Prologue

There are two kinds of money in circulation in 1998.

One is a form of debt. It is created by national governments, by borrowing. Pieces of elaborately engraved paper, credit card transactions, so-called electronic "cash", online banking, paper checks, wire transfers, base metal coins - all are manifestations of the same basic theme; monetary units of account definable only by incantation, discretionary money by decree of the sovereign authorized issuer. The conventional rendering of this intangible mystery is "full faith and credit".

The other is e-gold™.

e-gold™ is founded on coherent principles, free of contradiction. In less than two years, two men, a physician and an attorney - using their own creative energy and non-borrowed funds - designed and deployed a working prototype which is now the fastest growing non-bank-related monetary system in the world. For comparison, over the past six years, a high profile competitor spent over twenty times as much development capital, was the featured guru of countless monetary conferences, the subject of hundreds of fawning articles in the technical and popular press, employer of scores of energetic and brilliant cryptographic experts. Their medium has been sponsored and embraced by such banking juggernauts as Deutsche Bank. Their US $-denominated circulation amounts to about 1/3 the value of  e-gold™ in circulation.

An e-gold™   payment clears much faster than a bank wire or credit card payment, at a fraction of the cost. Unlike checks or online banking, it is impossible to enter an overdraft order. There is not a business in the world currently accepting credit cards - online, by telephone, or mail order - that would not save money by accepting e-gold™.

Periodically, banks fail in droves. Severe credit crises result in bank holidays, followed by debasement of their circulating medium. e-gold™, by contrast, is defined tangibly and is utterly immune to the imprudent lending practices of bankers.

This business plan describes concrete actions which will propel e-gold™ to market dominance as the money of choice for commerce.

Introduction

e-gold™
Gold itself, circulated electronically, is the ultimate currency of free and efficient markets. e-gold™ is a payments system which enables the use of gold as money; a worldwide medium of exchange. The e-gold™ system is the only deployed system of electronic money which is independent of the banking system. The e-gold™ system is the only monetary system which coherently differentiates money from credit.

Prototype
Jackson Trading Company ("JTC"), a Florida corporation, was formed September 1995, to develop and administer the e-gold™ system. JTC currently owns all intellectual property used for the e-gold™ system.

Phase I
The Phase I plan deals with the transition from Prototype to a more robust, secure, feature rich and highly scalable system. These enhancements are detailed in Strategic Plan: Operations. E-Gold Transnational, Inc. ("EGT") will be incorporated offshore in 1998, in a jurisdiction to be determined. EGT will take over the development process and operate the e-gold™ system on a world-wide basis.

Phase II
In 1999, additional server farms will be brought on line affording further redundancy and real-time data replication. In 1998 and early 1999, alternate access mechanisms will be developed and deployed for various Y2K-related infrastructural failure contingencies.

Applications

World Wide Web
e-gold™ transactions are conducted over the World Wide Web - an ideal medium for low cost worldwide connectivity. Strong encryption technologies afford security. Advances in computer processing power and low cost memory/storage facilitate automation of transactions.

Telephony
G&SR has received extensive feedback, as a result of print ads, indicating a large cohort of non-computer users who would welcome an e-gold™ telephony application. This would entail a less expressive interface than possible with our graphical UI, but would support greater functionality than telephone banking products.

Y2K
There is growing concern that the so-called "millennium bug" may disrupt financial markets and bank-related payments mechanisms. This potential disaster poses an unprecedented opportunity to introduce an alternate monetary system based on a tangible store of value. Alternate access methods - perhaps involving HF radio, or satellite telephony uplinks - will be costly to develop and deploy, but may yield windfall dividends. We will most likely collaborate or even joint venture with a provider of client side communications modules which do not depend on public switched telephone network or power grid.

POS
As the amount of gold in circulation grows, and more people gain familiarity with e-gold™, retail point-of-sale/service transactions should provide further growth. Currently, smart card based client authentication in support of an online debit arrangement appears to be most suitable e-gold™ POS solution.

CMCF
A major Phase I task is to create a server application for the use of financial institutions, CyberMetal Credit Facilities (CMCF's). CMCF's will accept deposits, pay interest and make loans. Once such financial intermediaries are available, most e-gold™ will likely reside in depository accounts and the impact should be a dramatic increase in the scope and magnitude of the e-gold™ economy.

DigiGold
We are evaluating the possibility of introducing digital tokens which could be negotiated directly between payer and payee. This would be a form of digital "cash". Although it would be possible for Reserve Institutions to issue such tokens, backed 100% by physical specie, it may be more attractive for CMCF's to issue them as interest-bearing, explicitly fiduciary media. See below.

Current and Potential Markets

Early Adopters
Most current users of the e-gold™ system are "gold bugs" and/or libertarians. G&SR, the prototype Reserve Institution, has limited its marketing efforts to date because of capital constraints. The founders prioritized efforts and capital into system development, following the logic of build-it-and-they-will-come. In addition, efforts to attract early adopters from the general business community were felt to be premature because useful and necessary enhancements for this market were not yet available.

Commercial Accounts
Commercial use of the e-gold™ system has been limited during the development of the prototype Reserve Institution. A principal Phase I goal is increased commercial use, particularly increased merchant acceptance. Several factors will potentiate this goal:

Y2K Scenario
Estimates of possible severity of Y2K disruptions vary so ridiculously as to preclude confident prediction. It is clear, however, that major systemic service interruptions cannot be ruled out. No one knows whether isolated institutional failures could set off a cascade degenerating into a positive feedback loop. For example, what are the ramifications for the US dollar if the IRS fails to effect Century Date Conversion in a timely manner? What happens in the event of a large intra-day failure of a bank with heavy commitments on the CHIPS system? Is the banking system (and the debt-backed currencies it sustains) unsinkable? Might not a lifeboat - a non-correlated monetary system, independent of debt structures - prove an appropriate precaution?

Universal
An e-gold™ account, by virtue of its bailment nature, can never pay interest. The system differentiates money from credit. The emergence of CyberMetal Credit Facilities ("CMCF's"), however, will enable financial intermediation, thus broadening the scope and magnitude of the e-gold™ economy. CMCF's will be independent entities to whom e-gold™ customers can deposit (i.e. loan) e-metal™, in return for interest paid by the CMCF for the use of the metal.

Third party providers will offer distributed exchange and redemption capabilities on a competitive basis, reducing the need for Reserves/EGT to directly perform these functions. This will permit greater use of cost effective large bullion bars for Reserve purposes.

Technology and Trademark/Patent Rights

Current
JTC has applied for trademark protection (currently pending) for e-gold™, e-metal, e-silver, e-metal, G&SR, Gold & Silver Reserve, DigiGold and CyberMetal. JTC has applied for patent protection (currently pending) for the e-gold™ system. JTC also owns the domain names gold-reserve.com and cybermetal.com. Currently, JTC owns all of the intellectual property of the e-gold™ system.

JTC has developed and deployed proprietary software, primarily consisting of front-end CGI (Common Gateway Interface) applications, and backoffice Order Processing and Fulfillment utilities. The system was designed to exploit SSL technology within a few months of its commercial availability. The existing system enables a customer using a secure browser to create an e-metal Account and enter transaction orders.

G&SR, as the prototype Reserve Institution, currently owns the domain name e-gold.com (subject to trademark rights). G&SR, as the only existing Reserve Institution, currently has unrestricted potential to develop and benefit from the goodwill of the e-gold™ brand name.

Planned Disposition of Intellectual Property (subject to the advice of qualified legal counsel)
JTC will retain trademarks and full authority to interpret and define the e-gold™ system branded concepts.

EGT will acquire all existing software in exchange for a specified royalty arrangement. EGT will administer the licenses for the Reserve Institutions. This will include editorial review of promotional materials in order to enforce doctrinal compliance to the concepts as defined by JTC.

Reserve Institutions will own and amplify the goodwill of e-gold™ and related brand name(s). All Reserve Institutions will benefit from the success of the e-gold™ system collectively, in addition to building their own cadre of satisfied customers.

Operating Structure

Prototype Phase
JTC
JTC is a Florida corporation, incorporated September 1995 (as Gold & Silver Reserve, Inc.), doing business as Jackson Trading Company ("JTC") since February 1996. JTC serves as a contractor for the development and administration of the e-gold™ system and has no direct dealings with the public. JTC currently owns all intellectual property used for the e-gold™ system. JTC physically conducts all operations from a leased office suite in Melbourne, Florida, including software development, network maintenance, order processing and fulfillment, inventory operations and customer support.

G&SR, [the Prototype Reserve Institution]
G&SR, a Delaware corporation, was incorporated February 1996 as the prototype Reserve Institution to market and implement Phase I of the e-gold™ system. G&SR is organized as a virtual structure with no employees or physical plant. G&SR does business with the public, serving as bailee for all physical metal which is the substance of the value in circulation as e-gold™. As of May 1998, over 900 e-gold™ accounts have been created with G&SR.

Planned Implementation
GENERAL
The e-gold™ system will expand, with multiple Reserve Institutions, all licensed by EGT. EGT will operate the e-gold™ system as a unified whole, such that a customer spending or receiving e-gold™ need not be aware whether their counterparty is a member of the same Reserve Institution. EGT will not function as a Reserve Institution and will have no direct relationship with end-users. EGT will operate a clearing mechanism among Reserve Institutions, without participating as a principal.

EGT
Location
EGT will be incorporated offshore in 1998 in a jurisdiction to be determined. EGT will license G&SR as the prototype Reserve Institution and will license additional Reserve Institutions in and after 1998. Preferred characteristics of jurisdiction of incorporation include a benign tax and regulatory environment, stable political tradition, a strong "rule of law" legal system, superior communications and electric power infrastructure, and significant presence of prominent multi-national accounting firms and banks.

EGT may be entirely virtual. The management, staff, contractors and infrastructure of EGT need not necessarily be geographically co-located.

