Long before the existence of virtual currencies backed by the complexity of cryptography, there were a multitude of virtual currencies, most of which backed by the value of gold bullion.
Before Bitcoin appeared on the scene, the industry was plagued by all manner of drama, from murder to cases of widespread use of funds for terrorism, child pornography, and other forms of criminality.
Murder of e-Bullion co-founder
e-Bullion was an Internet-based digital gold currency founded by payza inc of Moorpark, California, as part of their Goldfinger Coin & Bullion group of companies. The company launched on 4th July 2001, and allowed users to instantly transfer gold and silver between customer accounts, similar to competing systems such as e-gold and GoldMoney. Between its creation to 2008, e-Bullion gained over one million users, substantial transaction volume, and reserves of approximately 50,000 ounces of gold bullion, now worth $63,615,000.
The company’s founders, Jim and Pamela Fayed, had a troubled marriage, and eventually divorced. During the proceedings, there was dispute over how the Goldfinger companies, including e-Bullion, would be divided. At 6:30pm, in broad daylight, on Monday 28th July 2008, Pamela Fayed was stabbed to death in a parking structure at 1875 E. Century Park in Century City, California. Her screams were overheard by numerous witnesses, and a surveillance camera recorded the license plate details of the rental car involved along with a description of the suspect.
Jim Fayed “had a motive to have her killed -- "so that she could not testify against him" in the criminal case at issue in Monday's hearing,” the LA Times reported at the time, referring to the fact that Pamela was due to appear in one of several ongoing legal meetings that day in her divorce from her husband. She was reportedly attempting to stop him from moving or hiding some of the couple’s joint assets involved in e-Bullion.
Unrelated to the murder, Jim Fayed had been arrested on 4th August 2008 by federal agents on charges of conducting unlicensed money transactions via e-Bullion. Authorities seized $60,000 in cash, $24,000,000 in gold bullion, and a credit card that had been used to pay for the rental car involved in his wife’s murder.
Jim Fayed was subsequently indicted, prosecuted, and convicted for the capital murder of his wife, Pamela Fayed, by hiring her murderer, having been found guilty at trial by a jury. He was sentenced to death, and is currently imprisoned on death row in California.
The e-Bullion website was taken down on August 5, 2008, and the site is now a simple mirror to e-Bullion’s Wikipedia page. After Fayed’s arrest and conviction for his wife’s murder, the US Attorney unsealed an indictment of e-Bullion and Goldfinger Coin & Bullion for failure to have a money transmitter license by way of the USA Patriot Act. Although the charges were eventually dropped, the US Attorney’s Office seized all of Goldfinger’s assets, including the gold bullion backing e-Bullion customers’ accounts, and e-Bullion was closed in August 2008.
e-Bullion account holders were never compensated by the US Government for the confiscation of the bullion backing their accounts.
Criminals’ payment system - e-gold
E-gold was another gold bullion-backed virtual currency that predates the inception of Bitcoin. Before its closure, about 40,000 anonymous transactions, called ‘spends’, totaling $4 million to $6 million, occurred daily on the e-gold website. Federal law enforcement agencies perceived e-gold to be the payment system of choice for criminals, terrorists, and child pornographers.
Although the company’s founder, Douglas Jackson, claimed he had actively tried to work with law enforcement to crack down on criminals using e-gold, a two-and-a-half year criminal probe into the site indicted him on charges of money laundering and illegally operating a money transmitting business. “Until it was raided, e-gold rarely - if ever - alerted law enforcement to possibly illegal transactions”, sources told the NY Daily News in 2007.
Despite this, Jackson claimed e-gold had actively helped to catch cyber criminals, including those who stole Cisco System’s firewall code and put it on sale for the virtual currency. In addition, in June 2007, he claimed that he had “aided 300 investigations and reported 3,000 suspected child pornography buyers to the National Center for Missing and Exploited Children”
Many people took the view that the failure of e-gold was “ultimately due to their inability to provide a system of reliable user identification and the failure to provide a workable dispute resolution system to identify and cut off illegal and abusive activity in their user community,” something later payment systems, including Webmoney.ru and Goldmoney.com revised, leading to lower rates of criminal abuse. Newer payment systems, such as PayPal, have somewhat successfully addressed the issues that brought about e-gold’s downfall, but have recently had to contend with the same kind of Internet fraud that faced e-gold.
Arguably the most important aspect of this situation is the fact that Wikipedia surmised that “financial cryptographers have observed that Bitcoin has repeated the same fundamental errors that e-gold made, and that despite its decentralized nature the cyber crime-wave might bring Bitcoin to a similar ending.