Well over the past year, that’s exactly what I’ve worked on, and I’ve certainly discovered a few things along the way.

How did we get here?

We’re at a point in history where governments around the world have accumulated record levels of debt on their balance sheets.  There are significant risks of a sovereign debt crisis that threatens the global economy and challenges the solvency of many nations.  When interest rates rise, governments may be forced to deal with the consequences of escalating federal debt; I anticipate that the banking system may suffer from falling asset prices (such as long-term government bonds and mortgages on their balance sheets) which they won’t be able to further finance due to substantially higher interest payments.  In these types of circumstances, bond holders are at risk since the two most likely courses of action are to either default or to expand the money supply.  Both of these outcomes result in the erosion of fiat currency, leading to greater inflation and a depleted purchasing power.

As a result of my views on the current economic environment, I was quite taken with the idea of an alternative currency – one that isn’t controlled by governments & central bankers, and that doesn’t rely on the full faith and credit of a country.  Bitcoin, a relatively new digital currency that’s based on faith in an algorithm and network, remains speculative.  And although it’s certainly picking up traction, plenty of questions still remain regarding its regulatory hurdles and trust concerns.

So what was it that compelled me to pursue this digital gold path and why did I retreat from working on such an ambitious idea?

Well, it dates back to my days at Apple, where I worked on the foreign exchange team.  We hedged currency risk and had chief economists come in and talk to us about secular trends in the macro-economy and its effects on Apple’s business.  One particular economist, a former central banking chairman from a European bank, struck a chord with me as he was discussing the inflationary risks associated with sovereign debt levels – something I had learned about while studying Austrian economics and following experts such as Ron Paul & Peter Schiff.  After this chairman finished his presentation, I asked him a few questions regarding the state of gold and his general outlook for precious metals. Paraphrasing his response: “Well, I definitely understand why precious metals have been performing so well – they’re a clear hedge against inflation.  But I just don’t understand the intrinsic use – it’s not like people can spend their gold… they have to use dollars to make purchases.”

And then it clicked – why couldn’t people spend a hard asset?  After all, the world has operated on a gold standard for thousands of years.  We’ve only been off of it (officially) for the past ~4 decades.  So why is it that people trust some piece of paper, that’s probably a bit unhygienic and can even be printed at will, to transact for goods and services?  Precious metals are natural resources that derive their value from their scarcity.  Wouldn’t it make more sense to be transacting in digital gold, especially given advancements in technology?

Following that discussion, this idea was baking in my mind – I felt compelled to pursue it and make something out of it.  It solves a major problem in a large space: money.  And money is a part of everyone’s life, so it’s in a market that holds no bounds.

It was then that I decided to start Vaurum.  I jumped into the deep end and didn’t look back.  I knew I had a lot of work ahead – I had to recruit a co-founder, illustrate a working business model, build a secure prototype and form strategic partnerships.  Little did I know, those priorities, while important, certainly weren’t the hard part.  Raising investment wasn’t even the hard part.  So what was the hard part?  It was the part where I realized just how high we’d have to jump to get over the regulatory hurdles, not to mention that even if we did build some major traction, I’d still have to figure out a way not get shut down.

I remember reading about E-Gold and the Liberty Dollar, and then talking to industry insiders that half-jokingly warned me not to end up in an ankle bracelet.  It really makes you take pause to do some due diligence.

In contrast to most startups in Silicon Valley where entrepreneurs can use approaches like the lean startup methodology to quickly build & test a prototype while collecting customer feedback, creating an alternative currency had a whole new set of risks associated with it.  The top question (by far) that I received from potential investors and engineers interested in the project was something along the lines of: “this is very, very interesting – what’s the regulatory climate like?”  Basically, even if you build a viable business that gets traction and can scale, what’s the risk of it being shut down due to factors out of your own control?  The reality is that you just don’t know.  Startups are hard enough as it is – you already have to be somewhat delusional to win; you have to believe in yourself and your company when no one else does.  Now don’t get me wrong – it’s not that entrepreneurs are completely irrational – it’s that entrepreneurship is a completely irrational sport.  So to play the game, you have to learn how to do things that are completely irrational.  You have to learn not only how to collect facts and make good decisions, but also how to filter some information and completely ignore some facts.  But when you involve regulatory hurdles and throw in challenges by federal governments, it adds significantly more friction for every single party that’s involved: the founders, the investors, the employees, the customers, and the strategic partners.  Those are things that you can’t ignore.