EGT will set up server farms in geographically separate locations throughout the world. The initial server farm will be located on the premises of a Tier 1 ISP, in a different country than EGT itself is domiciled. Criteria for the location of a server farm are jurisdictional (suitable regulatory environment) and infrastructural (adequate power grid and bandwidth). Iceland, Ireland and Anguilla all appear potentially suitable. Subsequent server farm installations will be in separate political jurisdictions, likely varying in climate and time zone.

Management
Management will be selected from candidates who meet several criteria. The criteria includes non-U.S. citizens to ensure offshore status of EGT, an extensive working knowledge of "cyber" operations and a desire to actively manage the company.

Functions (In general, contractors will be employed to the greatest extent consistent with coherence and systematic control.)

1) Licensing of Reserve Institutions
2) Further development and ownership of Intellectual Property
3) Network Administration
4) Operation of the e-gold™ system, which includes Web site content for the Reserve Institutions, Processing of orders, Transmittal of output to end fulfillment contractors, Redemption of metal, Printing and mail support, Archive of records, Inventory operations, Obtaining and Liquidation of Metal, and Clearing Function for the Reserve Institution and their customers.


RESERVE INSTITUTIONS
General Role
1) Bailee - An e-gold™ account is defined and governed by an e-gold™ Account Agreement. This is a contract between the customer and the Reserve Institution. The essential relationship is bailor-bailee, that is, the Reserve Institution is responsible for assuring that unencumbered physical inventory is maintained in a quantity exceeding the demand claims (i.e., e-gold™ account balances) of all customers of the Reserve Institution combined.

2) Marketing - The principal operational activity of the Reserve Institutions is marketing to their constituent segment of the globe.

License Provisions
Marketing Exclusivity - EGT will negotiate licensing arrangements for Reserve Institutions, based on geographic, language and cultural/religious boundaries. Any customer, anywhere in the world will be free to open an account with any or with multiple Reserve Institutions. A license will specify exclusive rights for marketing to selected groups. For instance, a Reserve license based on geography will stipulate that no other Reserve may target the specified region with broadcast ads or print media. A Reserve Institution may elect to maintain a web site for promotional purposes but it must be structured with appropriate links to the e-gold.com domain for transactions. Web surfers who start at the e-gold.com domain will be channeled (to the extent consistent with transparency and choice) to the appropriate Reserve Institution.

License Fee - A Reserve Institution will pay EGT a one-time, up-front licensing fee. It also will contract for EGT to operate the e-gold™ system. An ongoing management fee - based on total metal in electronic circulation - will be paid by the Reserve Institution to EGT. The nominal combination of fees will be:

Initial License - 2,500 oz (troy) gold;

Management fee - 10 basis points per annum (in monthly installments, based on circulation at the time the fee is calculated).

A higher license fee may be negotiated for later Reserve Institution licensees as the overall e-gold™ economy grows and later formed Reserve Institutions benefit from better established brand name. The relationship of initial license and subsequent management fee is not rigid - a Reserve Institution may, for example, elect to pay a higher initial license fee in exchange for a lower subsequent management fee rate.

Revenue Model for Reserve Institutions
[Please refer to Financial Projection spreadsheets relating to Reserve Institution Revenue Assumptions] Sources of Income for the Reserve Institutions will be: income from Exchange Activities (Commissions and net bid/ask spread), Transaction Fees and Storage Fees. Reserve Institution expenses will be Promotion expenses, Management fee to EGT, Fees of order fulfillment contractors, Customer support (contractor) expenses, Bank fees, Storage fees and General Business Overhead.

Relationship of Reserve Institutions to EGT
Licensee - The Reserve Institutions will purchase a license from EGT to operate in their markets.

Delegation of Operational Tasks - Each Reserve Institution will delegate authority to EGT for operation of the e-gold™ system. EGT will be fully empowered to engage in transactions using the individual Reserve Institution's bank accounts, such as purchase of metal or issuance of payments to payees designated by e-gold™ account holders. The Reserve Institutions themselves will be restricted from drawing their bank account balances below specified minimum. The Reserve Institutions will be required to maintain not only 100% reserve of metal but also a specified over-reserve buffer.

Compliance vs. Discretion [Requirements for unified system, vs. bases of inter-reserve competition]
1) OutExchange Rate - Exchange rates are defined in terms of USD per oz (troy). The lower (bid) rate, serves as the OutExchange rate. The OutExchange rate is used as basis for calculation for all transactions except InExchange. A higher (ask) rate is referred to as InExchange rate. Each Reserve Institution will have discretion to set its exchange delta (% spread of InExchange over OutExchange) but OutExchange rates will be set by EGT, uniform for entire worldwide system.

2) Supported Currencies, and, Currency Conversion Ratios - Not every Reserve Institution will make a market for exchange to/from the same fiat currencies. Each Reserve Institution will determine which currencies to support. For instance, a Reserve Institution with rights to Australia may elect to support exchange between e-metal and AUD and NZD but not DEM, whereas a German Reserve would likely support DEM but not HKD. No Reserve Institution may offer direct exchange of one fiat currency for another. The system therefore does not require or permit a bid/ask spread for currency conversion ratios. Currency conversion ratios are used in e-metal spends [ for calculating the correct weight of metal to convey ] and must be uniform system-wide.

3) Composition of Inventory, and, Redemption Premiums - Each Reserve Institution may elect which particular types of specie shall comprise their Reserve. An Islamic Reserve, for example, may elect to emphasize gold Dinar and silver Dirham, whereas the North American Reserve may concentrate on US-issued bullion coins. Redemption premiums and shipping fees may be set by each Reserve Institution and need not be uniform.

 

Competition

The e-gold™ system is designed to compete with (and position itself as successor to) the banking system. The success of the e-gold™ system, however, is not contingent on the collapse of current monetary and banking institutions or on any other doomsday scenario. Rather, the logic of the e-gold™ system provides decisive market advantage over the currently competing payments systems. In addition, the e-gold™ system provides a safety net in the event of significant disruptions in the current financial systems, giving the e-gold™ system additional market advantage in the event of such disruptions.


EGT can be confident that no currently dominant institution will embrace the precise concepts developed in this plan because they are antithetical to the existing order. This circumstance provides a remarkable window of opportunity to seize and dominate the gold niche. The e-gold™ system enjoys technical advantages amounting to at least an eighteen month head start over any emergent competitor. The e-gold™ system is an already developed and deployed application, through the prototype Reserve Institution, evolving through continuous enhancements. The prototype Reserve Institution is a going concern, benefiting from a highly visible print ad campaign, growing goodwill and increasingly expansive brand recognition.

The e-gold™ system competes with every other payments system, including the banking payments system, credit card payments systems and other emerging Internet based payments systems. However, because of the competitive advantages outlined below and the head start over other similar competitors, the e-gold™ system is well positioned to succeed over any competitive obstacles.

Banking Payments System
Banking competes by providing the most widely accepted payments system in the world. However, there are at least three major weaknesses of the banking payments system which are addressed by the e-gold™ system. The three major weaknesses are (1) the application of fractional reserve practices to the payments system, (2) the lack of full disclosure of the risks and costs of the banking payments system, and (3) the inability to provide immediate payment, clearing and access to funds received in a payment transaction.


Banking combines two functions which should be separate; money lending and administration of the payments system. Fractional reserve is perfectly appropriate and ethical for money lenders. When applied to a payments system, however, fractional reserve practices are fraudulent and destabilizing. Circulation of uncovered claims to money always (eventually) leads to monetary debasement. The defining act of banking is to circulate more demand-claims to cash than there is cash to back the claims. When applied to a payments system, this act creates a foundation that sits on an unstable tectonic fault line. The problem is, each and every depositor with money in a checkable account is contractually entitled to the same immediate access, whether by withdrawal or writing a check. If enough of them attempt to exercise their contractual entitlement at about the same time, some of them will not get the immediate cash promised causing a rupture in the fault line.

Withdrawal, however, is only part of the problem. Assuming a banking customer's checkbook balance is sufficient, there still are conditions under which a customer's check may not be good; bank-related risk factors which could prevent a check from clearing. For instance, a currency trader, trading the bank's account, can manage to lose an amount greater than the entire equity capital of the bank. These wagering activities constitute a risk that the check a customer writes may fail to clear - ever. In addition, perhaps the currency trader works for some other bank, but the customer's bank has an outstanding daylight overdraft on the CHIPS system which requires an incoming payment from the currency trader's bank in order to be good funds. If the currency trader's bank fails to make this payment because of the loss caused by the trader, the customer's bank risks failure because of the CHIPS overdraft. N.B., a greater US$ volume flows through the CHIPS system each day (most of it interbank currency speculation/hedging) than all US$ deposits in all banks in the world combined.

An important issue therefore is disclosure (vs. non-disclosure vs. outright misrepresentation). The fine print of a bank's deposit contract doesn't adequately disclose conditions which could cause a customer's check to fail to clear. Contrast the secretiveness of banks with the transparency exemplified by EGT's Examiner utility.

Why do people have bank accounts? Think about it, no bank account - how do you receive payments and spend? You'd take your paycheck to a check cashing service and pay a huge % hit. To pay bills by mail you'd buy money orders. Shopping trip abroad? Bring a big money belt. Imagine trying to buy an airline ticket, or worse yet, some big ticket item. Perhaps you suppose you could use a credit card? No one will issue plastic to someone without a bank account. Inferring "that the vast majority of consumers have preferred fractional-reserve banking" when there has never been an adequate alternative payments system - is unsupportable. People remain utterly dependent on the banking system (and the kind of money banks traffic in) because access to a payments system is a convenience tantamount to a necessity. The use of cash and money orders is not a viable alternative.

The deficiencies of the banking system; their figment-standard money, their payments system; are the reason for the development of e-gold™ system. The e-gold™ system is the world's first fungible, finely divisible medium of exchange which is utterly non-dependent on anyone's credit. No one can predict whether the banking system will continue to muddle through without catastrophe. EGT's mission is to provide a sound, convenient alternative; becoming sufficiently pervasive and robust to serve as a successor if need be.

