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digital bitcoin

GoldMoney Mulls Bitcoin Integration – Why Your Gold Is Not Safe There

by Trace Mayer, J.D. on January 10, 2013 · 33 comments

Reading time: 8 – 13 minutes

NOTE: In the first 8 hours since this article was published bitcoins have climbed from $13.75 to 14.30 or up 4%. If you are a Bitcoin supporter, whether a GoldMoney customer or not, then please submit the survey to show potential market demand.

You would think anyone who claims to be an expert in money and currency would immediately see the potential synergies and therefore it is really surprising that GoldMoney has not already integrated with Bitcoin.

Being a GoldMoney customer and Bitcoin advocate, on 9 Jan 2013 I received an interesting email from GoldMoney that has a surprisingly positive portent. First, it announced the new vault in Singapore (Whoop dee doo, how innovative!) and second it requested customer feedback via the anonymous Annual Survey for 2013.

Near the end of the survey I came across significant areas regarding Bitcoin and its potential integration with GoldMoney. Since I started publicly recommending Bitcoin in 2010 and have been a GoldMoney supporter longer therefore it makes sense that they may be reading my articles or Jon Matonis’s What’s Your Bitcoin Strategy?.

THE GOLDMONEY ANNUAL SURVEY

The annual survey requests:

Please take the chance to tell us what you expect from us in the future by clicking on the following link to access the GoldMoney Annual Survey 2013. It takes just 3-5 minutes to complete and will be accessible until 31 January 2013. …

12. How much are you interested in using Bitcoin for online transactions? …

13. Please specify below which Bitcoin functionality you would like to use:

Use Bitcoin to buy precious metals with Goldmoney

Use GoldMoney to store Bitcoins in a secure wallet

Other

On 20 Dec 2011 I received an ominous email from GoldMoney announcing the economic censorship of the payment mechanism.

Due to this growing trend of regulation we have decided to suspend the following services until further notice with an effective date of the 21st January 2012:

* The facility to make and receive payments in precious metals to or from other GoldMoney Full Holding customers.

* The facility to convert directly between the various currencies.

To put it simply: Your gold, silver, platinum and palladium held via GoldMoney can be frozen or confiscated.

WHY YOUR ASSETS ARE NOT SAFE AT GOLDMONEY UNTIL THEY ALLOW BITCOIN WITHDRAWALS

Based on the survey requests it seems obvious that GoldMoney is completely missing the point of Bitcoin. Bitcoin is the first digital currency that is censorship-resistant. In other words, if for whatever reason, justified or unjustified, some petulant brat in a costume provides a sheet a paper with an order on it to take all the gold, silver, etc. that previously was titled to you then GoldMoney will rollover and give them the gold.

To put it simply: Your gold, silver, platinum and palladium held via GoldMoney can be frozen or confiscated. However, when you properly store bitcoins, and I teach you how in The Free Bitcoin Guide, they can never be frozen or confiscated.

But if GoldMoney allowed you to buy bitcoins and withdraw them then your metals would no longer be at much risk because within about 24 hours you could exchange them into bitcoins and withdraw to a wallet. Then the value would be immune to freezing or seizing.

Just use Bitcoin, which is the currency on the Internet. – Rush Limbaugh

HOW GOLDMONEY SHOULD MOVE FORWARD

Ironically, the questions in GoldMoney’s survey imply they are looking at this issue of integrating with Bitcoin the wrong way. There is another option which would be the least expensive way to integrate Bitcoin, would add the greater value to customers and generate tremendous revenues for GoldMoney.

GoldMoney should not be seeking to bring bitcoins into GoldMoney customer’s holdings to buy metals. For several reason, GoldMoney should be looking to free customers by allowing them to withdraw bitcoins from their holdings to wallet’s outside GoldMoney’s control.

First, the customer is king and people want to be free with their money. They want the option to stand free and independent without any third-parties or middlemen between them and it. They want it to be sovereign. This is the allure of gold and the old saying, “If you don’t hold it you don’t own it.”

Not only is it the right thing to do but there is a ton of money to be made running an underground railroad from fiat currencies and over-leveraged politicized banks to non-politicized decentralized digital censorship-resistant currency. Just think if those customers, who currently hold $2.2B of assets with GoldMoney, were able to instantly buy bitcoins. A $2.2B market cap for bitcoin implies a price per bitcoin of about $200 or a gain of about 1,400% from current prices.

