By the company’s own description Minacoin is a crypto-currency, which allows “peer-to-peer financial transactions over a decentralized network.” This at first sounds no different from Bitcoin, or other crypto-currencies that have sprung up in Bitcoin’s wake.
Though it is backed by Bitcoin technology, Minacoin has a distinct difference — one that could make it popular among libertarians. This crypto-currency is backed by gold; according to The Verge, “two 400-ounce bars of gold worth $1,050,000″ USD.
“Through the advancement of Bitcoin technology,” the Minacoin website states, “we are able to offer a safe way for people to transfer shares of gold easily without a central authority.”
The Toronto-based venture was started by Melvin Ng and David Gallo, who both have prior experience working with bitcoins. (According to The Verge, Ng ran the now-nonexistent LibertyBit exchange, and Gallo was a bitcoin miner.) Their goal was to create a crypto-currency that was more stable than the ever-fluctuating bitcoin, and their solution was gold bullion. The number of minacoins is limited to 21 million, with each coin being worth a nickel.
As The Verge points out, this idea sounds a heck of a lot like another gold-backed online currency attempt: the failed E-Gold.
A profile published by Wired in 2009 describes the vision of E-Gold founder Douglas Jackson:
“As Jackson envisioned it, E-Gold was a private, international currency that would circulate independent of government controls, and stand impervious to the market’s highs and lows.”
Like current crypto-currencies, because of ability to create anonymous accounts, E-Gold became popular with libertarians and those who closely guard their privacy. It also, however, attracted criminals — namely credit card thieves, or “Carders.” And eventually E-Gold’s founder landed in house arrest after he was charged with facilitating money laundering. “They weren’t just using us as a good vehicle to trade their data, they were parking value in our system,” Jackson told Wired.
Similarities in user base and mission aside, the real issue comes down to how Minacoin is regulated. If it makes the same mistakes as E-Gold, it too could be faced with charges of facilitating money laundering.
According to Wired, E-Gold thought it was payment system, and not a money transferring system, and thus exempt from regulations. Eventually, it was unable to reboot because it was impossible to operate within the different requirements.
The Verge reports:
“‘It’s hard to believe that the company [Minacoin] will be able to launch in a month if it intends to target US residents,’ says attorney Carol Van Cleef, who was retained by E-Gold to assist in compliance. ‘The Department of Justice set out its expectations that a gold-backed currency needed to [be] registered as a money-services business and licensed.’”
Minacoin has yet to fully launch, (a countdown on the website puts it at 25 days, 10 hours 18 minutes and 1 second at the time of this writing), but it is taking pre-orders as of today. It also hasn’t fully defined itself.
“The original concept was a currency that was not a currency, kind of an IOU backed by gold,” Ng told The Verge. “In terms of the technology, it’s there. In terms of the gold, it’s there. But in the last three days we’ve had a lot of issues in terms of legality and dealing with the terminology that we use.”
In an email interview with Examiner, the founders discussed transparency:
“One distinguishing feature of this venture, and more broadly our organization, is our emphasis on transparency and regulatory compliance. To this end, we have retained the counsel of KPMG, a globally recognized consulting firm, for auditing purposes.”
Examiner also asked about Minacoin’s legal status in Canada. “At the moment, Bitcoin is considered a commodity similar to gold or silver,” the founders responded. “We suspect that Minacoin will fall in the same category; however we have been seeking further clarification on this issue.” It is unclear where they stand legally in the U.S.
The U.S. Treasury has taken steps to regulate Bitcoin, and they are taxed by the IRS. Exchanges, rather than individual users, are considered money transmitters. They must comply with laws to prevent funding terrorist groups and prevent money laundering. This hasn’t stopped Bitcoin from being the go-to currency for criminals, including the infamous Silk Road.
There is also the fact that economists (and others who aren’t Ron Paul) reject the gold standard. The standard is rigid, and if a dollar is based in gold, governments cannot respond quickly to a financial crisis and stimulate the economy unless more gold is mined.
A lot of Minacoin’s functioning still remains up in the air. It is unclear if Minacoin will learn from E-Gold’s mistakes, or if there is even a place for it in the world of crypto-currency.
h/t The Verge, Wired, Examiner