Government Central Banks
Government central banks regulate the monetary base; currency and reserves which comprise the foundation for national banking systems. Central bankers are responsible for preserving the purchasing power of their national monetary unit. They must also be attentive to conflicting demands, to:
- prevent recessions and foster full employment by stimulating the economy,
- facilitate financing of sovereign debt,
- act as lender of last resort, providing liquidity to support banking system during crises.

To realize these goals they formulate and implement discretionary monetary policies.

EGT directly competes, in that it issues a money substitute which will function as the monetary base for a private transnational financial system. EGT, however, is subject to only one unchanging imperative - to assure that every gram of e-metal in electronic circulation is backed by at least one gram of physical reserves.

People are accustomed to using debt-backed legal tender as money, to such extent that they regard gold as merchandise or a speculative commodity. EGT must quietly and consistently demonstrate that money in the e-gold™ system - which serves only the market process - is more reliable than monetary devices designed to further political ambitions.

Emerging Payments Systems
An act of payment conveys ownership of a specific quantity of money from payer to payee. This may be effected by direct physical transfer of cash (base money; the ultimately defining or least derivative form of money). Often, however, because of considerations such as physical separation of parties, it is more convenient to use money substitutes - demand claims to cash - as a medium of payment. A payments system is a combination of methods for issuing, conveying and redeeming money substitutes.

All emerging payments systems circulate demand-claims to cash. They can be classified according to the nature of their base money :

1) sovereign debt which has been declared a legal tender;

2) other debt instruments;

3) tangible commodities.

TANGIBLY BACKED SYSTEMS

World Trade Clearinghouse (WTC)
WTC acts as a middleman for transmitting payment from party to another. They support transfers of claims to tangible assets as well as debt-backed instruments. Their revenue model relies on a substantial upfront initiation fee, much of which is applied toward a loyalty scheme or finder's fee arrangement. They emphasize financial privacy, somewhat to the detriment of transparency. The convenience and efficiency of their user interface cannot be assessed without paying upfront fee.

GoldMoney
A patented proposal to circulate demand-claims to gold - termed GoldGrams - denominated by weight. The private placement prospectus indicates that there will be multiple issuers of GoldGrams and that issuer-specificity is a purposeful and distinctive element. The customer will use a wallet-type client which may contain GoldGrams from multiple issuers. A merchant may elect a restrictive policy - accepting only Gold Grams originating from designated issuers, or may elect to accept GoldGrams from a wider range of issuing repositories. Details of exchange ( government currencies to/from gold), redemption, storage fees may vary from one issuer to another. GoldMoney's primary revenue source is projected to be fees for processing payments.


DEBT BACKED SYSTEMS
All systems described below involve eventual clearance of payment with government currencies via the banking system. They are subdivided according to whether they are front ends to credit card systems.

Credit Card systems

Credit cards are currently the predominant payment medium for web commerce. Many web sites offer promotional and descriptive materials but refer the customer to 800 number, fax or postal address for processing payment transaction. Some sites contain non-secure online forms for customers to submit their credit card numbers. An improved implementation protects submission of credit card data by means of SSL. In both cases, the merchant most likely processes the credit card information manually - a clerical employee entering the data into a credit card terminal.

Cybercash
The largest credit card based system. Cybercash is a proprietary client wallet application. A customer initializes the wallet by entering credit card numbers. A CyberCash payment transaction improves on manually processed credit card payments in two ways:

1) the customer's credit card number is encrypted such that the merchant cannot read it;
2) guarantee of payment is processed online, allowing the transaction to be completed by automated means.

**It should be noted that the e-gold™ system Shopping Cart Interface specification enables fully cleared payment on a real-time basis (as opposed to a guarantee of payment, which is not spendable by the merchant until credit card vender transfers funds to merchant's bank account). The e-gold™ system also does not require a proprietary client; any SSL-enabled browser will suffice.**

First Virtual
First Virtual acts as a middleman for a credit card transaction. An encrypted pin number validates the buyer. First Virtual transmits an OK to merchant. Payment passes from buyer to First Virtual and then to Merchant. System is based on encrypted email. Principal difference between First Virtual and CyberCash is use of encrypted PIN instead of encrypted credit card number (customer's credit card information already on file with First Virtual by prior arrangement.).

Non-Credit Card systems

The final category of systems involve prepayment by the customer to obtain digital tokens representing validated demand-claims to cash payable via the banking system.

Digicash ( ecash )
A software solution, involving digitally signed files, maintained on the customer's computer by a proprietary (wallet) client application. Tokens are negotiated directly from payer to payee, but payee (merchant) server automatically deposits received tokens in linked bank account. Digicash has exclusively worked with banks as issuers of ecash tokens. Bank hosts apparently do not maintain a designated allocated reserve against their outstanding ecash tokens. Digicash site indicates they may be carried on bank balance sheet as a general obligation, amounting to an uninsured, non-interest bearing deposit.


Mondex
A hardware-based (smart card) stored value system. Payment passes from card to card, but data is captured during transaction enabling detailed government monitoring and archival of transactions.

Competitive Advantages

The e-gold™ system is the first deployed payments system in history which electronically conveys title to highly divisible, fungible quantities (weight) of gold and other precious metals. It is the only monetary payments system - other than physical transfer of tangible commodities - in which credit plays no role.
EGT's products and services currently are presented in two modules:

1) The e-gold™ system (our book entry system); and

2) CyberMetal System of Credit, a system of accredited money lenders affording a new paradigm of financial intermediation. EGT will implement and administer this facility, but not participate as a principal in any lending activities.

The e-gold™ system benefits from the following operational competitive advantages:

WORKING PROTOTYPE
The prototype Reserve Institution has been operational since February 1996. Enhancement of an existing system, which already works, is significantly easier than designing a system from scratch.

GOODWILL
The prototype Reserve Institution, G&SR, has over 900 customers and the e-gold™ brand name is starting to surface in publications and especially Internet communications.

DEVELOPMENT TEAM  LEARNING CURVE
The EGT development team, coordinated by JTC, also has been operational since before February 1996. It can take months to assemble and organize a task group for development of an integrated system. There is also significant overhead in assessing and learning to use new technology.

CLARITY OF DIFFERENTIATION
All other electronic money schemes focus on methods of circulating a monetary medium, with no consideration of the validity of the underlying base money. Only the e-gold™ system differentiates money from credit.

NO HIERARCHICAL BLOAT
During the entire prototype phase there have been no employees or managers. The process involved direct collaboration of the principals with the development contractors. This degree of virtuality maximizes real-time invention and ability to respond to rapid changes in available technology. A cigarette boat dodges icebergs better than a supertanker.

LIMITED DEVELOPMENT BUDGET FORCED EMPHASIS ON AUTOMATION
During the prototype period, multiple Internet-related companies raised enormous sums in public offerings, hired high profile management, mounted blue chip marketing campaigns, burned through their capital resources and never generated a profit. The e-gold™ philosophy is to prefer mundane but efficient automated processes over summa cum laude MBA's.

NEW, SYSTEMATIC DESIGN, NOT HAPHAZARD "REFORM"
Because of the singular vision of the e-gold™ system, the design has developed towards the definitive goal of implementation of a payment system, that is unencumbered by debt and independent of the credit of any government or any financial institution, that introduces e-gold™ into wide circulation. This has allowed the development of a new system in a systematic way instead of the reactionary or haphazard modification or development of a payments system.

Current capabilities of the e-gold™ system are outlined immediately below. The projected upgrade path for the e-gold™ system, as well as development plans for phased implementation of the later modules, is detailed under "Strategic Plan".

Systematic benefits of the EGT products and services include the following:

1) 100% backing of metal in electronic circulation

Every gram of electronically circulating metal is backed 100% by physical metal in secure allocated storage in the custody of third party storage contractors. None of the metal which backs e-gold™ in circulation is in the form of derivatives such as futures contracts or leveraged purchase arrangements. No metal is subject to lien or other encumbrance (as occurs, for example, when assets are pledged as collateral). Currently, neither G&SR nor JTC have any debt, other than the obligations of a facility lease and month-to-month operating expenses.

2) Multi currency capabilities

Currently, a customer of G&SR can perform an InExchange or an OutExchange transaction from any of eight country's currencies--U.S. $, British Pounds, German Marks, Swiss Francs, French Francs, Japanese Yen, Australian $ or Canadian $.

3) Worldwide 24/7 customer access to the e-gold™ system

An e-gold™ system customer can access his or her account to perform any function from anywhere in the world 24 hours a day, 7 days a week. No other competing system offers this level of access.

4) Near-instantaneous clearing of gold payments and impossibility of overdrafts

An e-gold™ payment clears - even if the payer and payee are on opposite sides of the world - in less than 15 seconds. This means irrevocably cleared; the payee possessing (immediately spendable) gold as surely as if the payer physically had handed him gold pieces. As a result of this instantaneous clearing process, it also is impossible to generate an overdraft under the e-gold™ system and there is no need to wait hours or days for a payment to clear.

5) Automated conversion between weight and other monetary units of account

A payer, for instance, may order "Pay Account 647635 $83.08 worth of gold". The system calculates (and displays preview of ) the correct weight to convey using the exchange rate which the Reserve Institutions are honoring (as a market maker) at the moment of the transaction. This system permits the transmittal of any size payment, including micro-payments. No competing systems (including, e.g., credit card payment systems) currently support this flexibility of conveyance or disclosure of exchange rate calculations at the time payment is made.