There were times when I would come across investors that bought into our vision to create a universally used gold-backed currency but remained completely blind when it came to the regulatory risks associated with actually building it and testing it in a live market.  One particular investor even encouraged us to go public with our product without worrying about regulatory risks and told us to simply discard any licenses that we need to get it off of the ground legally, as if there would be no consequences for it whatsoever.  Another potential strategic partner that we were in talks with mentioned that there’s plenty of demand for gold currency, but that they wanted us to build it instead of building it themselves.  We learned that the reason for these events was that people didn’t want to face the risks associated with creating a competing currency, but wanted the benefits of having one around just in case it worked.  It’s the founders that are put in the position of having to take these risks in their entirety.

So we’ve decided to make a some changes over the past few weeks that are based on a three core realizations that I’ve had:

1)      Companies that try to pick a fight with the government most likely will lose 10 times out of 10.  And then what?  You’re out of business and the impact that you intended to have never reaches its full potential.  Great companies build bridges, not walls – work with governments, not against them.

2)      We’ll often ask the following question: “what will change over the next 10 years?”  While it’s good practice to create a vision and work to realize that vision over time, this isn’t the right question to be focused on.  We should be asking ourselves the opposite: “what won’t change over the next 10 years?”  It’s the things that won’t change that you can build a viable business model around.

3)      And finally, for entrepreneurs – produce things and get them out into the world as much as you possibly can.  It’s through this process that you learn from your experiential knowledge.  If I hadn’t gone through this journey, I wouldn’t have discovered many of the great truths that I’ve faced over the past year – lessons that will last a lifetime.  I also wouldn’t have grown as an entrepreneur, and I certainly wouldn’t have been able to apply my experiences to our next big aspiration, which is what we’re currently pursuing with the new model for Vaurum.

In all that I’ve learned in our adventures in trying to create our own currency, it’s the application of these lessons that excites me the most about what’s next.  It has allowed us to get a big stronger, a bit wiser, and a lot more determined to make a positive impact in the world.

Bernard von NotHaus, creator of the Liberty Dollar and ‘domestic terrorist’ is currently awaiting sentencing and faces more than 20 years in prison. Last week the NY Times published the below interview with Mr. von NotHaus, Prison May Be the Next Stop on a Gold Currency Journey.

Mr. von NotHaus was convicted of using precious metals to back a currency he called the Liberty Dollar, which he says was “a private voluntary currency” for those conducting business outside the government’s purview.

His name is Bernard von NotHaus, and he is a professed “monetary architect” and a maker of custom coins found guilty last spring of counterfeiting charges for minting and distributing a form of private money called the Liberty Dollar.

Described by some as “the Rosa Parks of the constitutional currency movement,” Mr. von NotHaus managed over the last decade to get more than 60 million real dollars’ worth of his precious metal-backed currency into circulation across the country — so much, and with such deep penetration, that the prosecutor overseeing his case accused him of “domestic terrorism” for using them to undermine the government.

Of course, if you ask him what caused him to be living here in exile, waiting with the rabbits for his sentence to be rendered, he will give a different account of what occurred.

“This is the United States government,” he said in an interview last week. “It’s got all the guns, all the surveillance, all the tanks, it has nuclear weapons, and it’s worried about some ex-surfer guy making his own money? Give me a break!”

The story of Mr. von NotHaus, from his beginnings as a hippie, can sound at times as if Ken Kesey had been paid in marijuana to write a script on spec for Representative Ron Paul. At 68, Mr. von NotHaus faces more than 20 years in prison for his crimes, and this decisive chapter of his tale has come, coincidentally, at a moment when his obsessions of 40 years — monetary policy, dollar depreciation and the Federal Reserve Bank — have finally found their place in the national discourse.

A native of Kansas City, Mr. von NotHaus first became enticed by making money while living with his companion, Talena Presley, without a car or electric power in a commune of like-minded dropouts in a nameless village on the Big Island in Hawaii. It was 1974, and Mr. von NotHaus, 30 and ignorant of economics, experienced “an epiphany,” he said, which resulted in the writing of a 20-page financial manifesto titled “To Know Value.”

In it he described his conviction that money has a moral aspect and that any loss in its value will cause a corresponding loss in social and political values. It was only three years after President Richard M. Nixon had removed the country from the gold standard, and Mr. von NotHaus, a gold enthusiast, began buying gold from local jewelers and selling it to his friends.

One day, he recalled, “we were all sitting around thinking, ‘Wow, we ought to do something with this gold.’ And I said: ‘Yeah, we could make coins. People love coins. We could have our own money!’ ”

Within a year, he had established the Royal Hawaiian Mint, a private — not royal — producer of collectible coins. Hitchhiking to a library in the county seat of Hilo, he said, he looked up “minting” in the encyclopedia and soon was turning out gold and silver medallions with images of volcanos and the Kona Coast.

