozen watching the price tick further downwards, those in the East and others looking to buy physical gold, went on a shopping spree. Premiums on physical gold in China, India, Vietnam and across Asia hit highs associated with economic and geopolitical crises. Dealers struggled to keep up with demand.

In the four weeks to April 24^th reported inventories of ETFs, funds, and futures market depositories collapsed by over 5.5 million ounces ($7 billion).

The largest physical removals were reported by the COMEX of 1.4 million ounces and the SPDR Gold Trust (GLD), which reported total inventory removal of nearly 4 million ounces.

In their Q1 report, the World Gold Council referred to the ‘dichotomous nature’ of the gold market – this is clear as the paper gold market continues to tell a different story to the physical market.

Today we continue to see ETF outflows and COMEX gold futures have fallen once again this week. Meanwhile, premiums on physical gold in Hong Kong have climbed to $5 per ounce, having been $3 last week, whilst traders in Japan are pushing premiums up in response to Chinese gold demand.

…

But, what do people really mean when they talk about the ‘paper gold’ and ‘physical’ gold markets?

Gold futures, gold exchange traded products (ETPs) and physical gold are each different ways of gaining exposure to gold. Each form of gold exposure has its relevant gold market segment catering for investors, yet all are priced according to an international gold price.

…

The Futures Market

Futures contracts allow investors to efficiently trade gold, for delivery at a future date – they are one of the most efficient ways to buy gold.

The global gold futures market is worth around $75 billion, with liquidity, in the form of open interest spread, around the world’s major financial exchanges.

The 100 ounce gold futures contract on the COMEX dominates this activity and accounts for 85% of gold futures trading. COMEX has mild competition from 1kg gold futures contracts traded on the SHFE (Shanghai) and TOCOM (Tokyo) which account for 7% each of the futures market.

There is little doubt over which gold futures market enjoys the liquidity monopoly of these exchanges and thus has the biggest impact on setting the gold price.

This was no better seen than back in April when several large sell orders of the June futures COMEX futures contract appeared on the market, over 120% of annual gold production was traded in one day and the gold price plummeted to levels 30% below the all-time high of $1,920.

Exchange Traded Products

Exchange traded products, or exchange traded funds, allow investors to easily invest in a given asset class by buying shares in a security that tracks the price of the underlying asset. The gold ETP market has grown over the last 12 years to rival other gold market sectors.

Made up predominantly of gold-backed exchange traded funds, the gold ETP market is worth $81.2 billion. State Street’s SPDR Gold Trust, known by the ticker GLD, accounts for nearly 60% of this market, representing the main liquidity hub within the gold ETP space.

Together, the top physically gold-backed ETF products are worth over $59 billion, of which $48 billion is held by GLD.

…

Refineries and Supply to Physical Gold Market

After the two gold market parts above, we arrive at the physical gold market which is supplied by a range of refineries around the world.

The top refineries in the world have a collective refining capacity of 8000 tonnes, the equivalent to $354 billion. This is assuming that they are able to operate at full capacity and are constantly processing given mine and scrap gold supply.

However, supply of gold bullion to the market is on average 4,400 tonnes per year. This physical gold supply is made up of approximately one third recycled gold, with the rest coming from active gold mines. Supply of gold has remained relatively flat since the start of the gold bull market, twelve years ago, meaning that the world’s growing gold demand has to be serviced by this steady supply.

…

It is important to note the lack of mining and refining information in areas such as South America and China – hence why we don’t mention refineries from these areas.

At first glance the gold production capacity from refineries appears to more than match the value of assets traded in the futures and ETPs markets. The nature of trading in these markets is more difficult to compare though, and the paper markets are where the greatest daily volumes occur.

After looking at the size of the relative gold market constituent parts, we need to look deeper to establish where the gold price really gets set and how this happens.

The physical market, although larger, with its lower turnover and churn is less relevant at this time, with gold prices being set in the paper markets of COMEX, GLD et al.

We are thus focused upon COMEX and GLD, the largest liquidity hubs in their respective markets. How do their trading volumes compare?

In the last week, the value of the ‘gold’ traded on the COMEX, far exceeded that on the GLD – by over 20 times in fact.

To put this paper trading into perspective, the annual capacity of refineries is $374 billion. Therefore the last week’s gold trading volumes on COMEX were equivalent to 50% of total annual refinery capacity. Half the physical gold that could possibly be refined in a year was traded in paper form this week.

So, whilst the notional value of open interest on the world’s major futures markets is comparable to the market cap of the gold ETP industry, the volumes traded at the major two liquidity hubs within these different market segments is noticeably different.