6) Innovative, unprecedented transparency

Examiner - an online, real-time, automated query utility - enables anyone to confirm 100% backing and to audit total quantity of metal in electronic circulation vs. quantity and composition of the reserves backing it. For example, a person can confirm in Examiner that a specified Reserve Institution holds, in allocated storage, sufficient metal to back all metal in electronic circulation, and in fact holds excess reserves. The person then can see in Examiner the exact inventory of metal -- from bullion bars to various types of coins. Examiner also permits the real-time confirmation of transactions within the system. For example, a person can request an OutExchange (conversion of metal to $ or other fiat currency), then go back to Examiner to confirm the reduction of metal in electronic circulation by the exact amount of the OutExchange.

7) Automated processing of redemption orders

The e-metaltm Account Agreement unconditionally guarantees the right to redeem e-gold™ for physical gold from any metal in the inventory, as reported in Examiner. The redemption CGI checks current inventory (the same data displayed in Examiner) to assure adequate quantity of specific coin types before accepting redemption orders.

8) SSL/CGI, with central processing

Transaction security is assured by SSL (secure socket layer) technology. The SSL standard is well supported enabling EGT to keep pace with advances in security at extremely low cost (a virtual free rider on the R&D of Microsoft, RSA, Netscape and other venders of mass market SSL-capable applications).

Use of a standardized client (secure Web browser) frees the customer from any need to install proprietary software. All processing occurs centrally. This allows frequent upgrades, with no need to distribute software. It also means that proposed low cost personal computing devices with minimal intrinsic processing or data storage capacity may still be capable of e-gold™ transactions.

9) Worldwide Uniformity

EGT, through the Reserve Institutions, administers the e-gold™ system on a uniform worldwide basis. This unified structure is what allows unambiguous exchange rate, the transparency of Examiner, and the efficiency of redemption. No other competing system offers this efficiency and consolidation of operations.

10) Independence from the banking system and any system of credit

EGT's payment mechanism is totally independent of the banking system. Neither EGT nor the Reserve Institutions engage in any financial activity, e.g., they do not borrow to buy reserves or lend any metal in reserve. An (external) credit crisis could not force a suspension of redemption. These features make the e-gold™ system the only non-credit based payments system in the world.


11) Detailed online transaction history

A person can review his or her account history online, including details of incoming payment such as identity of payer, and memo data. Banks (and online banking systems, such as Quicken) fail to capture these details. The e-gold™ system allows both payer and payee to confirm when a payment is made and cleared (both of which occur at the same time). The User Interface for online banking systems, in contrast, can not even identify if a particular deposited check has cleared!

12) Identical application to individuals and merchants

The e-gold™ system draws no arbitrary distinction between individual and merchant accounts. Therefore, contrary to the practice of credit card systems, individuals, like merchants, can receive payments through the e-gold™ payment system.

13) Low transaction fees

A transaction fee is paid by the recipient of any payment under the e-gold™ system. Currently, the transaction fee is 1% of the amount of the transaction, capped at USD 50 cents (equivalent). This means that a merchant accepting an e-gold™ system payment, even if the merchant then immediately executed an OutExchange converting the payment to U.S. $, would receive the U.S. $ as fast as a credit card payment, and would pay a total cost for the payment received approaching 1/8% of the amount of the payment. This amount is far less that the 1-3% typically paid by merchants for receiving credit card payments.

Strategic Hurdles

Although EGT faces strategic hurdles, the Plan includes specific actions to address and overcome these hurdles. The expected strategic hurdles include:

Unfamiliarity
As a relatively new company, operating in new markets with a new product, EGT must successfully distinguish itself as a payment system.

Urgency
The need for a robust, worldwide payments system, independent of the banking system and any other system of credit, and capable of meeting any potential Y2K problems, is imminent.

Need for Offshore migration
To meet the needs of its worldwide customer base, EGT must operate offshore.

Recruitment
Management of EGT who meet several criteria must be recruited. The criteria includes non-U.S. citizens to ensure offshore status of EGT, an extensive working knowledge of "cyber" operations and a desire to actively manage the company.

Hostility
Some competitors, including governments, may react negatively to the e-gold™ system.

Strategic Plan

EGT will:
Raise funds for acceleration of development.
Develop strategic alliances.
Reorganize offshore
Implement enhancements

EGT will continue to support G&SR - its existing customer base, and expansion - concurrent with execution of this upsizing Plan. EGT will ally itself with existing and emerging Internet based companies while simultaneously increasing its equity capital base through licensing Reserve Institutions and equity financing. These alliances and new sources of capital will be used to provide systematic enhancements designed to establish the e-gold™ system as the premier payments system in the world.

Financial Projections

Please refer to linked spreadsheets detailing Revenue Assumptions and Financial Projections

Financing enables accelerated development and realization of Phase I in 1998. One or two Reserve Institutions will be permitted to secure a license on a discounted basis while development proceeds. Phase I deployment will enable EGT to attract license fees, and apply cash flow to achieving Phase II goals by late summer of 1999. After Y2K, stream of management fees from Reserve Institutions and income from support of CMCF's provides continuing source of revenue.

EGT Revenue model

Sources of revenue
1) From Reserve Institutions

Initial license - 2500 oz (troy) gold. Most likely the more appealing license regions will sell most readily, but then the growth of overall system will tend to enhance value of the remaining licenses.

Management fee - 0.001 of total metal in electronic circulation per annum, in monthly installments, subject to 25 oz (troy) gold monthly minimum, from each Reserve Institution.

2) Sublicensing [in the event a Reserve Institution elects to subdivide its market segment]

EGT gets 25% of any initialization

Royalty obligation to EGT unchanged

3) From CMCF's

Initialization/accreditation; software and training - 250 oz (troy) gold (NOT inclusive of DigiGold Server)

Upgrade and support - 25 oz per year.

EGT Costs
[See linked spreadsheets for software development, fixed assets, overhead assumptions]

Reserve Institutions Revenue Model

Sources of Reveune

1)  Exchange Activities

2)  Storage Fees

3)  Transaction Fees

Reserve Institution Costs
[See linked spreadsheets ]

Strategic Alliances

EGT will seek to collaborate with:

G&SR and Other Reserve Institutions,
Auditors and other entities providing market-based resources relating to fidelity,
Storage facilities,
Banks and other entities providing interface to bank payments system,
Virtual communities
Third party providers of allied services:
    Fulfillment contractors
    Independent providers of exchange and redemption,
Internet Service Provider(s),
Y2K contingent access solution provider(s),
Companies seeking a market for their gold,
Sovereign entities and central banks seeking market-based disposition for their gold.

G&SR and Other Reserve Institutions
EGT will license Reserve Institutions to promote the e-gold™ system in their respective markets.

Auditors and other entities providing market-based resources relating to fidelity
Currently, G&SR submits to third party verification of physical reserves on a regular basis. The independent auditing process will be extended, and likely brought into conformity with GAAP. A prominent, international accounting firm will be selected to develop uniform procedures suitable for the special requirements of the bailment structure and delegated management. Each Reserve Institution will be encouraged to engage this firm, enabling economies of scale and assuring comparability of report formats.

The e-gold™ system's Examiner utility already provides accurate, up-to-the-moment, online data by means of an automated query:

a) total quantity (weight) of metal in electronic circulation,
b) total quantity (weight) of physical metal in custody of EGT and the Reserve Institutions, constituting reserve,
c) detailed composition of reserve (number of pieces of each specified type)

An overriding requirement will be development of appropriate procedures for auditor(s) to verify the accuracy of Examiner data. Selection of an auditor of record will be pursued in conjunction with the process of establishing lower cost specie acquisition and storage arrangements. Auditor reports will be published electronically, with digital signature, to facilitate automated online availability. Arrangements will be designed to afford the auditor ability to perform an independent, unannounced audit of e-gold™ system records and the physical inventory of the Reserve Institutions at any time. In addition, programmatic interfaces can be implemented enabling the auditor to remotely monitor basic processes on a real time basis. For example, the auditor can be integrated into distribution list for orders to and reports from storage repositories.

In addition, G&SR has begun discussions with several non-profit entities to implement a Board of Auditing Standards, consisting of internationally recognized individuals (e.g., academics) who will form an oversight board, with the power to commission an independent review of the e-gold™ system and its reserves at any time.

With these independent safeguards in place, the credibility of the e-gold™ system will be immeasurably enhanced.

NACHA
According to its Web site (www.nacha.org): "The National Automated Clearing House Association (NACHA) is a not for profit banking trade association with the largest number of member financial institutions in the country. NACHA promulgates the rules and operating guidelines for electronic payments through the ACH Network, and for Electronic Benefits Transfers, electronic checks, financial EDI and cross-border transactions.

The ACH Network links America's depository financial institutions to the nationwide electronic payment and collection infrastructure. NACHA was organized in 1974 by a group of bankers who envisioned electronic payments as an alternative to the large number of checks written each year. Today, almost 4 billion ACH transactions are made annually and the total dollars transferred exceeds $11 trillion. NACHA's mission is to provide benefit to its members and other payments system stakeholders; and to be the leader in the ACH and a recognized leader in the development, promotion and use of electronic solutions to improve the payments system."

G&SR is an Affiliate Member of NACHA, and a full member of NACHA's Internet Council. A particular shared goal is to formalize standards for validation of identity. EGT will advocate the position that knowledge of actual identity shall be the responsibility of Certificate Authorities. EGT, rather than bearing the expense of validating actual identity, can concentrate on strong measures to assure that only the certificated user is able to access an e-gold™ Account associated with the certificate.

Storage facilities
Each Reserve Institution may contract with multiple repositories for cost-effective, secure, allocated storage. EGT, however, will require that all Reserve Institutions maintain at least part of their physical inventory at a common facility, sufficient to enable physical clearing of inter-institutional transfers. It is anticipated that selected repositories will benefit from enormous volume. EGT will require repositories to be responsive to the uniquely demanding requirements including but not limited to secure authenticated communication, support of auditor interface, and support of selected Y2K contingent access mechanism(s).