Second, the main issue with bitcoins for a company like GoldMoney or any bank has to do with the source of funds. GoldMoney already performs all the necessary Anti-Money Laundering and Know Your Client due diligence required by regulated financial institutions.

If GoldMoney starts off only allowing customers to buy bitcoins and withdraw bitcoins they buy from GoldMoney then they do not need to worry about the source of funds because the only way to fund the holdings is with wire transfers where GoldMoney is already incurring the AML/KYC fees. GoldMoney can acquire bitcoins from a few trusted sources, like the large exchanges, and remain within the safest legal areas without incurring any additional costs.

gold collapses against bitcoin

Third, despite gold collapsing against Bitcoin in 2012 they still remain an extremely speculative asset. Sure, they have performed extremely well but that is no guarantee of future performance. Although bitcoins, like gold, are not subject to counter-party risk the holding bitcoins is not necessarily a very safe strategy. Bitcoins could become completely worthless. After all, that is why one buys gold instead of silver; gold is the penultimate store of value.

Fourth, the payment business is heavily regulated and those regulations are constantly changing. As GoldMoney has already discovered, that industry is a real pain in the rear end because of economic censorship.

But there is one person who gets it; Erik Voorhees, who was invited in Sept. 2012 by the Brazilian Central Bank to present about Bitcoin and other attendees such as several Federal Reserve officials, the SWIFT Director of Brazil’s office, Santander, BM&F Bovespa, PNC Bank, National Bank of Canada, HSBC, and a high-level representative from Chile’s equivalent of the ACH system.

My take away from this last session was the revelation that Bitcoin eviscerates entire statutes of law. Bitcoin will result in a number of “legal impotencies,” while simultaneously offering an alternative to the business and money that is being stifled by these same laws in the normal economy

Then in Oct 2012 the European Central Bank released a 55 page report and focused about half of it on Bitcoin. It appears that this scrappy upstart censorship-resistant digital currency is sure getting more attention than it deserves.

Fifth, bitcoins are currently legal in all countries and have not been made illegal by any. A French court has even ruled that a bank must reinstate banking services to a Bitcoin exchange after the bank froze the account because they did not want to be facilitating money laundering.

How particular businesses interact with Bitcoin can result in some interesting legal uncertainties and these likely will not be resolved for a long time. But the suggested method of moving forward for GoldMoney would not be materially different from current practices.

Allowing customers to buy bitcoins and withdraw them is not materially different from GoldMoney’s current business of allowing customers to buy gold and take physical possession. After all, the customers own title to the gold and can take possession at will (perhaps to only a specific address previously authorized for the account via a signed document sent by the customer to prevent any potential fraud, compromise, etc.) and so likewise would presumably own title to the bitcoins and should be able to take possession at will.

Sixth, once customers have bitcoins in their possession then they can avail themselves of the Bitcoin payment mechanisms. Just like Erik explained to the Federal Reserve attorney presenting on Dodd-Frank bill Section 1037 so likewise this strategy would allow GoldMoney to disentangle from the payments related regulation.

Think of all the attorneys that will be out of work when GoldMoney no longer needs to worry about thousands of pages of relevant law in many different countries that is constantly changing.

CONCLUSION – WHAT YOU CAN DO

So, this email requesting input for the Annual Survey was very encouraging. If GoldMoney integrated with Bitcoin then it would likely be the ultimate tool for standing free and independent with your money. Plus, it would give them a competitive advantage over BullionVault and its other competitors.

Really, you would think anyone who claims to be an expert in money and currency would immediately see the potential synergies and therefore it is really surprising that GoldMoney has not already integrated with Bitcoin.

What can you do? Well, the Annual Survey is anonymous, takes about 3-5 minutes to complete and does not close until 31 JAN 2013. So, I would recommend you complete the survey along with the suggestion to “Integrate with bitcoin and begin by allowing me to buy bitcoins and withdraw them to a wallet.”

If you are not currently a GoldMoney customer then I suppose you can still complete the Annual Survey because it is anonymous. Plus, you can always open a GoldMoney holding for free and send the customer support a question about when they will integrate with Bitcoins.

SOME INTERESTING BITCOIN RELATED VIDEOS

15 SEP 2012 – I discuss some of the basics of Bitcoin.

20 SEP 2012 – James Turk discusses Bitcoin and gets hung up on whether Bitcoin is tangible; which it is, just not corporeal.