The dollar value of trading volume at COMEX is far greater than its largest ETF competitor, GLD, meaning that COMEX continues to hold its place as the largest and most sophisticated meeting place for buyers and sellers to express their gold price opinions, in the form of bids and offers, on what the price should be.

COMEX remains the beating heart of gold price discovery.

Questions Being Raised About COMEX

Gold futures contracts are referred to as ‘paper-gold’ because the size of this market is said to be over 100 times larger than physical gold available. As we said previously, open interest on the COMEX, at the time of writing, accounted for over 85% of demand on the gold futures market, so COMEX receives the most examination here.

In theory investors are able to take delivery of the futures contract on expiry, although few do, instead choosing to roll the contract.

…

There has been some attention paid to the scale and pace of draw-downs of COMEX inventories. JP Morgan and Scotia Mocatta have seen the largest outflows of bullion in their repositories. Compared to withdrawals at JP Morgan’s storage facilities of 1.2 million in the first 3 months of 2013, Scotia Mocatta’s drainage of 650,000 ounces seems less remarkable in comparison. Until these recent drawdowns eligible gold stocks at COMEX had been increasing.

The speed and acuteness of recent drawdowns in COMEX inventories – over 2 million ounces since the beginning of the year – suggests that traders are increasingly standing for delivery of their futures position. It is argued that these investors are not exiting the gold market, but simply converting their efficiently entered paper position into physical form.

 Read the report in its entirety here.

Fabrice Drouin Ristori:How long can the manipulation of the precious metal markets last ?

Chris Powell: It can last as long as gold investors buy “paper” gold rather than real metal. The primary article of faith about gold is that it can’t be printed, but it CAN, insofar as “paper” gold can be printed to infinity. Gold investors who buy “paper” gold with the hope of price appreciation would do better to flush their money down the toilet. At least that way they’ll avoid commissions.

FDR: What will put an end to it –

CP: Probably only the discrediting of “paper” gold, or a futures market default.

FDR: What will be the signs proving that the manipulation is ending ?

CP: I doubt that we’ll get any signs, though maybe the decline in price of “paper” gold relative to the price of real metal is a sign of trouble for the manipulation. More likely the gold price suddenly will be reset to a much higher level that is more sustainable for manipulation by central banks with less drain on their gold reserves, at which point manipulation will resume at the higher level. I doubt that the manipulation will ever end, since, to preserve their power, governments probably always will try to rig the currency markets, and they’ll probably get away with it until investors around the world are far more informed than they are now.

FDR: Do you anticipate an overnight ending of the manipulation or a progressive process ?

CP: I think an overnight revaluation is more likely now. Of course currency revaluations are always done suddenly, aiming for surprise. No central banks are going to call us a few days in advance so we can arrange our portfolios for the greatest benefit. Only the investment banks that function as agents for central banks will get such calls.

FDR: Is the gold/silver paper spot price still relevant to value physical gold and silver ?

CP: It is if people really can find metal for purchase at the paper spot price. But the paper spot price may be losing some relevance as more shortages have been reported and there is rationing of gold and silver coins from government mints. Shortages and rationing are forms of higher pricing that don’t get included in nominal prices. Nominal prices are little use if the product isn’t available. But indeed, most gold-related assets are still taking their cues from the paper spot price and futures prices.

FDR: What direct consequences would a free gold/silver market have on people worldwide — not investors, people in general ?

CP: Free markets in the monetary metals would liberate markets and peoples generally, and reduce the power of governments and central banks, especially their power to control in secret the prices of all capital, labor, goods, and services in the world. Such liberation is really the objective of those who would expose the Western central bank gold price suppression scheme. We don’t really care what people use as money. We just want them to have options of valuation that are beyond the control of government. Here’s how von Mises put it: “It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of rights.”

]]> http://www.dgcmagazine.com/goldbroker-interviews-gatas-chris-powell/feed/ 0 http://www.dgcmagazine.com/dinero-mps-a-new-mobile-payment-system-for-the-worlds-under-banked/ http://www.dgcmagazine.com/dinero-mps-a-new-mobile-payment-system-for-the-worlds-under-banked/#comments Tue, 14 May 2013 23:48:04 +0000 Julia Dixon http://www.dgcmagazine.com/?p=1421 Continue reading →]]> After the success of services such as M-Pesa, Kenya’s mobile-phone based money transfer service, it is clear that there is a large under banked population in the non-western world. A population that is quick to adopt low cost mobile based solutions.

