One of the first virtual currencies that had potential to rival fiat money was e-gold. Now, that e-gold is dead and a new real rival to fiat money and the current banking system arises, Bitcoin might have the same fate, or some might presume.
In 1999, Financial Times called e-gold as the only electronic currency that achieved critical mass. However, they didn’t say the same at Bitcoins though the later currently worth $7,378,951,025 compared to e-gold $60 million worth of deposits backed by 4 tonnes of gold, $187,657,680 worth at the current price of gold.
E-gold suddenly stopped, as the FBI and Secret Service raided the founder of e-gold offices and shut him down. Three years of probation and pleading guilty to running “unlicensed money transmitter business” and “aiding money laundering” is bad for the business, right?
According to Douglas Jackson, the founder of e-gold, what killed e-gold is signing up new users without checking their identities, which helped the bad-guys to get away with their crimes.
On the other hand, one of Bitcoin basics is anonymity. It’s one of the reasons why many internet users preferred Bitcoin over fiat-money transactions, along with ease of use, low fees and faster transactions than banks.
US Treasury declared clearly that Bitcoin must comply with “Know Your Customer” regulations. However, the difficulty and expenses of meeting those warnings led Bitcoins brokers in the US to shutdown, and open elsewhere. Nevertheless, people were attracted to the virtual currency even more, driving the price of one Bitcoin to over $1,000 in mid November 2013 from around $300 a month earlier. The current price of a Bitcoin is $571.2. One a side note, it’s highly volatile.
One of the main differences between e-gold and Bitcoin is, e-gold relied on a single company to manage the system, while Bitcoin transactions are recorded on a peer-to-peer network of computers. That makes Bitcoin a perfect example of a decentralized currency system, unlike e-gold.
Centralized currencies and payment systems with central management authorities might be safer, if that authority has complete faith of its users and customers. But since fraud, hacks, errors and forging always takes place, what makes it different than a decentralized system?
The only drawback I see in the Bitcoin system is it’s not physically backed. If, Heaven forbid it, something goes wrong, what shall we do? E-gold sold its physical assets, real physical gold in that case, and paid its users back.
Other than the internet become obsolete, and all the world governments outlaw Bitcoin or other virtual currencies, there is nothing can go wrong that comes to mind. But just in case, why not physically back this new currency with any physical asset? Gold and silver for example, or even silicon for what I care! Just to have a spare parachute if the plane crashed.