A History of Digital Currency in the United States New Technology in an Unregulated Market P Carl Mullan Palgrave Advances in the Economics of Innovation and Technology Series Editor Albert  N Link Greensboro, North Carolina, USA The focus of this series is on scholarly inquiry into the economic foundations of technologies and the market and social consequences of subsequent innovations While much has been written about technology and innovation policy, as well as about the macroeconomic impacts of technology on economic growth and development, there remains a gap in our understanding of the processes through which R&D funding leads to successful (and unsuccessful) technologies, how technologies enter the market place, and factors associated with the market success (or lack of success) of new technologies This series considers original research into these issues The scope of such research includes in-depth case studies; cross-sectional and longitudinal empirical investigations using project, firm, industry, public agency, and national data; comparative studies across related technologies; diffusion studies of successful and unsuccessful innovations; and evaluation studies of the economic returns associated with public investments in the development of new technologies More information about this series at http://www.springer.com/series/14716 P. Carl Mullan A History of Digital Currency in the United States New Technology in an Unregulated Market P. Carl Mullan Digital Currency Intelligence Authority Ltd White Stone, Virginia, USA Palgrave Advances in the Economics of Innovation and Technology ISBN 978-1-137-56869-4 ISBN 978-1-137-56870-0 (eBook) DOI 10.1057/978-1-137-56870-0 Library of Congress Control Number: 2016957648 © The Editor(s) (if applicable) and The Author(s) 2016 This work is subject to copyright All rights are solely and exclusively licensed by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed The use of general descriptive names, registered names, trademarks, service marks, etc in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use The publisher, the authors and the editors are safe to assume that the advice and information in this book are believed to be true and accurate at the date of publication Neither the publisher nor the authors or the editors give a warranty, express or implied, with respect to the material contained herein or for any errors or omissions that may have been made Cover image © A-Digit / DigitalVision Vectors Collection, Getty Images Printed on acid-free paper This Palgrave Macmillan imprint is published by Springer Nature The registered company is Nature America Inc The registered company address is: New York Plaza, New York, NY 10004, U.S.A CONTENTS 1 Introduction E-gold 19 The Liberty Dollar and Bernard von NotHaus 87 E-Bullion and Mr James Fayed 111 Crowne Gold 153 Liberty Reserve 171 IntGold 197 OSGold 205 GoldMoney 229 v vi CONTENTS 10 WebMoney Transfer 245 11 New FinCEN Rules 261 Index 273 LIST OF CHARTS Chart 1.1 IVTS transaction vs digital currency transaction Chart 4.1 2002 Asset comparison of E-gold.com and E-bullion.com Chart 4.2 Contact information of law enforcement and regulatory agencies received by Goldfinger Coin & Bullion, Inc., Goldfinger Bullion Reserve Corp and E-Bullion Co 17 125 146 vii CHAPTER Introduction For centuries, people of the world have used cash, such as coins and notes, as a medium of exchange When modern economies adopted an electronic version of money, this government-issued digital value could only circulate through highly regulated banks and financial institutions This electronic money also became a powerful government tool that provided daily control over a nation’s money supply However, the new Internet delivered innovative methods of creating private digital versions of currency, along with many advanced methods for transferring this online value The Internet’s new decentralized features, protocols, and freedom altered the existing definition of electronic money and ushered in the concept of privately issued digital currency During the late 1990s, Internet entrepreneurs began to experiment building ingenious new versions of electronic money known as digital currency Existing US financial regulations had only supervised and controlled the movement of electronic money through banks and regulated financial institutions The new Internet digital currencies were moving locally and internationally well beyond the reach of US financial regulations and government supervision In fact, from 1996 through 2006, some government agencies even had a difficult time identifying and defining these new financial technologies © The Author(s) 2016 P.C Mullan, A History of Digital Currency in the United States, DOI 10.1057/978-1-137-56870-0_1 P.C MULLAN By 2016, there were thousands of Internet digital currency products representing money and other value, circulating alongside governmentissued legal tender In a few regions, the private digital currency has almost replaced the government’s electronic version Digital tokens have brand names, static and changing monetary values, and various features which directly compete with government-issued money and bank products The adoption of new financial regulations in the USA and the restrictive environment created by the new laws forced the closure of many innovative digital currency businesses Of the nine businesses profiled in this book that operated between 1996 and 2006, only two are still operating in 2015 Seven of the digital currency systems were sidelined because of criminal activity or shut down due to US regulations The notable exception to being “shut down” or regulated out of the business was e-gold While the e-gold operators were convicted of multiple felonies related to the money transmitting operation and most of the company assets were forfeited, the business was never forced to close The e-gold operation voluntarily closed down Only two of the nine companies, which had been early entries in the marketplace survived the changing rules and unregulated environment These were GoldMoney and WebMoney Transfer Both businesses are discussed in this book Careful examination of digital currency history suggests why these companies were able to succeed while others had failed Beyond these nine businesses, dozens of other digital currency systems and products operated throughout that first decade However, by late 2011, strict new financial regulations caused the closure of all digital currency operations in the USA. The only digital currency products left circulating through the USA were the newer decentralized cryptocurrencies that operated without a parent company or primary server By 2012, foreign corporations engaged in US digital currency business and unwilling to comply with the strict new FinCEN regulations pulled out of the American market Many people and companies have been prosecuted by the federal government and state government for violating laws that related to Money Service Business and Money Transmitter Licensing Seven of the nine companies profiled in this book, along with the business operators, were directly involved and connected to criminal prosecutions Analysis of nine accepted digital currency systems that emerged in the decade between 1996 and 2006 includes the following topics ... Yassine Abdelghani, a/ k /a “Alex,” Allan Esteban Hidalgo Jimenez, a/ k /a “Allan Garcia,” Azzeddine El Amine, Mark Marmilev, a/ k /a “Marko,” a/ k /a “Mark Halls,” and Maxim Chukharev, Defendants Case... waters of an unregulated US financial marketplace Unforeseen US consumer reluctance to adopt digital currency became a dominant factor; stalling the growth and acceptance of digital currency in the. .. existing bank product such as a credit card These users are entering the digital currency marketplace because they have no bank alternatives Because they are not changing their existing financial