A new mobile payment system, Dinero MPS, aims to offer a wide variety of mobile payment services starting with the unserved markets in Africa, South America and Asia. Founded by financial cryptographer Ian Grigg and entrepreneur Ken Griffith, Dinero’s Ricardian-Contract based system is set to launch later this year with the release of an Android phone app.

Dinero’s co-founder Ken Griffith shared with DGC insight on the businesses’ plans and motivations.

Julia: As Dinero is a Ricardian-Contract based system, can you give me an overview of the origins of the Ricardo Transaction Engine?

Ken: It started with Systemics, a business founded by Ian Grigg & Gary Howland in 1995. Gary was at DigiCash before he left in Fall 1995 to join Ian.  Their initial goal was to create a platform that could trade multiple instruments from many issuers. Their target was corporate bond trading, but as they developed the model to do bond trading they invented the Ricardian contract and Gary created the Secure Open Transactions Protocol which we call SOX. They soon realised that the model was so flexible that it could be used for currency; it could be used for stocks, for bonds or just about anything that you could write a Ricardian contract for.  So the Ricardian Contract is the heart of the system.

(A Ricardian Contract is simply a contract that defines a set of conditions for the instrument that can be read by both humans and computers and is signed with the Issuer’s public key.)

The Ricardian Contract is important because it allows several things, but the primary benefit is the triple entry accounting.  Most people don’t understand what’s so secure about it but when you start using the system you understand how powerful it is.  It makes it very difficult for an insider to forge a transaction because you’ve got a digitally signed transaction history in every transaction receipt so if someone tries to forge a transaction it’s very easy to prove which one is fake.   In a multi-Issuer ecosystem it allows trading, and trading is where the real power of the system is.

Julia: Can you tell me a bit about the origins of Dinero? When/why did you and Ian decide to launch the business?

Ken:  In the early 2000’s I realized that once the phones became powerful enough to process encryption, that the union of phone and wallet would be a beautiful child that every woman would love.  Ian had also realized this and written about it in 1998, and I’m sure others anticipated this as well.  So you could say that both of us have been waiting for the development of smart phone operating systems with enough power to process strong crypto.  As you know the media has been chattering about mobile wallets for the past two years, so the time has come and there are about 150 companies trying to figure out how to do this and be the first one to capture this market.

I was invited to Kenya by a friend in 2010.  At first I was not interested. But then I heard about M-PESA, a digital money system that Safaricom had put on their phones.  This caused my ears to perk up because this was an example of a telco breaking the glass ceiling where the banks have managed to keep non-banks from becoming serious players in digital money transactions. M-PESA was the first instant clearing transaction system to gain more than 5% market share in any country of the world.  It was the first mass adoption of digital currency by the average Joe.  Today they have about 90% penetration of the market and process 30% of Kenya’s GDP.

So I moved to Kenya in 2011 and spent a year studying the economy and the opportunities in the digital money space.  M-PESA had become such a dominant player in Kenya that the other telcos had copied their system, but completely failed to take more than 1-2% market share.  30% of Kenya’s GDP allegedly went through M-PESA in 2011, which means that the first company into the space had become so dominant that it would be virtually impossible to compete with them on their own turf.

But M-PESA also has several glaring flaws, most notably the fact they are limited to the Safaricom network, they have reversible transactions (which are now resulting in a growing fraud rate), inability to be certain you paid the right person until after the money was sent, and there is no API to allow other applications and web sites to use M-PESA.

While we think we have a superior transaction engine to M-PESA, trying to compete directly with the biggest player is a non-starter.  Airtel, Orange and Yu-Pay have all tried with far greater resources than we have, and failed.

So I had been looking for a niche that M-PESA cannot effectively serve.

I learned that Kenya has a savings culture of these groups called “chamas” that are little clubs where the members pool their savings together for investment.  There are 300,000 chamas in Kenya managing about USD $4 billion per year in savings.  By offering a variety of savings instruments to these chamas, we can take advantage of the strengths of the Ricardo system in a niche that neither M-PESA nor the banks are currently serving.  This lets us establish ourselves as the first entrant into a new market at the base of the pyramid.

The reason that this chama culture exists is that the banks of Kenya have high fees and low returns, making them inaccessible and unaffordable to the majority of Kenyans who have an average income of $140 per month in a country with 11% average inflation.

Having seen the opportunity to field Ricardo in Africa, I contacted Ian Grigg in July of 2012 to see if he would be interested.  After several months of discussion and test marketing, Ian moved to Kenya and we formally founded the Dinero MPS venture in December 2012.