25 NOV 2012 – Chris Odom discusses how Bitcoin is universal glue.

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33 comments

ABOUT THE AUTHOR: Trace Mayer, J.D., author of The Great Credit Contraction holds a degree in Accounting, a law degree and studies the Austrian school of economics. He works as an entrepreneur, investor, journalist and monetary scientist. Follow him on Twitter. This is merely one article of 241 by .
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{ 26 comments… read them below or add one }

1 bitcoinfly January 10, 2013 at 4:49 am

Good points! I am a bit surprised GM considers btc seriously, they are very well aware of money future. If only all “gold bugs” get it. Allowing buying and withdrawing btc could be another breaking level for the digital currency.

2 FrankWSweet January 10, 2013 at 5:21 am

[Quote]To put it simply: Your gold, silver, platinum and palladium held via GoldMoney can be frozen or confiscated. However, when you properly store bitcoins, and I teach you how in The Free Bitcoin Guide, they can never be frozen or confiscated.[/quote]
I don’t understand. Established U.S. caselaw says a court can order you to reveal any password (or brain-key phrase) on pain of imprisonment.

3 Jon Matonis January 10, 2013 at 5:26 am

Thanks for letting us all know about the survey.

“For several reason, GoldMoney should be looking to free customers by allowing them to withdraw bitcoins from their holdings to wallet’s outside GoldMoney’s control.”

This is true for FX brokers as well.

4 irdial January 10, 2013 at 5:33 am

With GoldMoney’s expertise and momentum in gold, they could launch a gold backed blockchain, where they promise to redeem their blockchain’s bitcoins for a set amount of physical gold on demand.

They would essentially be using a bespoke Bitcoin blockchain as the transfer and accounting infrastructure to facilitate trading in gold that they hold in their vaults.

Obviously, this would not protect users from the threat of confiscation by the State of GoldMoney’s hoarde, but it would confer several advantages to GoldMoney and its users despite it.

Anyone, anywhere would be able to:

* buy GoldMoney Bitcoin in the free market
* trade GoldMoney Bitcoin with anyone anywhere instantly
* operate with vastly reduced administration costs
* reduce unethical ‘compliance’ burdens to zero

The Blockchain technology has the potential to disintermediate and de-friction every speculative commodity market on earth. It doesn’t matter what the commodity is, the only thing that matters is the scale of the acceptance of the issuing blockchain, and the reputation of the issuer that promises to deliver the denominated goods.

There is no reason why wheat, rice, oil or any other commodity could not have trade facilitated by a custom blockchain in a commodity market.

Ill leave it to you to imagine and construct the rest!

5 Aa January 10, 2013 at 6:24 am

The stuff about international remittences is section 1073 of the Dodd-Frank Act (not 1037). As stated, bitcoin is not within the definition of ‘remittance transfer’ under this section, so this law generally doesn’t apply to bitcoin.

6 The Unofficial Bitcoin Forum January 10, 2013 at 6:27 am

I liked your GM ideas mixing with bitcoin. But it is the time for you to open a new site… runtobitcoin.com [edited: it's already registered]

7 Trace Mayer, J.D. January 10, 2013 at 9:13 am

FrankWSweet, key disclosure laws are in a state of flux but for the most part they do not require disclosure. But Bitcoin would make it possible to send the keys to an address where it would require, for example, 2 of 3 address keys. Then there is plausible deniability that you control more than just 1 address keys and under current case law you would not have to disclose whether you control the other keys because of Fifth Amendment right against self incrimination. Either way, it still makes your capital much more difficult to seize or confiscate without your express consent and cooperation. With gold just sitting in GoldMoney’s vault anyone needs is GoldMoney’s cooperation.

8 Trace Mayer, J.D. January 10, 2013 at 9:14 am

Jon, Exactly. I can’t forget it slipped my mind to discuss your article ‘What is your Bitcoin strategy?‘ since it is so applicable in this case.

9 Trace Mayer, J.D. January 10, 2013 at 9:22 am

Irdial, good to see you commenting around here. Your articles about bitcoin are fantastic; particularly the analogy to a forcefield generating gland.

I do not think a gold backed Blockchain would be a good route to go because upon redemption GoldMoney would likely clash with AML source of funds laws. This would greatly increase administration costs and place GoldMoney into a compliance nightmare. The laws want to turn the banks and other financial institutions into the financial transaction investigators.

Consequently, I think it is lowest cost to GoldMoney and allows for greater division of labor in the fight for freedom to specialize the work by keeping the store of value and medium of exchange separate but interchangeable with compliance to the relevant laws as strict as possible in order to reduce the threat of governmental involvement as much as possible.