So went the better part of 20 years. Then came 1991, which saw the emergence of a successful local currency in Ithaca, N.Y., called the Ithaca Hour. The 1990s were a time of great ferment in the local-money world with activists and academics writing books and papers, like Judith Shelton’s “Money Meltdown.” Mr. von NotHaus, traveling with his sons, Random and Xtra, to adventuresome locations, like Machu Picchu, read these seminal works.

“I had been working on it since 1974,” he testified at his federal trial in North Carolina. “It was time to do something.”

The Constitution grants to Congress the power “to coin money” and to “regulate the Value thereof” — but it does not explicitly grant an exclusive right to do such things. There are legal-tender laws that regulate production of government currency and counterfeiting laws that prohibit things like “uttering” gold or silver coins “for use as current money.”

Mr. von NotHaus claims he never meant the Liberty Dollar to be used as legal tender. He says he created it as “a private voluntary currency” for those conducting business outside the government’s purview. His guiding metaphor is the relationship between the Postal Service and FedEx. “What happened in the FedEx model,” he testified, “is that they” — a private company offering services the government did not — “brought competition to the post office.”

To introduce the Liberty Dollar in 1998, Mr. von NotHaus moved from Hawaii to Evansville, Ind., where he joined forces with Jim Thomas, who for several years had been publishing a magazine called Media Bypass, whose pages were filled with conspiracy theories and interviews with militia members, even Timothy McVeigh.

Working from the magazine’s office, Mr. von NotHaus lived in a mobile home and promoted his nascent currency to “patriot groups” on Mr. Thomas’s mailing list while reaching an agreement with Sunshine Minting Inc., in Idaho, to produce the Liberty Dollar. His marketing scheme was simple: he drove around the country in a Cadillac trying to persuade local merchants like hair salons and restaurants to use his coins and to offer them as change to willing customers.

Banks, of course, did not accept his money; however, to ensure that it found its way only into hands that wanted to use it, Mr. von NotHaus placed a toll-free number and a URL address on the currency he produced. If people mistakenly got hold of it, they could mail it back to Evansville and receive its equivalent in actual dollar bills.

Now jump ahead to 2004. A detective in Asheville, N.C., learned one day that a client of a credit union had to tried to pass a “fake coin” at one its local branches. An investigation determined that some business acquaintances of Mr. von NotHaus were, court papers say, allied with the sovereign citizens’ movement, an antigovernment group.

Federal agents infiltrated the Liberty Dollar outfit as well as its educational arm, Liberty Dollar University.

In 2006, with millions of the coins in circulation in more than 80 cities, the United States Mint sent Mr. von NotHaus a letter advising that the use of his currency “as circulating money” was a federal crime.

He ignored this advice,and in 2007, federal agents raided the offices in Evansville, seizing, among other things, copper dollars embossed with the image of Mr. Paul.

Two years later, Mr. von NotHaus was arrested on fraud and counterfeiting charges, accused of having used the Liberty Dollar’s parent corporation — Norfed, the National Organization for Repeal of the Federal Reserve — to mount a conspiracy against the United States.

At his federal trial, witnesses testified to the Liberty Dollar’s criminal similitude to standard American coins. They said his coins included images of Lady Liberty and cheekily reversed “In God We Trust” to “Trust in God.” Then again, his coins were made of real gold and silver, as American coins are not, and came in different sizes and unusual denominations of $10 and $20.

In his own defense, Mr. von NotHaus testified about a “philanthropic mission” to combat devaluation with a currency based on precious metals and asserted that he was not involved in “a radical armed offense against the government or their money.”

It was, of course, to no avail; and in 2011, a jury found him guilty after a 90-minute deliberation.

These days, Mr. von NotHaus paces shoeless in a mansion, in the hills above the ocean, that was lent to him by a friend. His sentencing has yet to be scheduled, and this leaves time for reflection. He feeds the hummingbirds outside his window. He reads books on fiat currency. He is even writing a book — on the gold standard, of course.

“The thing that fires me up the most,” he will say, “is this is what happens: When money goes bad, people go crazy. Do you know why? Because they can’t exist without value. Value is intrinsic in man.”

]]> http://www.dgcmagazine.com/bernard-von-nothaus-the-rosa-parks-of-the-dollar/feed/ 0 http://www.dgcmagazine.com/jon-matonis-bitcoin-prevents-monetary-tyranny/ http://www.dgcmagazine.com/jon-matonis-bitcoin-prevents-monetary-tyranny/#comments Fri, 05 Oct 2012 08:00:54 +0000 Julia Dixon http://www.dgcmagazine.com/?p=434 Continue reading →]]> Bitcoin is not about making rapid global transactions with little or no fee. Bitcoin is about preventing monetary tyranny. That is its raison d’être.