Julia: Dinero’s initial market will be the under-banked population of Kenya?

Ken: Yes. Kenya is our test platform or testing country largely because the idea of storing value on the phone has become accepted by the mainstream here.

Kenya has the one of the worst environments in the world in terms of trust. Kenya ranked #1 in the world for financial corruption. There are a lot of issues with trust which are compounded when dealing with people at a distance.  If we can build a system that can work in this adverse environment we believe it will work well anywhere.

But I think Kenya has a lot of positives.   Kenyans have an excellent work ethic and a very high savings rate (12%).  This means that there is a very large potential profit to be made by solving the problem of savings for the Kenyans at the base of the pyramid – and thereby capturing the entire pyramid, like M-PESA did with payments.

In the longer-term we are going to an unserved market – the poor in Africa, South America and Asia, countries with large unbanked populations.  We are providing them with a system that has such low transaction and operations costs that it can work for them on their phones and enable them to diversify their savings into apolitical investments like bullion, unit trusts for real estate, stocks, etc.

Additionally, we are building a bridge to allow someone with a dumb phone to control a Ricardo account which will be hosted on a server.  The penetration of Android phones is still too low in Africa to support a business by itself.  However, several studies have projected that Android phones will be the majority in Africa in five years as prices come down.

Julia: What currencies will the Dinero system will be set up to trade?

Ken: It depends a lot on who the customer base is, but currently we have groups that are using the national currency and gold. This is being done through a co-operative society, like a members-only club.

There are also other groups that are interested in doing community currencies. And they want to create community currencies for lots of little towns and cities in Kenya and since our system is designed to have multiple issuers and allow trading it is quite well suited for that kind of project.   The first one of these was launched on May 11^th in Bangalore Slum in Mombasa, and they call it Bangla-Pesa. We hope we can help them with those projects, and by doing so expand our user base.

In the long run Dinero could be expanded to do other things. It could do coupons for businesses it could move into bonds and move into a stock exchange and trading system.

Julia: Can you tell me more about these members-only investment clubs?

Ken: There is a “Co-operative Societies Act” in most countries, which allows people to form clubs for various purposes, including self-help savings groups. They use these groups to pool their money and invest in things and some of them get bigger and turn into a credit union which in Kenya they call a SACCO (Savings and Credit Corporation).

In Kenya the informal savings groups are called “chamas” and they are quite popular and have spread to other African countries. There are roughly 300,000 Chamas managing about 4 billion dollars in savings per year which comes out to about 11,000 per group. Under the co-operative societies act these savings clubs are allowed to do some of the things that if you did for the public you would be regulated as a bank, a securities issuer or a forex agent. But as a members-only club they are allowed under the law to do these things. So we are catering to that market to give them a platform to do it with good governance.

Our system also has a social networking component that we are using to meet the know-your-customer requirements. So, the Issuers on the system will know with very good accuracy who their account holders are, and who their social network is. So if there is a problem, such as criminal activity, the Issuer will be able to pinpoint who, what and where, freeze the account and then hand that info to the relevant authorities.

Julia: When will the Android app be released?

Ken: The end of this year. The app is right now in Alpha. We are doing invites and transactions on the Android. We are testing but we have got 3-6 months more user interface work to do before it is ready for the end users. We are thinking that it will be Autumn before you will see an app on Google Play that you can download and install on your Android phone.

Julia: So 6 months from now I download the Dinero app to my Android phone and what can I do with it?

Ken: Well initially it has a chat app and chat credits so when you do the default install all you will have is a chat contract. In order to install another contract you have to be invited by someone on that contract. Keep in mind that we are working with investment clubs that are members-only so you have to be invited to a club in order to get a contract installed and then you will be able to trade.

By this Fall the currencies that will be available in these investment clubs in Kenya will probably be the Kenya shilling, gold and the US dollar and possibly Euros.

Julia: Dinero is an account based system?

Ken: Yes.  The system has a master nym – that is your id and then you create sub-accounts under that nym, on various contracts. So your nym might be “Julia Dixon” And you install a contract for a gold issuer, and a contract for Euros. Then you can create one or more holdings on each of those contracts. So for your Euro contract, you might create one account called, “DGC Magazine” and a second account called “Julia’s Personal”. On your gold, you might just called it “JD Gold Savings”.

Now under your top level nym you have these three accounts. In order to pay someone, you first need to invite them to be able to transact with you on a particular contract/account.  You just send them an invite code and they can add you to their address book and transact or chat with you.

