On(c)e MDC – never MDC again

What were you doing on Friday April 27, 2007? Well, I am sure that it was something fun. I personally can not remember what I was doing a week ago from now. But many people around the world will remember that day for years to come! On April 27, 2007 the US Department of Justice released a court order in which it indicted two companies, E Gold Ltd and Gold & Silver Reserve, Inc., operating a digital currency business and their owners on charges of money laundering, conspiracy, and operating an unlicensed money transmitting business. Following the indictment, 24 seizure warrants were issued on over 58 e-gold accounts believed to be property involved in money laundering and operation of an unlicensed money transmitting business. One of those accounts of an undisclosed value belonged to 1mdc.com, a company that was revolutionizing the electronic funds transfer world for many digital currency users around the globe. But if you try to visit www.1mdc.com now, you will surely get a "page cannot be displayed" message. Let's see what really happened...

We all know that for the national or electronic currency to be valid, offer function and be able to compete and be traded for goods, services or other currencies, it has to be backed up by a generally accepted and obvious value. For example, the US Federal Government has over $11 billion in gold. Although gold standard is no longer in use by governments or central banks as it was replaced with fiat currency ("...money backed by government demand for it as legal tender in payment of legal liabilities, such as taxes..." Wikipedia), US dollar looks like a trustworthy currency to possess. With the gold standard becoming extinct in the government and bank monetary systems, it is still used in backing up private currencies, most of which are electronic currencies such as digital gold currency (DGC). The growing popularity of digital currency logically drew a growing concern. For the US Government it presented not only as a competition to the national currency but as an unregulated and ‘untamed' business method of transmitting large undeclared funds which could pose a threat to the national security of the country. With a lot of DGCs still afloat, some seem to be gone for good.

When you read pre-04/07 articles, blogs and posts about 1mdc.com, you can't help it not to fall in love with this DGC. 1mdc.com was originally founded in 2001 and it was basically an electronic transfer system which allowed to instantly move gold between user accounts via secure and efficient DGC software (ISL DG Pak). The company did not buy or cell its own currency but only exchanged it for other gold currencies as e-gold or Pecunix. But unlike other DGC providers 1mdc currency (also known as 1mdc.grams) was backed by the reserves of e-gold rather that their own physical reserves. In other words, 1mdc.com was primarily built around e-gold as an alternative for hosting e-gold funds but at better terms.

With very secure software, ease of use and instant transactions, 1mdcGrams became one of the leading digital gold currencies. The company was praised for no funds storage fees, no spend fees (if you receive 99 or less spends a month), competitive fee for receiving a spend and, most importantly, an amazingly easy process of opening an account. Quoting Wikipedia, "To open an account, 1MDC® only requires the user to have a functioning e-mail address, an e-gold account, a password, initials and a PIN. It is virtually anonymous." It offered great privacy with its offshore servers and personal data storage. It was very attractive to the holders of large amounts of gold as it had no storage fees eating up their accounts.

But here is an interesting tendency, more 1mdc and other DGCs appealed to the people; less they appealed to the government. There has always been a dilemma between the personal freedoms and the state law, especially in the United States. Citizens are constantly looking for the ways to exercise their freedoms, and the government is always looking for the ways to limit them in order to provide for national security and to fill the budget gaps through controlling individual and business finances. Being relatively new, the field of DGC is not properly regulated yet. The current licensing and money transmitting laws do not specifically reflect the booming internet transactions era. Therefore, some laws can be bent both ways, but the government and the state justice system will always have the last word.

By choosing 1mdc.com with its great features, amazing software and genuine intent to revolutionize the DGC world, 1mdc's users obviously underevaluated some possible threats to their digital funds. Being promoted primarily as an alternative to e-gold for storage purposes, 1mdc.com turned out to be completely dependent on the e-gold's business practices and law compliance. Also, the fact that 1mdc.com was aggressively marketed to US customers due to its increased privacy and security features, probably was an important factor that placed 1mdc.com among the companies whose accounts with e-gold were seized in the April 2007. Even though that all the data on 1mdc's customers was stored offshore, the data on 1mdc's account with e-gold was stored on the US territory and therefore was vulnerable to the US laws. Moreover, the fact that all 1mdc.grams were held in a collective e-gold account was the reason that all 1mdc clients lost access to their finds collectively too. Hey, everyone! Here is an old wisdom: Don't put all your eggs in one basket!

Marianna, reporter of Ecommerce Journal