Banks and other entities providing interface to bank payments system
The most inefficient element identified during Prototype Phase has been the interface to banking system, in particular the bank-administered payments system. For the foreseeable future, however, it will be necessary to support an exchange market between e-metaltm and fiat currencies. Exchange operations require an interface for receiving and issuing fiat payments.

Each Reserve Institution will be free to maintain accounts with banks of their choice. EGT, however, will seek to identify banks which offer (relatively) efficient and cost-effective user interfaces, and encourage the Reserve Institutions to make use of them.

EGT will also attempt efficient collaboration with non-bank firms specializing in payments interface. Such entities as Quicken and CheckFree would be potential candidates, possibly integrating OEDP or other support in widely distributed software clients such as Quicken 98. CheckFree themselves could independently establish online fiat bill payment services, as discussed below in "Third Party Providers of Allied Services".

Internet business communities
Several innovative enterprises are being organized which will provide systematic virtual infrastructure to facilitate commerce in Cyberspace. Each will provide solutions enabling the rule of law, based on contract and reputation, in a business environment unlimited by politically defined borders. Each will also serve as a Certificate Authority, with reliable validation, likely supporting well-designed anonymization along with assurance of uniqueness.

The Digital Society
The Digital Society (www.digitalsociety.net) is an Internet-based virtual world. The Digital Society operates on a global scale, with an initial population target of 1 million Citizens. Citizenship is free, as are most of the minimal services. Services which use significant resources or allow a Citizen to conduct business have a minimal cost. The e-gold™ system is the payments system for these payments and other transactions within the Digital Society. Citizens in the Digital Society interact in virtual communities, set up storefronts to sell products and services as well as register and operate real-world corporations and businesses.

ITTI
EGT currently is negotiating with Internet Transactions Transnational, Inc. to become the payments system used by ITTI "CyberSpace Club" members. ITTI is a developing company which will offer a variety of services to its members, including a network of screened and monitored members with whom other members can do business over the Internet. For these transactions to take place, ITTI must incorporate a secure Internet based payments system. The e-gold™ system offers this type of payments system which will allow ITTI to adopt and promote the e-gold™ system instead of spending research and development capital on developing its own payments system. The ongoing negotiations have been positive and EGT expects to formalize arrangements with ITTI in 1998.

Third party providers of allied services
Fulfillment contractors
Currently, JTC fulfills Redemption and OutExchange orders per contract with G&SR; preparing and mailing shipments of specie, and printing/mailing checks. Additional contractors will be developed, with improved ability to fulfill non-US orders.

Independent providers of exchange and redemption
Currently, G&SR, the prototype Reserve Institution, is the only company making a market for exchange between e-metaltm and government-issued forms of money. Likewise, the only current method for converting e-metaltm into physical specie and taking delivery is to order Redemption through G&SR.
Lower fees for processing e-metaltm payment, combined with highly efficient Shopping Cart Interface, create attractive opportunities for independent entrepreneurs to provide these services on a competitive basis.

Examples:
A large coin dealer, or mint operation, might elect to deploy an online shopping cart for selling bullion coins over the Internet. By accepting e-gold™ they would realize significant savings relative to credit cards. They could complete the loop by re-selling the e-gold™ they receive, at an appropriate mark-up, thereby functioning both as Exchange market maker and de facto Redemption provider. As greater diversity of specie products was made available by this means, Reserve Institutions would be able to concentrate on larger, less expensive bullion bars.

A company with an established efficient interface to bank payments system might establish an online bill payment service. Their User Interface, either a proprietary client, or an online interactive form, would be designed for customer entry of payment instructions. The customer would build a batch of payment instructions, to be fulfilled by the merchant, either by mailing checks or electronic funds transfer. The bill payment merchant would accept e-gold™ for their services, priced appropriately. This would provide equivalent functionality to the OEDP services which EGT is preparing to implement. The advantage to EGT and Reserve Institutions would be dramatically reduced load on bandwidth and database resources, while fostering broader circulation of e-gold™.

Internet Service Provider(s), and Y2K contingent access solution provider(s)

ISP vs.specialized Offshore Server Net
Phase I goals include establishment of initial server farm in suitable offshore location. Selection criteria are discussed below. Several strategies need to be considered. EGT could make use of an existing Tier I ISP. EGT could undertake to build a server farm independently, from scratch. EGT could participate in the establishment of an Offshore Server Network, perhaps as a joint venture. Such a network might position its infrastructure in Cyber Free Trade Zones, organized to take advantage of jurisdictional arbitrage.

Y2K contingent access
EGT will seek out a third party that undertakes to provide connectivity solution(s) for worst case Y2K failure scenarios, specifically assuming prolonged and widespread interruptions in electrical power generation and distribution. Such an entity will develop and market a client side communications module, with integrated power generation. The communications package will likely be costly. The market will include high net worth individuals, otherwise viable corporations, and entrepreneurs who undertake to provide communications on a per transaction fee basis. EGT would conform to the supported technology, building a server side terminal. This general strategy would avoid dependency on intermediaries. Possible technologies include short wave radio, or satellite telephony. This contingent access will likely be costly, and represents a major thrust of Phase II.

Mining Companies and Refiners Seeking a Market for Their Gold
Often, companies will establish an employee benefit which permits the distribution of the company's inventory to employees at a discounted (compared to market prices) price. Mining companies find it difficult to establish this type of benefit program and, therefore, have been unable to establish this additional market for their inventory, precious metals. EGT has started discussions, and will continue discussions, with the world's mining companies to implement programs for the distribution of the mining companies' metal inventory to employees of these companies. The company would bail specie into their e-gold™ account. The e-gold™ payments system will allow the mining companies to offer employees a portion or all of their wages, bonuses and other types of compensation in metals placed in the employees e-gold™ accounts. This type of transfer will be an e-gold™ spend, from the mining company to the employee, which will allow the employee to receive the metal at approximately the current spot price - well below the price the employee would pay for the metal, if acquired in any other fashion. The mining companies also could implement an additional employee benefit of a distribution of metal from the company to the employee's e-gold™ account, as additional compensation under a performance pay program or other employee award program, or offer the purchase of metal by the employee's account under the company's retirement plan. All of these alternatives open up additional markets for the inventory of the mining companies and, at the same time, will expand the customer base of the Reserve Institutions as new accounts are set up by the mining companies and the employees of the mining companies.

Sovereign entities and central banks seeking market-based disposition for their gold
Over the past several years, the Central Banks of several countries have either sold or announced their intention to sell part or all of their inventory of gold (e.g., the recent announcements by the Australian and Swiss Central Banks). This method of disposal tends to move exchange markets, such that the seller realizes lower proceeds of the sale. This has worked to the advantage of G&SR and JTC, in that the depressed gold exchange rates and resultant gloom in the gold industry have deterred would-be competitors. Philosophically, it is also fitting that this sequestered gold, which in most cases was confiscated from individuals who had entrusted it to bankers, should filter back into world markets.

A much more advantageous strategy for sovereign entities would be to bail their inventories into e-gold™ accounts. Rather than outright sales, they could then spend the metal in an efficient and orderly fashion. Quite possibly, the resultant increased monetary use of gold would stimulate demand for gold, such that the purchasing power of their specie would be enhanced. Undoubtedly, with the status that such official recognition would afford, there would be no lack of prospective eager recipients, such as taxpayers electing to receive refunds in e-gold™, or foreign creditors, appreciative of alternatives to ubiquitous USD or euros.

Operations


Over the next six to twelve months, EGT intends to focus on the following areas of operation:

Research and Development

Migration offshore

Legal issues and certification



Research and Development

Software development - From the beginning, the e-gold™ development philosophy has been to exploit standard off-the shelf programs and components whenever possible. This allows integration of the latest technology at the least possible expense.

The following queue of planned developmental enhancements is a dynamic document. At time of writing JTC is negotiating with several contractors with specialized expertise in systems analysis, design and implementation.

BACKGROUND/LEGACY
Software development for the e-gold™ payments system project began Winter 1995-96. Preliminary plans for a windows-based client/server application were scrapped Spring 1996 as it became apparent that SSL would provide robust channel security, allowing use of standard browsers. Alex Soya of Logan Industries devised and implemented the basic strategy: a front end - html forms and CGI's which would write request records to a transaction table - combined with backend programs to process orders and write confirming records. The frontend was written in C++. An SQL Server database was used for account and transaction records. Backend programs were written by Douglas Jackson using Delphi 2, employing Paradox database tables.

In Summer 1997, Alex Soya disengaged from software contracting activities to concentrate on development of his own consumer software product. Squires Engineering was selected as primary development contractor.

Phaseout of Paradox - Fall 1997 all backend programs were recompiled with Delphi 3 and Paradox tables were replaced with SQL Server tables. This was done to facilitate integration of frontend and backend for better error handling and transaction level control (the ability to commit or rollback transactions).

GENERAL STRATEGY FOR TRANSITION FROM PROTOTYPE TO PHASE I
The entire system is being redesigned as a highly scalable component based logical architecture. Business objects, implemented as COM services, will be developed enabling a multi-tiered arrangement. CGI executables are being phased out and replaced by server -side active server pages. An application server, likely Microsoft Transaction Server, will be integrated to facilitate efficient use of resources. The e-gold™ Shopping Cart Interface was the first deployed example of an active server page interfacing with COM technology.

Backend
Pending deployment of component based system, all backend programs are undergoing upgrade in coordinated fashion to assure high reliability under load conditions. Documentation of code is being enhanced to the standards already established by front-end development.

DATABASE DESIGN
Database design tends to be an iterative process in that application development uncovers unforeseen inefficiencies or deficiencies of table structures. Experience with the prototype system has already afforded several generations of database enhancement. This process is ongoing in the context of the enhancements detailed below. In general the distinction between backend and front-end processes is being refined and in some cases blended. Specifically, calculation of balance and archival of transactions are areas where the front-end is gaining efficiency by accessing data and processes already addressed by backend utilities.

