Digital gold currency sometimes referred to as e-gold is increasing in popularity as a form of investing, but as a relatively new concept to the market it does have its sceptics, and novice traders and investors should be careful! It is not a form or trading or investing that I recommend, simply because it is an unregulated market and there are far too many risks involved. So how does it work and why has it been developed as a market of its own?

In simple terms, digital gold currency is exactly what it says it is, in other words it is a currency which is denominated in gold. When you open an account with a digital gold currency provider your account will be denominated in weight of gold, not in US dollars, UK pounds, or Indian Rupee. Your account will show that you have purchased a certain weight in grams or troy ounces which are being held on your behalf. If you add money to your account the weight of gold will rise accordingly, and likewise if you remove money then the weight of your account will fall. The account is underwritten by gold, and in effect in depositing funds into the account these have been transferred into gold, which in turn is held in a secure vault. You, along with many other depositors, now own a small part of a gold bullion bar without the issues of transporting, insuring and securing your assets. If the price of gold increases, then your account balance will increase when converted to the currency of your choice, and likewise when the price of gold falls, then your account balance will reduce when converted. It is important to realise that if you originally deposited 1kg of gold, then your account will always show this as the weight in the account (until you deposit or withdraw) and it is only when you convert your account to the currency of your choice that you will see your net gain or loss. It is this principal which allows the DG (Digital Gold)  parent company to live up to its promise of 100% backed by gold. Your online account today shows a kilo of pure gold and the vault is holding that kilo of pure gold on your behalf. No matter what local currency you are using or in what country the weight of your kilo will never change.

So why have a digital gold currency account and why were they developed in the first place? Originally digital gold was intended for business to business transactions with no direct debiting system and no waiting period to settle this kind of transaction. The only requirement for all participants is to be connected to a digital gold account and the whole transaction is completed in weight of gold in ounces. In  other words it was an attempt to provide a universal currency, accepted around the world as an easier way to transact business on the internet. Having said that, digital gold is primarily used to buy gold for saving and investing, as well as offering the opportunity to trade using the account as an electronic form of money, but is it safe? In my view it is not! Since its inception it has been accused of providing the ideal platform for money laundering and, with its lack of regulation and the secretive way it operates, this seems likely. Indeed in the last few months two companies have been indicted and further prosecutions seem likely with the principle activities being money laundering and identity theft. Whilst I am always open to new ideas, this is one that I would suggest you avoid.