The company disclosed its first purchase of the cryptocurrency in August, acquiring 21, bitcoins using existing cash on its balance sheet. Saylor advocates for other companies to do the same, hosting a virtual conference earlier this month called "Bitcoin for Corporations. In recent days several established financial firms such as BNY Mellon and Mastercard announced moves in the crypto space. MicroStrategy shares have been on a tear since August as some investors looked at the stock as a way to gain exposure to bitcoin. Skip Navigation. Markets Pre-Markets U. Key Points. MicroStrategy shares moved lower after the company announced plans to sell convertible debt to buy more bitcoin.
It was time, Jackson mused, for a radical rethink of money. Had he been born in another era, he could scarcely have acted on his beliefs. But the nascent internet changed everything. The international, hour churn of e-commerce cried out for a monetary system that transcended borders and time zones. So in early , Jackson began programming a back-end system for a new electronic currency, practicing medicine by day, and coding by night. He hired a software engineer to create the user interface, and four months later launched E-Gold.
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. Brimming with evangelical enthusiasm, Jackson proclaimed it a cure for the modern monetary system's ills and described it at one point as "an epochal change in human destiny" and "probably the greatest benefit to humanity that's ever been thought of.
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Though E-Gold would fail to change the world, libertarians and privacy-conscious netizens liked the service, which allowed them to open accounts anonymously. And international sellers appreciated the ease with which they could transact across borders. Cynics might have considered him just another internet hustler looking to strike it rich, but those who knew him say he was a true believer.
Jackson drew his inspiration from economist Vera Smith's influential treatise The Rationale of Central Banking and the Free Bank Alternative , which challenged the tenets of banking. His commitment started to pay off in , when some 50, transactions suddenly passed through his system in just two months — more than the previous three and a half years combined.
By that November, E-Gold, now with 20 employees, had processed 1 million transactions, and Jackson's business reputation was growing.
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He was invited to speak at the prestigious World Gold Council conference in Rome, the gold mining industry's leading event. Initially, Jackson stored the company's reserves of sovereign coins and ingots in safety deposit boxes in banks around town. When this proved inconvenient for auditing, the company bought an office safe to hold the gold and platinum. Ultimately, he converted the sovereigns and ingots to bars and moved them to bank vaults in London and Dubai. At E-Gold's peak, the currency would be backed by 3. Continued from page 1. Despite the sudden burst of success, the venture was plagued with setbacks.
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E-Gold's servers buckled under the growing traffic load, hanging transactions and frustrating users. When Jackson finally scaled up his infrastructure in , solving the performance problems, cyber scammers entered the scene, launching a sortie of phishing attacks against users, tricking thousands of them into disclosing their E-Gold passwords, then draining the accounts. Eventually Jackson deployed an anti-phishing remedy, and business rebounded in September A year later, customer accounts numbered about 3.
Millions of dollars were zipping through E-Gold's system hours-a-day, bouncing between the U. E-Gold collected 1 percent of every transaction, with a cap at 50 cents.
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E-Gold was now second only to PayPal in the online payment industry. At last, Jackson says, he felt relief. Now "we felt like we'd finally achieved a turning point. But E-Gold's increasing popularity with customers drew less-welcome attention as well. The federal government began to take notice in , when the Secret Service launched an undercover operation against a website called Shadowcrew — a legendary forum for "carders" who trafficked in stolen credit and debit card numbers. Cyber crooks in Eastern Europe were stealing millions of card numbers in phishing and skimming scams, then passing the data to accomplices around the world.
The low-end cashers coded the numbers onto blank cards, then siphoned money from ATMs and transmitted the bulk of proceeds back to the former Soviet bloc. When authorities monitored the criminals' communications, they discovered that E-Gold was among the carders' preferred money-transfer methods, because the system allowed users to open accounts and transfer funds anonymously anywhere in the world.
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When the Shadowcrew investigation wrapped in October with the shuttering of the site — and the arrest of more than a dozen members — the Justice Department turned its sights on E-Gold. Its goal was to force the service to comply with regulations governing money-transmitting services like Western Union and Travelex. Federal regulations required those businesses to register with the Treasury Department's Financial Crimes Enforcement Network FinCEN , to be licensed in states that required it, to diligently authenticate the identity of customers and to file suspicious activity reports on shady-looking customers.
But E-Gold wasn't doing this. Jackson believed E-Gold was exempt from regulation because it was a payment system not a money transmitter. And although it did transfer money, customers could park balances in their accounts, as with a bank. But Jackson insisted E-Gold wasn't a bank, either. It was something new — something the world and the U. He wasn't alone in this view.
Many internet-based payment services, including PayPal during its early years, believed they were exempt from regulation. They mostly flew under the radar of prosecutors until something brought them into the spotlight. Jackson says he got the first inkling of the rampant, organized crime in his system when he read a June New York Times story about the growth of the carding forums.
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E-Gold is mentioned in this ghastly, horrible way of it being, you know, the bitch of criminals," he says. He concedes he knew that Ponzi schemers and other scammers sometimes used his system , but he'd always responded to government subpoenas for information about suspicious customer accounts.
So he contacted the Secret Service to ask why the agency hadn't sought his help to track the crooks in the Times story. The agency, which was already secretly targeting E-Gold, ignored him. The Secret Service didn't respond to interview inquiries for this story. The hammer dropped on E-Gold around 5 p. Simultaneously across town, the Justice Department's "Operation Goldwire" unfolded with more agents raiding the offices of Gold and Silver Reserve, the company that operates E-Gold.
A third group descended on a co-location facility in Orlando where E-Gold Limited, a holding company for E-Gold's assets, racked its database servers. The feds carted away more than boxes of electronic records and paper files, including birth certificates, photos and a deed to the Jackson family burial plot. The gold and silver reserves remained safe overseas, but the government froze the company's domestic bank accounts.
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Jackson's venture was dissolving around him. Jackson wasn't sure what the feds hoped to find in all those records; once E-Gold got its systems back online he turned to his database for answers. Continued from page 2. He scoured the system for suspicious transactions using key words like "cvv," dumps" and "cob," and the names of carders he'd read in the Times. He quickly discovered the disturbing truth about what his libertarian dream had become. There's, like, a ring that I can distinguish. Jackson had uncovered a constellation of shady accounts doing business with one another.
He watched in amazement as the criminal activity expanded before his eyes, and balances in several accounts ballooned, with no sign that the account holder intended to move it out. E-Gold had unwittingly become banker to the underworld. Because users could sign up for E-Gold with aliases, there was no easy way for Jackson to determine the real identity of many of his suspects.
But the criminals became vulnerable the moment they converted their virtual currency to local cash. This required them to do business with an E-Gold money exchanger — the online equivalent of currency exchangers at international airports — who'd ask for valid ID and contact information. Sometimes the criminals wanted their cash loaded to a debit card and mailed to a drop address, or wired to a traditional bank account; exchangers would have this data, too. Jackson reached out to about a dozen exchangers in Europe and elsewhere with the account names he was tracking.
Some criminals had provided the exchangers with fake credentials, but a surprising number had given their real names or addresses.