While the modeling process continues, we are systematically evaluating the merits of migration to an object database (ODBMS).

CLIENT AUTHENTICATION
The prototype system uses SSL for secure transmission of information across an unsecure medium. An e-gold™ account can only be accessed by someone with knowledge of account number / password combination. We will supplement this channel security with digital certificate based client authentication, an unforgeable means of establishing identity embodying mathematical protocols for strong encryption. This technology is natively supported by the latest secure browsers, such as Netscape Communicator with the PKCS 11 security module.

Smart cards carry digital certificates a step further, allowing certificate data to be both portable and secure.

Digital certificates are signed/validated by Certificate Authorities (CA's). Certificate server software is available at modest cost, but administering a certificate registry is a dauntingly complex task. EGT will rely on third party CA's so as to avoid the expense of attempting to validate the identity of our customers. As noted in Strategic Alliances, a new generation of CA's will shortly emerge offering blinded validation. This will allow use of unique aliases, so that the e-gold™ system may remain ignorant of the actual identity of its clientele but confident that identities can be determined, by the CA, in appropriate circumstances.

ACCOUNT CREATION
The prototype deployment makes no distinction between accounts and users of accounts. The Phase I edition separates these entities, enabling a one-to-many relationship, that is, multiple users for an account. The root user will have the option of adding additional users and assigning them to groups, specifying individual and group permissions. A broad range of user-defined permissions will be supported, ranging from audit-only access to full administrative (root) privileges.

The permission structure will support dual signature requirements and also enable limited permission classes. For instance, clerical operators may have limited order entry privileges, entering single orders or batches for later approval by an authorized user. Third party auditors might have read-only access, allowing them to directly query transaction records.

DIGITAL SIGNATURE
Use of digital certificates also facilitates integration of digital signatures for non-repudiation. Phase I system will capture and archive copy of digital signature for all orders which decrement balance. The system will offer (optional) signed receipts in a format allowing verification by the browser or email utility.

EXPORT OF FULFILLMENT ORDERS
Currently JTC, in addition to operating the e-gold™ system, acts as order fulfillment contractor. Phase I will support greater flexibility, enabling distribution of fulfillment tasks to multiple competing contractors. This may take the form of file export, or may involve additional specialized active server pages - retaining all data in centralized database structures.

REMOTE MONITORING/DECISION SUPPORT
A secure User Interface will enable remote monitoring and control by authorized designates of EGT and the Reserve Institutions. Each such certificated User will have a detailed profile of permissions. Exchange rates are set and system activity is already monitored remotely by this means. Virtual organization mandates an extension of control interfaces accessible by an authorized manager from anywhere in the world.

Additional decision support tools will allow further automation of exchange processes - thereby minimizing delay between order entry and fulfillment - by supporting inventory operations in a manner which affords economies of scale but minimizes market exposure.

BATCH PAYMENT
Large commercial users require support of batch payments. An interface standard will be published/supported enabling companies,  individuals, or third party service providers to prepare and maintain repetitive and batch orders offline. Batch collection objects will likely include state and behaviors for automated parsing/allocation of transaction fees in the case of third party batch service providers.

MULTIPLE RESERVE INSTITUTION SUPPORT
Support of multiple Reserve Institutions will require modification of frontend and backend processes. Additional utilities will be required for support of inter-institutional clearing, which will involve physical inventory operations.

SUPPORT FOR CREDIT CARDS [for InExhange orders]
Customer feedback, especially from European market indicates considerable demand for credit card support. This will increase the cost of collections but should be offset by economies of scale such that no increase in spreads or commissions will be required.

OEDP [OutExchange with Directed Payment]
Gold is accounted by weight. Gold can be spent only to someone willing to accept payment in gold. For mass market adoption, expedience requires that a customer owning gold should be able to conveniently direct a payment to any payee.

This is the role of OutExchange with Directed Payment. EGT will exploit the increasing familiarity of online banking. Generation of an OutExchange with Directed Payment order resembles online checking. The actual processing involves several steps:

1) customer's gold balance is drawn down by the precisely correct weight, calculated according to the exchange rate and commission schedule the Reserve Institutions are honoring at the moment the order is committed. An order which would result in overdraft is rejected.

2) EGT performs the exchange into the government money of choice (US$, DM, Yen, etc.), acting as counterparty (to the extent that OutExchange orders are not offset by InExchange)

3) payment (check, wire, EFT or one of the fiat-backed e-moneys) is issued from the Reserve Institution's bank account to the designated payee (with appropriate notation to allow correct posting by recipient).

In this fashion, a customer can draw from the value in their e-gold™ account and direct payment to any recipient. The recipient does not need to have an e-gold™ account to accept this form of payment, because the recipient will receive payment in the fiat currency of the recipient's choice.

This powerful capability will afford an e-gold™ account holder the realistic prospect of liberation from any need to personally retain an account in the banking system.

The initial release of OEDP will be limited to check payments, in USD and CAD. Later refinements will add support for other currencies and payment mechanisms such as wire and EFT.

CMCF's [CyberMetal Credit Facilities]

The e-metal™ payments system is the foundation of the e-gold™ economy. The vital second tier is financial intermediation. CyberMetal Credit Facilities will comprise the core of the financial system. CMCF's will resemble banks, differing in two fundamental respects:

1)  CMCF's will explicitly amplify and allocate credit, but will not issue or circulate vague demand-claims which blur the distinction of money and credit. CMCF's themselves will be customers of the e-metal™ monetary/payments system.
2)  Transparency, exceeding any standard of disclosure ever attempted by the banking system, will be systematically enforced, by automated means.

EGT will develop an application suite for CMCF's, embodying:
- a series of defined server-to-server interfaces to the e-metal™ system, encompassing all the specialized money transfers germane to financial relationships,
- classes for business objects such as debt contracts, applicable to the CMCF's roles as both debtor (to depositors) and creditor (to end-borrowers),
- standard browser User Interface, both for customer access and management functions, along with specifications for designing a custom interface

EGT will license and accredit CMCF's, charging fees for intial license, and for subscription to technical support and software upgrades.

The attached Exhibit A: CyberMetal System of Credit describes the logic and advantages of CyberMetal Credit Facilities. Reserve Institutions will benefit from their activities, in that the quantity of gold in circulation will increase, resulting in greater storage fees.

Note that no other currently advocated system of electronic money involves a fundamentally divergent paradigm for financial intermediation. This is a corollary of the phenomenon that other systems fail to distinguish cash from credit. They overlook a fundamental aspect of money, the concept that the "backing" IS the money, and the circulating medium simply conveys title to money.

TELEPHONY APPLICATION

Market feedback indicates there is large potential demand for e-gold™ among people who are not computer users or not yet online. Offline use will also require development of a system of mailed correspondence; account creation documents and monthly account statements. The telephony application will not be as feature rich as web-based system. We are actively investigating authentication protocols applicable to telephony. Initial telephony application will likely utilize a telephone server which repackages transactions into html and re-transmits to central server(s) over the Internet. A direct dialed central server will also be considered as a Y2K contingency.

METAL-TO-METAL EXCHANGE

There is identifiable demand from existing customers for metal-to-metal exchange. We will implement a self-service customer interface in a format similar to existing exchange UI's.

CUSTOMER SERVICE INTERFACE

With increasing volume, there will be increased need for customer support; technical and account specific. The customer support technician must in some cases be able to access data in tables. Interface must be designed to provide appropriate access and assure audit trail of correcting entries.

POS

A point-of-sale/service payment mechanism will be developed. The tentative plan is to use smart cards, probably Java -based, for an online system which supports both e-metal payment and OEDP. The card would serve as authentication token and processor for downloaded POS payment applet.

DigiGold [Negotiable Digital Token]

There is a well defined community of cryptographic experts with particular interest in so-called electronic cash. Electronic cash may be defined as digital tokens - encrypted, digitally signed files, negotiable directly from payer to payee - which convey demand claims to specific quanta of value. The most ardently advocated permutation is digital bearer bonds.

Depending on customer feedback and assessment of demand, we may introduce a stored value digital-token, likely smartcard based, directly negotiable from payer to payee. The mark DigiGold has been registered for this purpose on an intended use basis. Successful introduction of such a system is dependent on a pre-existing e-gold™ economy of significant magnitude, since the digital file would represent a demand-claim to a precise quantity denominated in weight units.

If we undertake to implement a digital token system, a critical issue would be the nature of the demand obligation. A token issued by a Reserve Institution would necessarily represent a demand-claim to a precise weight of physical metal, a contract essentially identical to e-gold™. Since the token could remain outstanding a variable length of time, it would be most appropriate to structure it as a wasting claim, diminishing in value at a rate approximating storage fees. A significant alternative, however, to such digital coins which must be considered is... real bullion coins. The re-monetization of metal which we will effect will create an incentive for national and private mints to introduce new generations of coins in commercially useful weights and configurations. POS online payment protocols could readily integrate ATM-like coin distribution options.

A more attractive strategy might be to introduce tokens which are interest bearing digital bearer bonds. These, however, could not be issued by the Reserve Institutions, since they would inherently represent fiduciary media, backed only by a fractional reserve. Therefore, if the DigiGold initiative is pursued, it would be in the context of the CMCF's - they would issue them as an alternative to conventional savings account product. DigiGold, rather than serving as a demand-claim to physical gold, backed 100% by metal, would function as a negotiable pseudo-demand obligation, payable in e-gold™, representing a current liability of a CMCF. Since EGT will support CMCF's with centralized infrastructure, DigiGold would be a value added optional service. EGT would implement a clearinghouse method [likely involving a clearing event, raised by the token object itself] such that any CMCF could accept the tokens issued by any other CMCF, automatically presenting them to the CMCF which issued them, for immediate redemption in e-gold™.

WEB SITE ENHANCEMENTS

During prototype phase, Douglas Jackson of JTC attended to web content and presentation. This was done to control costs and because of the rapidly evolving nature of the e-gold™ concept. Responsibility for web presentation will likely be assigned to a contractual specialist, with oversight delegated to an in-house marketing editor.