So longas bitcoins are exchangeable into gold on demand, which could be implemented by GoldMoney with the current KYC/AML structure (although not on my to-do’s first steps for adoption) I think it should be fine. I see no particular problem from the Bitcoin price freely floating.

10 Dick Weber January 10, 2013 at 10:00 am

this interview was incredibly easy to understand and most informative. Hope you discuss how to actually ‘invest’ in Bitcoin in the next interview. Trace is sure an enthusiastic supporter of Bitcoin and makes me want to know more. Thanks to both of you!

11 Jon Matonis January 10, 2013 at 10:25 am

FrankWSweet,

I agree with Trace. It’s hard to believe but key disclosure laws in the US are actually skewed more in favor of the individual than laws in other jurisdictions such as UK and S.Africa.

Key Disclosure Laws Can Be Used To Confiscate Bitcoin Assets
http://www.forbes.com/sites/jonmatonis/2012/09/12/key-disclosure-laws-can-be-used-to-confiscate-bitcoin-assets/

12 Trace Mayer, J.D. January 10, 2013 at 10:39 am

Dick, glad to help out. Perhaps the easiest way to ‘invest’ in Bitcoin is to buy some bitcoins. For example, in the first eight hours since this article was published bitcoins have jumped from $13.75 to 14.30 or 4%. It seems the market likes the idea of people with $2.2B of capital being able to easily buy bitcoins. In the Free Bitcoin Guide I show people how to get started with bitcoin and greatly reduce the learning curve.

13 Anonymous January 10, 2013 at 7:08 pm

Trace, even if GoldMoney allowed withdrawal in bitcoins that doesn’t make funds at GoldMoney any less at risk of confiscation. If the confiscation order arrives, it places a hold on the funds regardless of withdrawal method — bank wire, physical delivery or bitcoin.

It is terrific to see James Turk being bold enough to consider bitcoin as a payment method accepted at GoldMoney. If GoldMoney actually does this it will be yet another boost like what occurred following the WordPress announcement that bitcoin would sit alongside the other payment methods they accept.

But even if bitcoin withdrawal wasn’t possible, what would be great to see would be a way to convert to and from GoldMoney goldgrams using bitcoins. At a minimum it would help lessen bitcoin’s volatility by expanding the footprint of those who are a few keystrokes away from entering or exiting a bitcoin position.

14 Trace Mayer, J.D. January 10, 2013 at 9:43 pm

Anonymous, you make some really good points about lessening the volatility of Bitcoin by increasing the depth of the capital pools.

I think what I intended to say, but was loose with my language, is that if GoldMoney allowed withdrawal in bitcoins then funds at GoldMoney could more quickly be converted and moved into a form of wealth where the risk of confiscation is eliminated.

Remember, even if you take physical possession of your bullion it can be confiscated.

Bitcoins are a unique form of property where, if proper techniques are used, it is impossible to confiscate without the private key possessor’s cooperation.

15 Félix Moreno January 12, 2013 at 9:21 am

Great article Trace!

Given that they have already done their due diligence on their existing cutomers and comply with AML, KYC rules… I don’t see why GoldMoney couldn’t just accept Bitcoin as an additional funding/withdrawal method.

I look forward to the day when I can buy and sell gold with Bitcoin and without having to go through the banking system.

If GoldMoney doesn’t do it… it won’t be long until one of their competitors does. Technically it’s simple, and the added value of being able to cash out quickly and anonymously is huge for those that fear regulatory/tax/confiscation risk.

16 Trace Mayer, J.D. January 12, 2013 at 11:37 am

Felix, great interview! I think you are going to really enjoy my next article about why I helped GATA accept bitcoins. I suppose it might send shockwaves through the gold niche.

Yes, I agree with all of those major points. Currently, GoldMoney is relatively overpriced in a commoditized market. I was talking with the CEO of a new gold storage company, unfortunately US based, that just opened for business about two weeks ago (1 JAN 2013) and he has complete Bitcoin integration scheduled for six months from now. But with Bitcoin integration it really makes the US based part irrelevant. Also, it appears that The Real Asset Co. is actively pursuing a Bitcoin specialist; probably to consider Bitcoin integration.

The bottom line: Gold storage companies, and as Matonis commented FX dealers for that matter, will have to offer the ability to sell bullion for Bitcoin and allow the unhindered withdrawal of bitcoins to a wallet completely under the owner’s control. Otherwise, there is too much regulation and confiscation risk with using an antiquated censorship-prone third-party to store bullion or fiat currencies. So, soon bitcoin withdrawal from gold storage companies will be commoditized. Exciting though, eh!

