1mdc

» see 1mdc.com as it lived, on the wayback machine

~ the eulogy ~

1mdc did not hold any gold. that is not an accusation, it is the design, and the site never pretended otherwise. what 1mdc held was e-gold, and e-gold held the metal, in a vault, somewhere, on behalf of a company operating out of florida. you moved your grams into 1mdc and it credited you the identical weight in its own books. you could move them back out whenever you liked. the industry word for the round trip was bailing in and unbailing.

the reason to bother was a fee. e-gold charged about one percent a year to store your metal, deducted in metal, so an account left alone got slightly smaller every month. 1mdc stored nothing, since e-gold was already doing the storing, so it charged nothing for storage. that was the pitch. gold that did not evaporate while you looked at it, and spending between 1mdc accounts was free for the overwhelming majority of users, with a fee only on accounts receiving more than a hundred payments a month.

it ran from 2001 out of nowhere in particular. the website moved between offshore hosts, the software came from a company called interesting software ltd registered in anguilla, and the person or people behind it were never publicly identified. to open an account you gave an email address and picked a password with a pin and a set of initials. no name and no document anywhere in the process. in 2001 this was a feature and by 2007 it was the reason a federal grand jury was interested.

gold in turkey has never needed a website. it is a physical thing you can hold, bought as quarter-coins at weddings and kept at home, and the jeweler two streets over will buy it back from you at a price printed in the newspaper. the argument 1mdc was making, that you should hand your metal to a company with no name in the caribbean so that a second company in florida could hold it more cheaply, is an argument for people who already trusted a lot of paper. that was not the relationship anybody i knew had with gold.

~ the dossier ~

~ what you actually owned ~

a 1mdc balance was a claim on a claim. you were owed e-gold by 1mdc, and 1mdc was owed metal by e-gold, and only the second of those two relationships had anything you could inspect. e-gold published its holdings and let anybody audit the total in circulation against the bars. 1mdc published nothing comparable, and there was no mechanism by which a user could confirm that the e-gold behind the books was all still there.

this was tolerated because the incentives looked fine and nothing had gone wrong yet, which is how counterparty risk is always tolerated. the users were mostly outside the united states, by 1mdc's own account, and mostly people who had chosen a gold-denominated currency because they did not want a bank. what they had built instead was a bank with no regulator and no address.

~ the twenty-seventh of april ~

a federal grand jury in washington handed down a four-count indictment against e-gold ltd and its owners on 24 april 2007, charging money laundering conspiracy and operating an unlicensed money transmitting business. it was made public on the 27th. the same court order that came with it forced e-gold to freeze accounts, and the accounts backing 1mdc were among them.

the notice that went up on 1mdc.com is dated friday apr 27 2007, 4am utc, and it is worth reading as a document of that morning. a us government court order appears to have forced e-gold to freeze or block all of 1mdc's accounts, for unknown reasons. we suggest not panicking. more will be known on monday when there will be more activity in the courts. you can still spend 1mdc to other 1mdc accounts and 1mdc is operating normally within 1mdc. and then the sentence that actually mattered: even though 1mdc has no connection whatsoever to the usa, e-gold is usa based.

~ what was left ~

nothing was known on monday. the internet archive has 1mdc.com serving a full working site of about 4,700 bytes on 3 april 2007 and a stripped 1,760-byte page carrying only that notice from 3 may onward, unchanged into july, after which the captures stop. the site was gone before the end of the year. the frozen e-gold accounts across the whole action came to somewhere between ten and twenty million dollars of metal and 1mdc's share of that was a small part of it, which was still all of it as far as 1mdc's users were concerned.

they had no standing. a 1mdc user was not an e-gold customer, so the freeze that hit the account did not hit anything with their name on it, and the entity that did have their name on it had just become insolvent by definition. e-gold's own case ended in guilty pleas in july 2008 and a wind-down that took years to pay anyone back. eighteen months after the 1mdc notice went up, a paper appeared describing an electronic cash system with no trusted third party at all. the people who wrote and read that paper had watched exactly this happen.

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