MULTIPLE RESERVE CONSIDERATIONS

With multiple Reserve Institutions, an adroit strategy must be devised for channeling Reserve-specific traffic to appropriate URL's and assuring all transactions are processed in a Reserve-aware fashion. In particular, the account creation process must be structured so as to present customer with appropriate Reserve-specific contract.

SECURITY ENHANCEMENTS

Legacy
Network security during prototype phase was not assigned high priority because the customer base was small enough to enable human oversight of all transactions. As of January 1998, additional resources were allocated for development of a network security plan. The resultant plan is dynamic and progressive. Initial phases entailed an audit of all installed programs, services and network protocols, with elimination of all unnecessary services. ACL's (access control lists) were systematically reviewed, directory and selected file level permissions tightened. The server currently in use supports 128-bit security. A complexity requirement was added for password generation.

Windows NT
A Network Administrator truism holds that use of Windows NT affords inferior security relative to certain versions of Unix. Yet, a definite migration from Unix to NT can be discerned, especially in the financial services industry. EGT will most likely stick with NT, because:

a) Smarter NT-specific firewalls, operating at lower levels in the protocol stack, are increasingly available. [See Byte, June 1998, p. 96NA 3.]
b) Most of the security liabilities of NT apply to services and protocols, such as mail, FTP, or print servers, which we do not use. Likewise, most breaches of network security involve human beings logged into network nodes inside the firewall. Virtually all transaction monitoring and system management of the e-gold™ system will be performed remotely, using an active server page based UI, subject to the same tight control as all other traffic coming firewall, using http through web servers.
c) Despite predictions that it would take 5-10 years for NT to mature to equivalent security as Unix, the unexpected proliferation of deployment has accelerated availability of support products.
d) Most importantly, the software development team is more familiar with NT. Undoubtedly, any possible superior security of Unix is realized only if network administrators and development staff have extensive Unix background.

Security Plan
See attached summary. In general, the plan addresses: console/operator safeguards and restrictions, active auditing with systematic logging, automated alerts, review and archival of logs, periodic scanning from outside firewall, and ongoing monitoring of published security updates.

As of June 1998, JTC will impose a requirement that all connections must be 128-bit. Information will be posted detailing sources of strong encryption products for upgrading export-crippled browsers.

For a limited period following introduction of certificate-based client authentication, EGT will continue to support password based access. Even after certificates are implemented, we will likely support a mobility option, enabling customers to specify that transactions below a user-defined value limit, may be entered using Account Number/password combination. This would primarily be useful to the customer whose certificate resides in their desktop computer, but who wishes to be able to access their account while traveling or using someone else's computer.

Backups
Data preservation and integrity is absolutely essential. Backup plan is dynamic, scaled to volume of data and rate of accumulation. Off site backups will include permanent archival of transaction logs enabling recovery of both current data and historic reconstructions.

Offshore Migration

The United States has entered a new era of seemingly permanent prosperity. The US dollar is in demand throughout the world. So long as this Pax Americana obtains, innovation in the area of electronic money will likely continue to enjoy a (relatively) laissez-faire regulatory climate. This could change, abruptly, following a catastrophic market event. If US history repeats itself, maladaptive legislative and bureaucratic responses could range from currency controls to government seizure of gold. Prudence dictates that the e-gold™ system migrate to an appropriately structured, offshore entity. The new corporation, EGT, will disperse assets and infrastructure among several political jurisdictions. The primary server and order processing will reside in a location featuring an enlightened regulatory environment, high quality telecommunication network, and a strong historic reputation for financial responsibility and integrity. Likewise, an increasing proportion of metal comprising reserve must be stored offshore.

DELPOYMENT OF FIRST SERVER FARM
First server farm will be located on premises of a Tier I ISP. See attached network plan for tentative topology. Network architectural plan is, of necessity, flexible, subject to inputs from systems analysis consultants and changes in technology. Hardware and network configuration will support thousands of simultaneous transactions.

Legal Issues

Precise delineation of contractual responsibilities is essential. The most critical contracts are:

1) e-metal™ Account Agreement
Each Reserve Institution will offer a unique, specific Account Agreement. Fundamental elements will be uniform and obligatory, such as 100% reserve, automated transparency, right of redemption on demand. Variable elements will primarily consist of provisions for legal remedy. G&SR, the Reserve with rights to US and Canada (G&SR), for instance, specifies legal remedy under US law with jurisdiction specified as Wilmington, Delaware.

2) Reserve Institution License
License will define:
Scope of marketing exclusivity,
Reserve requirements, for metal, and,
Required maintenance balances for bank accounts.

3) EGT Management Contract
The critical issue requiring explicit clarity is delegation of operating authority. Standards for monitoring and reporting must be rigorous.

4) CMCF Accreditation Covenant
The CMCF must adhere to transparency requirements. They must not apply the trademarked names to any other payment mechanism or medium. In return, all use of e-gold™ payment mechanisms - to, from, or intra-CMCF - is free of transaction fees.

5) CMCF Software Maintenance and Technical Support Contract
Level of training and support must be defined. Subscription will encompass all upgrades.

6) Allocated Storage Contract
Industry standard contracts must be augmented to deal with secure realtime communications, especially relating to daily physical inter-Reserve clearing procedures.

7) Third party order fulfillment contracts
Performance standards and contractor liability must be defined.

Each of these contract types will be drafted in-house but reviewed by qualified counsel. Given the emerging nature of transnational business and cyber-commerce, existing statutory "law" will be of limited relevance. Appropriately written contracts will comprise the pertinent legal framework. Conflict with objectionable national laws will be avoided through jurisdictional arbitrage.

Marketing
Marketing falls within the scope of Reserve Institution activities, and does not directly pertain to the EGT Business Plan. Marketing issues are briefly discussed in Exhibit E - Marketing Issues.

Financing

To accomplish the objectives of the business plan, EGT will raise approximately U.S.$2,000,000 in 1998 by private equity placement, advance payment of licensing fees by Reserve Institutions, and/or short term debt. The financing proceeds will be used to supply working capital for accelerated development and high capacity server/network installation.

Management and Organization

Management Team

The management team for EGT will be recruited from qualified individuals with no ties to the United States.

Principal Advisors

Barry K. Downey. Mr. Downey serves as President, director and General Counsel of G&SR. Founding partner of law firm concentrating in employee benefits/executive compensation, labor and employment, estate planning and general business law. Employee benefits/executive compensation counsel to numerous clients and general business counsel to a lesser number of clients. Representative clients include governmental entities, publicly traded and large privately held manufacturing firms, service firms and financial institutions. Broad experience in all areas of employee benefits/executive compensation representation, including planning, design and administration, fiduciary responsibility, reporting and disclosure, tax qualification and related issues, and mergers, acquisitions and dispositions. Admitted to bar, 1986, Maryland; 1989, District of Columbia; 1991, U.S. Supreme Court. Former Chair, Maryland State Bar Association Employee Benefits Committee. Author: Nonqualified Deferred Compensation Answer Book, Panel Publishers, 1997; Nonqualified Deferred Compensation Answer Book: Forms and Checklists, Panel Publishers, 1995.

Dr. Douglas Jackson. Dr. Jackson serves as President and director of Jackson Trading Company. Dr. Jackson is a physician in private practice, board-certified in Radiation Oncology. He is a founding partner of Florida Oncology, a hospital-based group practice providing specialty care in the area of Radiation Oncology. Florida Oncology operates under contract with Health First, an integrated medical services provider which operates three hospitals, multiple outpatient care facilities, and administers commercial and Medicare HMO insurance products.

Charles Evans. Mr. Evans serves a an independent contractor to JTC, promoting the e-gold™ system and consulting with respect to marketing and development of the e-gold™ system. Mr. Evans is President of Chyden.Net, an Internet business development firm that concentrates on promoting the work of overseas information technology firms that are seeking to enter the U.S. market. Mr. Evans has consulted with commercial and non-profit organizations in Asia, Eastern and Western Europe, North America and South America to make cost-effective use of Internet resources; and has developed the websites of more than a dozen of these organizations. Prior to this, Mr. Evans analyzed free trade zone legislation in nearly 100 jurisdictions and edited guides to doing business in Estonia. In addition to promoting the e-gold™ system, Mr. Evans lectures frequently in Europe on business opportunities in and policy implications of Internet commerce, and is coordinating the establishment of a transnational university with faculty in Eastern and Western Europe, North America and South America.

David Squires. Mr. Squires provides front end systems programming and software design and development services to JTC as an independent contractor. Mr. Squires is a Senior Systems Analyst with 17+ years experience in hardware and software systems design and development, and is the founder and President of Squires Engineering, Inc. His experience includes:
á Internet Web server software design including relational database access via ODBC drivers, SQL, and CGI scripts written in C, VBScripts and COM.
á Relational database design and implementation using Microsoft Access
á Use of SQL for database queries and data manipulation
á Developed custom multi-user turnkey database software for managing large (over 1 million parts) auto parts database.
á Socket level TCP/IP network software design/development
á Developed Windows Applications in C, Access Basic, Visual Basic
á HDLC communications software (layer 1 and layer 2) for ATCS

á Data acquisition system hardware and software design
á Supervisory control firmware design & implementation
á Microprocessor hardware interface design
á Developed test language for simulating TDMA of NASA ACTS satellite
á Developed associated runtime executive for satellite simulations
Mr. Squires has applied this experience in the following environments:
á 8048, 8080, 8086, 80C188, 80386, TMS320C80 embedded processors
á Intel 80386 protected mode tools & Intel ICE386 emulator
á MSDOS, Concurrent DOS, MS Windows SDK
á Windows NT, Windows 95, Windows for Workgroups, UNIX, AIX, Linux, UnixWare
Mr. Squires experience includes the use of the following computer languages:
á C language: (10+ years experience), some C++
á Structured Query Language (SQL)
á Other languages: Pascal, FORTRAN, Access Basic, Visual Basic
á 8048, 8080, Z80, 8086, and 80386 assembler


Stefan Metzeler [add]

Alex Soya. Mr. Soya provides systems programming and software design consulting to JTC as an independent contractor. Mr. Soya is founder and President of Logan Industries, Inc. ("LII"), a software design, development and distribution company based in the Technology Center of Florida's Space Coast. LII designs high quality software aimed at performance oriented operating systems including REAL/32, Multiuser DOS, Windows 95 and Windows NT. LII produces several well known applications including PTERM, MIMIC, VOYAGER and LURK for the Multiuser DOS (DR MDOS, IMS MDOS & REAL/32) and Concurrent DOS operating systems. LII distributes various software products and is the USA distributer for IMS REAL/32 - the most advanced multiuser and multitasking DOS compatible operating system available on the market today. Mr. Soya also is the founder of PeleSoft, the Internet software division of LII. Pelesoft designs high quality software that is Internet aware or written to take advantage of the Internet as a communications medium.