Monetary tyranny can take many ugly forms. It can be deliberate inflation, persecutory capital controls, prearranged defaults within the banking cartel, or even worse, blatant sovereign confiscation. Sadly, those threats are a potential in almost any jurisdiction in the world today. The United States does not have a monopoly on monetary repression and monetary tyranny.

Once the State is removed from the monetary sphere and loses the ability to define legal tender, its power becomes relegated to direct legislative and enforcement measures that do not immorally manipulate a currency. Taxes for wars and domestic misadventures will have to be raised the old-fashioned way — that is to say government money cannot be raised by simply debasing the currency.

Just as the Second Amendment in the United States, at its core, remains the final right of a free people to prevent their ultimate political repression, a powerful instrument is needed to prevent a corresponding repression — State monetary supremacy. That task has fallen to an unlikely open source project that is based on cryptography protocols and peer-to-peer distributed computing. As the mechanism for a decentralized, nonpolitical unit of account, the Bitcoin project uniquely facilitates this protection.

The timing of Bitcoin’s appearance, and subsequent growth, is no accident either. If one follows the relevant sentiments and trends, it’s evident that society was approaching a breaking point. Essentially, bitcoin is a reaction to three separate and ongoing developments: centralized monetary authority, diminishing financial privacy, and the entrenched legacy financial infrastructure. An alternative money provider that was centralized would probably not survive long in any jurisdiction. The emergence of Bitcoin was baked into the cake already.

We can see from the case against digital money provider e-gold that an efficient challenger to the provision of a stable monetary unit will not be permitted… really. In 1996, a humble oncologist named Doug Jackson bravely built an auditable and verifiable system of transferring ownership rights to gold and silver bullion in an online digital environment. Wired’s Kim Zetter described it this way:

E-gold is a privately issued digital currency backed by real gold and silver stored in banks in Europe and Dubai. Jackson says about 1,000 new e-gold accounts are opened daily, and the system processes between 50,000 and 100,000 transactions a day.

With a value independent of any national legal tender, the electronic cash has cultivated a libertarian image over the years, while drawing the ire of law enforcement agencies who frequently condemn it publicly as an anonymous, untraceable criminal haven, inaccessible to police scrutiny.

Where have we heard that before? Then in December 2005, the U.S. Federal Bureau of Investigation and Secret Service raided e-gold’s Florida offices. Jackson tells Wired, “They basically raped our computers and also took us offline for 36 hours, took all the paper out of our office.” Jackson says that the government also froze parent company Gold and Silver Reserve’s U.S. bank account but the company survived, “only because its euro, pound and yen accounts are maintained outside the United States.” The physical bullion assets were subsequently seized as well.

With the prosecution resting on a civil complaint charging Gold and Silver Reserve, Inc. with operating as an unlicensed money-transmitting business, Jackson finally acquiesced in July 2008 and plead guilty to conspiracy to commit money laundering (a victimless crime) and operation of an unlicensed money transmitting business rather than the alternative threat of 20 years in jail and a half million dollar fine.

Wired magazine, in June 2009, published this excellent account of the e-gold business in the wake of the federal investigation entitled “Bullion and Bandits: The Improbable Rise and Fall of E-Gold”. Also included in the article is probably the most telling photo of all — Doug Jackson sitting on the floor surrounded by file boxes labeled U.S. Secret Service.

Zetter writes, “At e-gold’s peak, the currency would be backed by 3.8 metric tons of gold, valued at more than $85 million.” E-gold founder Doug Jackson wanted to solve the world’s economic woes, “but instead got an electronic ankle bracelet for his trouble.”

Recently, in 2009, Bernard von NotHaus was indicted on counterfeiting charges for manufacturing a private metallic coin that actually contained some precious metals. After 23 years of research and development plus 11 years of operating in the marketplace, Liberty Dollar suspended operations. Following the conviction and for the appeal, the prominent Gold Anti-Trust Action Committee filed an amicus curiae brief in support of acquittal and revolving around the question of whether anyone but the government has the right to issue money. Afterwards, many commentators pointed out the absurdity of penalizing honest money to strengthen the facade of manipulated money.

Further contributing to the disturbing trend against monetary freedom and financial privacy are initiatives like the Foreign Account Tax Compliance Act (FACTA), which has been written about many times on these pages and also in The New York Times. Other countries around the world would not even contemplate such a brazen endeavor that imposes a costly withholding and disclosure regime on sovereign foreign entities and financial assets. Furthermore, they see it as American arrogance and American hegemony run amok.

However, society will not be ready to fully embrace the promises of decentralized nonpolitical currency until it can come to terms with the fact that money in a free society should not be used for the purposes of identity and asset tracking. Banks and governments may be concerned with that goal, but it is not the role of our money.

http://www.forbes.com/sites/jonmatonis/2012/10/04/bitcoin-prevents-monetary-tyranny/