17 Darlea Henderson January 16, 2013 at 7:32 am

Trace, what is your opinion on using Dwolla to get bitcoins?

18 Trace Mayer, J.D. January 17, 2013 at 2:00 pm

Darlea, I would highly recommend not using Dwolla. They have a horrible reputation in the Bitcoin community. A much better option would be Coinbase.

19 Dick Weber January 17, 2013 at 4:06 pm

It took 51 hours to download ‘Bitcoin’ and catch up with all the past transactions. It would seem that new people moving to Bitcoin would find the download time overwhelming. My notebook is an Acer Aspire with an Intel i3 processor with 4 gb of ram and a 500 gig hard drive and I am on a fiber optic line with Mach 2 service. I have just started reading the material you published. I do not want to mine, just acquire Bitcoins with fiat dollars – is Wells Fargo the best starting point? Do you carry your ‘key’ around with you on a thumb drive to keep from making entry errors trying to write the number down off a slip of paper in your wallet?

20 Trace Mayer, J.D. January 17, 2013 at 4:08 pm

Dick, It is annoying that it takes so long to sync the blockchain when you download the Satoshi client. That is the reason I created the Free Bitcoin Guide. It helps people go from nothing to owning bitcoins in a wallet they can spend from in about 45 minutes. It really is worth a read for those new to Bitcoin. It even has a section on brainwallets.

21 irdial January 17, 2013 at 4:47 pm

Dick, if you had downloaded the Electrum Bitcoin client:

http://electrum.org/

it would have worked straight away “out of the box”. I recommend Electrum, and the Blockchain.info iPhone client to people who just want to start using Bitcoin straight away. They are both easy to use, and give instant satisfaction. By all means, try them both.

22 Dick Weber January 17, 2013 at 6:44 pm

I just watched the interview with Trace Mayer and James Turk and said ‘why not try it’ ? I am a pre-boomer and not particularly computer savvy. Not totally an ignoramus either, I built the first kit computer in 1974 that used an audio cassette recorder to keep your data on – but things have changed and it just wasn’t my first priority in life.
I usually go directly to a site and get programs first hand and then try and figure them out after. Now I am learning about Block Chain and others – so, it may take me a while but I persevere very well and will keep at it until I can buy and sell using Bit Coin. Thanks for all the tips though – wish there was a good list with pluses and minuses of each.

23 Trace Mayer, J.D. January 20, 2013 at 8:41 am

Dick, have you gone through my Free Bitcoin Guide? It should help reduce your learning curve and gives a good list with the pluses and minuses of a few approches.

24 Trace Mayer, J.D. January 20, 2013 at 9:37 am

Dick,

Someone can begin using Bitcoin and never use the Satoshi client (the 51 hour blockchain download you are talking about). I hardly ever use the Satoshi client anymore and rely pretty much entirely on Blockchain.info or the other tools I mention in the free guide. I wonder if most people think they actually need to ever use the Satoshi client.

With Blockchain.info one can be off and running with a wallet in about 3 minutes. I have walked a few popular bloggers through the process over the phone; going from nothing to creating a wallet, sending them bitcoins, them receiving bitcoins and using them to buy a product or make a donation. Total time about 5-6 minutes.

25 Ray May 20, 2013 at 5:10 pm

Quote:
“But if GoldMoney allowed you to buy bitcoins and withdraw them then your metals would no longer be at much risk because within about 24 hours you could exchange them into bitcoins and withdraw to a wallet. Then the value would be immune to freezing or seizing.”

What nonsense. Hey, Mr. Trace Mayer, do you think the UK government would give you a 24 hour notice they’re coming with the seizure order, silly goose? It doesn’t work like this. They come in suddenly, freeze everything and you’re screwed regardless of whether you can sell gold for bitcoins or not. Doh! Your obvious slant in this article towards Bitcoin makes a reasonable person take the information you put in it take it with a huge grain of salt. Certainly not a way to attract attention from intelligent readers.

26 Trace Mayer, J.D. May 22, 2013 at 7:47 am

Ray,

You have not addressed the substantive issue of whether Bitcoin or bullion in a GoldMoney holding is easier to seize. Obviously, Bitcoin is much more difficult to seize by its nature. This is not an issue of whether Bitcoin or GoldMoney is the best place to allocate capital. Each has its advantages and disadvantages.

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