Epilogue

The prototype Reserve already is operational 24 hours/day, 7 days/week. It is growing and building goodwill. It is currently the most technically advanced and well-known payments system enabling the use of gold as money. This has been accomplished without paid employees or debt. The prototype phase has been entirely created - financed and implemented - by two people, an attorney and a physician, both engaged in the full time practice of their respective professions. Now it is time to leap ahead, to consolidate our leadership role, to build so dominant a market and technical lead as to discourage would-be competitors. The current environment of dejection and discouragement regarding gold's role in the world economy provides a perfect opportunity for such an emerging company to definitively fill this strategic but overlooked niche. An infusion of capital now enables the e-gold™ system to seize initiative and build momentum. People can become conditioned to associate monetary use of gold with the Gold & Silver Reserve brand name. Eventually, institutions who are currently large (like MasterCard) will re-discover gold. They will find they've frittered away their chance to play their "Gold Card", having elected to use such phraseology as mere marketing metaphor.

Informed observers, such as James Dale Davidson, identify mechanisms by which the Internet will tend to facilitate the obsolescence of the Nation-State. National borders pose increasingly ineffective barriers to the flow of information - the output of productive, creative human action - which constitutes value. Currently, however, market efficiency in many political jurisdictions remains hostage to debased currency, official corruption and stifling regulations. The economic means, which flourishes under the rule of law, withers where there is criminal disregard (by public officials as well as private criminal organizations) for contract and property rights. e-gold™ will dramatically potentiate economic growth and material prosperity in such jurisdictions. The market for sound money, secure transactions and financial privacy is truly global.

Exhibit A: CyberMetal System of Credit

In the long run, at any given moment, most current (transactional-right) claims to gold will likely reside in the e-gold™ accounts of accredited money lenders, participants in the CyberMetal Credit system. The gold will comprise a fractional reserve for interest-earning deposits. Money lenders, like bankers, will accept deposits and make loans. The CyberMetal Credit system, however, differs radically from banking.

Fractional reserve of payment media is the sine qua non of banking.

An example illustrates the legitimate pyramiding of credit which occurs when a person loans out borrowed funds. Person A has 100 oz of cash. They loan it to Person B. Person B holds onto 20 oz for purposes of liquidity (periodic installment payments to Person A, for instance). Person B loans 80 oz to Person C. Person C holds onto 20 oz and loans 60 oz to Person D. Total loans outstanding = 240 oz. Total spendable cash remains 100 oz. Who can spend how much? Person A can spend nothing, until Person B repays some money. Person B can spend 20 oz, Person C 20 oz, Person D 60 oz.

Now consider an e-gold™ example. Person A has 100 oz e-gold™ (title to 100 oz gold). Person B offers a time deposit product which covers storage costs and yields moderate interest, payable at maturity along with repayment of principal. Contract also contains penalty forfeiture provisions for early withdrawal. Person A deposits 100 oz with Person B, transmitting the payment via the e-gold™ system (the only mechanism for conveyance of such title) to the e-gold™ account of Person B. Person B loans 80 oz to Person C. The loan advance payment is transmitted via the e-gold™ system. Person D offers a savings account product which covers storage costs, pays modest interest at regular intervals, and contracts to repay principal conditionally; on demand (liquidity permitting), or subject to clearly stipulated delayed repayment mechanism (invoked during conditions of illiquidity). Person C holds onto 20 oz and deposits 60 oz in a savings account with Person D, transmitting the payment via the e-gold™ system to the e-gold™ account of Person D.

This e-gold™ example requires no special permissions. The various loan contracts and payment flows can occur right now. Note some critical differences between this example and banking.

1) The e-gold™ system does not permit multiple, simultaneous claims to the same gold; only one entity can exercise payment power (the owner-like prerogative to dispose) at any particular moment.

2) Persons B and D, who accept deposits and make loans, are customers of the monetary payment system, no different than depositors (Persons A and C). More generally, debtors (Person B, C and D) transact no differently than creditors (Persons A, B and C).

3) Storage fee is assessed based on e-gold™ balance; whoever controls/possesses the current spendable claim to gold bears the cost of storage.

4) If Persons B and D, who accept deposits and make loans, go bankrupt, the integrity of the medium of exchange and the payment system is not affected whatsoever.

The CyberMetal System of Credit adds subtle embellishments affording significant advantages for depositors, accredited lenders, and end-borrowers (borrowers who are not accredited money lenders).


1) Accredited lenders maintain designated e-gold™ accounts, which function as reserves - a cash-equivalent buffer of liquidity - one account for each class of deposit liability [e.g. savings account, DigiGold, 6 month CD, 12 month CD, etc.]. All payments to/from creditors (depositors) and debtors (loan recipients) are transmitted via the e-gold™ system into/out of these designated accounts. All such payments are processed without fee. Payments (again, transmitted via the e-gold™ system) between these designated accounts (for internal adjustment of reserve ratios) are also processed without fee.

2) Since all payments involving accredited money lenders are processed by e-gold™ system, data is automatically captured and processed for reporting purposes. Standardized reports - detailing the liquidity and solvency of accredited lenders - generated by automated realtime query are continuously available online, along with comparison data and explanatory information to aid in assimilation and interpretation. Data series, for instance, might include: ratio of e-gold™ deposits (or other liabilities) for each liability class, comparable ratios for all lenders, graphs of ratios for specified class over specified time interval (lender specific and for all lenders), loan performance statistics (% current, vs. 30 day delinquent, 60 day) with comparison data, current market value of other assets (for which valid market data exists) with time series comparison.

ADVANTAGES

For depositors
For the first time in history, a depositor (and/or market-based monitoring and interpretative service provider) would have precise and accurate data enabling calculation of the credit-worthiness of a depository institution as well as valid grounds for comparison shopping.

For accredited lenders
Fee-less access to e-gold™ payments mechanism.

Relief from many of the costs of monitoring, processing and reporting financial statistics.

Ability to compete primarily on basis of competence in credit assessment and allocation.

Compliance with transparency requirements is strict and removes the veil of obscurity behind which bankers are accustomed to operate. The advantage, however, is very dramatic in terms of costs; potentially enabling an accredited lender to operate on a 100% virtual basis, with no employees or buildings.

For end-borrowers
Lower interest rates, due to dramatically lower lender costs of funds and operations.

Worldwide, instantaneous access, enabling highly competitive market.

It is not difficult to imagine, within less than a decade, an accredited money lender who can accept and process application within minutes, creating a long term gold loan at 3% affording 15% annual real profit margin.

Exhibit B
[Spreadsheets detailing financial projections of EGT and a sample Reserve Institution]

Exhibit C
Preliminary Network topology

Exhibit D
Working Outline of Network/Data Security Plan

Exhibit E: Marketing Issues, pertaining to Reserve Institutions

A categorically different product, a new invention in a new industry - especially involving an emotionally charged object of both reverence and loathing - requires unusual emphasis on an educational approach. The polemic material of this plan, for example, needs ultimately to diffuse into the world view of multitudes of people. It is difficult to prioritize themes listed below, and the list is by no means exhaustive. Following the implementation of an offshore presence, the Reserve Institutions will engage public relations professionals to develop a more informed plan for marketing.

1) Gold is money; not merchandise, not a speculative vehicle for realizing capital gains.

Currently, people regard gold as something which is bought and sold. They conceive its value in terms of quantities of government monetary units. Our agenda is to reverse this; to instill/internalize the mental habit of reckoning the price/value of goods and services in terms of weight of gold and to think of the relation to other currencies in terms of exchange rates.

2) Transparency

Why do banks make it so difficult for a prospective depositor to assess their creditworthiness by making available an exhaustive list of assets? Why don't other new forms of electronic money post utilities similar to the e-gold™ system's Examiner?

3) Transnational

Politically defined borders are an anachronism, a pointless impediment to commerce in an Internet connected world. e-gold™ is stateless, transnational, and available at your fingertips now. Why risk the entire profit of a transaction on fluctuating exchange rates? Why not write business contracts which specify prices in terms of weight of gold?

MARKETING STRATEGY

EGT and the Reserve Institutions should definitively act,  taking advantage of the window of opportunity that now exists, to own the gold money niche while gold is still unloved and not seen as playing any significant role in the future of money.

1) Print ads

Budget constraints initially led to a decision to run ads directed at the (relatively narrow) libertarian market. Untouched categories of print media include financial, computer, and, especially, non-US publications.

2) Enhance web site.

Web site so far is homegrown. EGT will engage consultants to enhance the visual appeal, without going overboard with graphics which slow down loading of screens. We will also develop non-English language versions, since the greatest eventual market will be non-US.

3) Engage a high profile PR firm.

G&SR has screened several firms, but will postpone engaging any PR firm until the enhancements discussed in this plan are in place or imminent.