Lets talk about Doug

Published July 1st, 2009 edit replace rm!

Last week I gave my talk on Agile Banking at Reboot 11. This week I have taken my talk and turned it into a series of blog articles that I will post here once a day.

Douglas Jackson was an oncologist from Melbourne, Florida. He was an idealist and thought the world would be a better place with a strong private currency away from the control of any government. So he created e-gold back in 1995.

E-gold is an electronic currency backed by real gold bars. Some people use it to invest in gold, but more commonly it was used like a regular currency to make and accept payments.

Doug was a true innovator. E-Gold created an easy to use API before PayPal allowing all sorts of small businesses around the to accept payments. At this time it was very hard for small businesses to get merchant accounts. E-Gold provided a real solution to this.

They let their users audit them

How much gold is in the system?

Where is the gold physically located?

What are serial numbers , exact weight and brand of individual gold bars

Real time usage statistics showing amount of transactions, transactions by size and statistics about account sizes

The e-gold mailing list kept them honest. People were analyzing the stats, theorizing and asking explanations from E-Gold staff for any thing out of the ordinary. Like this 10% drop in gold from the balance sheet in October 2001, where SnowDog performed analysis of why this was happening:

There are 11,161 accounts in the E-Gold system with over 10 grams of e-gold, (about $90 US in e-gold). This is almost the same number that E-Gold has supported for the past 6 months. So, it appears that most of the people with any significant balances are NOT selling their e-gold. The 10% drop in gold, in the past month, seems to be due to gold sales from small-balance accounts. E-Gold mini run

The community started creating tools to scrape and analyze e-gold

Craig Spencers E-gold revenue calculator

This was a mashup of the data on the above mentioned statistics page and their published fee structure. Note the sharp dip in 2007 (we will come to that soon)

Trust the system hate the man

Then Doug started acting like a bit of a bastard. Started suing several very nice people who were well known in the community. The mailing lists went berserk, Doug was called all sorts of names (very few of them good) and an alternative mailing list was set up in case E-Gold started censoring their own list.

Yet a funny thing happened. People continued to use e-gold. As a matter of fact the use grew and grew until at its peak there were $85 million dollars worth of e-gold in circulation. Not bad for a single activist entrepreneur from Melbourne, Florida.

Black helicopters

In 2007 the US government caught up with Doug. He was arrested and last year received a guilty verdict for “conspiracy to commit money laundering”. Doug was not performing “know your customer” a legal requirement in most countries that financial services institutions check the identity of their customers.

People are still kind of using e-gold. People are buying and selling black market auctions on their balances.

For more background on E-Gold check my article How the man finally brought e-gold down as well as Wired’s article Bullion and Bandits: The Improbable Rise and Fall of E-Gold.

In tomorrows post I will cover specific steps I think we could take as small entrepreneurs to innovate banking.

Earlier this week I wrote about Risky Business the core problem in todays financial services industry and Benches, Coffee and Bubbles about the origins of financial innovation.

These were all based on my Talk about Agile Banking that I gave at Reboot 11

About me

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My name is Pelle Braendgaard. Pronounce it like Pelé the footballer (no relation). CEO of Notabene where we are building FATF Crypto Travel Rule compliance software.

Most new articles by me are posted on our blog about Crypto markets, regulation and compliance

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