Julia:  How does Dinero compare to the current mobile payments giant M-Pesa?

Ken:  A huge problem in the past decade has been phishing. And with M-PESA the problem is that the phone number is the acct number.  And it doesn’t tell you the name of the person you pay until after the payment went through.  So the big problem with M-PESA is people getting a digit wrong on the phone number and paying the wrong account.

Since anyone who has used M-PESA for a number of transactions has probably paid a wrong number, a phishing scam has arisen based on this.  The scammer sends a fake payment notification message purporting to be from M-PESA for several thousand shillings.  Then they SMS the victim and say, “Pole (sorry), I accidentally paid the wrong account, please refund my payment. Asante (thanks).”  If the victim did not realize the payment receipt message was a fake, they might send a real payment back to the perpetrator.

So the weaknesses in M-PESA’s transaction model have given rise to a criminal enterprise of professional fraud.

The way we have solved that problem is through relationship and what we call a zero payment. I can send you an invite code via email or SMS. When you enter the invite code, your app then checks to see if you have this contract installed.  If not, you are given a chance to install it. Once you have installed it, you create a holding. And then this “zero payment” is deposited into your holding. Now both of us can look in our transaction history and see a payment of zero from me to you. We now know we have the right person. Henceforth, I can make payments to you via the address book without worrying about having the right account number because you have already been verified.

Compared to M-PESA we have a much more flexible and sophisticated system because we can do multiple currencies and instruments.  M-PESA can only do one currency on one telco network.  So it works very well in a larger country like Kenya where Safaricom has majority market share.  But in other countries like Nigeria with no dominant telco, the M-PESA technology results in a highly fragmented mobile payments market where each system is incompatible with the others.  It is like only being able to SMS someone who uses the same telco as you.

Also in the small countries of West Africa, several currencies are often used in one country.  The Ricardo system can handle that very well.

So our major strength is having one system that works for many currencies, on any telco in any country.

Julia:  How does Dinero compare to other digital currency systems such as Voucher-Safe?

Ken:  In one way it is similar. Voucher-Safe is also a multi-issuer system with some very impressive software engineering. The major difference is that Voucher-Safe uses blinded digital coins and is designed for maximum privacy.

For a long-term transaction system for businesses, you need account histories, auditing and accounting. Ricardo is better suited for businesses because it has the audit trails that are needed for governance. By governance, I mean an organization (company, non-profit, etc) keeping track of their own funds and how they spent them.

Voucher-Safe, as I understand it, is deliberately designed to serve as a digital cash system.  In the real world you need both cash systems and book-entry systems, because they serve different purposes and roles.   So I am happy to see the development of Voucher-Safe and wish the founders of that system the best of success.

The second major difference is that Voucher-Safe is designed for maximum user privacy, but the users know very little about each other.  This may be considered to be a benefit in certain sectors, but we all know that organized cyber crime has proved to be the bane of digital currency systems.

In order to avoid a repeat of “the e-gold problem”, where the system became permeated with criminal activity to the detriment of legitimate users, we are taking the opposite approach to privacy.

The Dinero system combines social networking with transactions so that Users and Issuers can have a high degree of confidence in the people they transact with.  We hope to build a community of integrity so that users can feel safe using the Dinero MPS System, knowing that if there is a problem with a transaction, they know who the other party really is, and there is a fast, reliable and inexpensive dispute resolution system.

In order to get there we are starting with members-only clubs, which we realize will slow down our rate of growth in some ways.  But we believe the long-term benefit of building a system that is able to identify and self-eradicate the bad actors will pay off for the community and for us in the long run.

However, Arizona Governor Jan Brewer vetoed the bill on Thursday.

Via Mineweb.com

In a letter to Arizona State Senate President Andy Biggs, Brewer said, “While I believe the concern over a devalued dollar as a result of an unsustainable federal deficit is justified, I am unable to support this legislation.”

“I believe the provisions in this legislation need to be more carefully examined and there should be prior coordination with those government agencies tasked with the oversight of these transactions,” she stressed.

“For example, it is unclear whether this legislation would require Arizona to exempt income tax related to a transaction involving collectable coins or bills that were originally authorized by Congress and may be used as legal tender,” Brewer said. “This would result in lost revenues to the state, while giving businesses that buy and sell collectible coins or currency originally authorized by Congress an unfair tax advantage.”

It is possible for the state legislature to over-ride the veto with a 2/3 vote. However this appears unlikely as the bill was passed with a smaller majority in an 18 to 10 vote.