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Author Topic: Bitcoin exchange not the same as LD exchange ?  (Read 2534 times)
Boussac
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December 01, 2011, 03:19:30 PM
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I am puzzled by the current situation where we see a  French bank closing Mt Gox account on the ground that bitcoins consitute a currency (Mt Gox not being licensed as a currency exchange in France).

Furthermore, we are told that it's not a good idea to accept Paypal payments for the sale of bitcoins because of the possibility of a subsequent chargeback claim by the buyer (after he/she has received the bitcoins).

Well, it's just that none of these limitations seem to apply to Linden Dollars (the money of Second Life).
I can go to an exchange and trade Linden Dollars with a credit card or Paypal.
 The LD exchanges all have bank accounts that are not shutdown on a short notice. Some independent LD exchanges trade up to 500k euros per month. Yet I can use LDs much in the same way I use bitcoins (to buy stuff on internet)

Why is it that the centralized nature of LDs (they are created and controlled by the same company publishing the game) seems to exonerate LD exchanges from obligations bearing on bitcoin exchanges ?

Does the fact that the game is open source has any signification in the legal framework ?

Can any one of the legal experts on this forum shed some light on these puzzling questions ?

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JDBound
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December 01, 2011, 07:46:49 PM
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Many jurisdictions have codified a definition for what they are terming "virtual currencies". I believe Linden Dollars fall into this designation in a majority of jurisdictions. Specifically, off of the Linden Labs TOS:

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You acknowledge that Linden dollars are not real currency or any type of financial instrument and are not redeemable for any sum of money from Linden Lab at any time. You agree that Linden Lab has the right to manage, regulate, control, and/or modify the license rights underlying such Linden dollars as it sees fit and that Linden Lab will have no liability to you based on its exercise of this right. Linden Lab makes no guarantee as to the nature, quality or value of the features of the Service that will be accessible through the use of Linden dollars, or the availability or supply of Linden dollars.


The fact that it is centralized has a bearing on it falling into this designation, in that they are able to control their own destiny to some extent by having a very specific TOS laid out. A lack of analogous authority means that Bitcoin doesn't have it so easy.

The definition of "virtual currency" will obviously vary widely by jurisdiction and it tends to be a misleading designation generally. Further, I don't think "open source" in and of itself is an element relevant to the determination of whether or not something is a virtual currency, let alone a currency.
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December 01, 2011, 08:09:53 PM
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I am puzzled by the current situation where we see a  French bank closing Mt Gox account on the ground that bitcoins consitute a currency (Mt Gox not being licensed as a currency exchange in France).

Furthermore, we are told that it's not a good idea to accept Paypal payments for the sale of bitcoins because of the possibility of a subsequent chargeback claim by the buyer (after he/she has received the bitcoins).

Well, it's just that none of these limitations seem to apply to Linden Dollars (the money of Second Life).
I can go to an exchange and trade Linden Dollars with a credit card or Paypal.
 The LD exchanges all have bank accounts that are not shutdown on a short notice. Some independent LD exchanges trade up to 500k euros per month. Yet I can use LDs much in the same way I use bitcoins (to buy stuff on internet)

Why is it that the centralized nature of LDs (they are created and controlled by the same company publishing the game) seems to exonerate LD exchanges from obligations bearing on bitcoin exchanges ?

Does the fact that the game is open source has any signification in the legal framework ?

Can any one of the legal experts on this forum shed some light on these puzzling questions ?


The ruling against MtGox had nothing to do with the nature of Bitcoin and whether or not it's a currency.  The French ruling was about MtGox accepting and holding user deposits of hard currency, for which it needs to be licensed - as it didn't have the appropriate licence, it was effectively accepting deposits illegally and therefore the banks were not required to provide it with banking services.  

Many countries' financial services regulations are going to require the exchanges to be licenced as deposit-takers, money transmitters, payment processors or something else.  The exact licence required will vary by jurisdiction (PayPal is licensed differently in different countries) but it's accepting hard currency on deposit/for transmission to others which invokes that requirement, not the fact that their service involves Bitcoin.  If they were simply selling Bitcoin themselves then they likely wouldn't need licensing until Bitcoin was defined as either a currency or a commodity.

Linden Dollars are somewhat like WoW gold in that they technically have an issuer and people can use them to buy digital products/services from the issuer.  Their value is somewhat - but not entirely - backed by Linden Lab (LL could stop issuing them and stop accepting them as payment for in-game stuff tomorrow if they wanted).  This makes them inherently different from Bitcoin, although there's still a lot of debate about what specific laws apply to LD transactions.

All I can say is that this is Bitcoin. I don't believe it until I see six confirmations.
Boussac
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December 01, 2011, 11:36:54 PM
 #4

Again, my question is about independent, unlicensed LD exchanges (completely independent from Linden Labs and completely unlicensed), accepting deposits of hard currencies by way of Paypal: why is it different from a BTC exchange ?
LDs are used outside of Second life, in contradiction with LL TOS..

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December 02, 2011, 12:42:27 AM
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Again, my question is about independent, unlicensed LD exchanges (completely independent from Linden Labs and completely unlicensed), accepting deposits of hard currencies by way of Paypal: why is it different from a BTC exchange ?
LDs are used outside of Second life, in contradiction with LL TOS..

Are any of those exchanges transferring user funds from their Paypal account to a French bank account?

How many LD exchanges have come and gone over the years? 

All I can say is that this is Bitcoin. I don't believe it until I see six confirmations.
JDBound
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December 02, 2011, 01:41:42 AM
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Again, my question is about independent, unlicensed LD exchanges (completely independent from Linden Labs and completely unlicensed), accepting deposits of hard currencies by way of Paypal: why is it different from a BTC exchange ?
LDs are used outside of Second life, in contradiction with LL TOS..

Are any of those exchanges transferring user funds from their Paypal account to a French bank account?

How many LD exchanges have come and gone over the years? 

+1, I'd be interested to know if any have been around as long as Gox, or do a comparable volume in USD.
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December 02, 2011, 03:55:11 AM
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[quote authorpentance link=topic=53458.msg637809#msg637809 date=1322786547]
Again, my question is about independent, unlicensed LD exchanges (completely independent from Linden Labs and completely unlicensed), accepting deposits of hard currencies by way of Paypal: why is it different from a BTC exchange ?
LDs are used outside of Second life, in contradiction with LL TOS..

Are any of those exchanges transferring user funds from their Paypal account to a French bank account?

How many LD exchanges have come and gone over the years? 

+1, I'd be interested to know if any have been around as long as Gox, or do a comparable volume in USD.
[/quote]

The internal Second Life economy alone trades hundreds of millions of dollars annually according to Linden Lab. The external market is probably considerably larger. You've got the Lindex, which is the official SL exchange.  You've got exchanges which are classified as resellers by Linden Lab, and then you've got the exchanges which operate in the wild. 

Another important point to remember is that Linden Lab can and does take Linden Dollars away from avatars.  They have a risk API which they share with external exchanges and they do track problem transactions and take back fraudulently obtained coins.  Bitcoin exchanges can track where fraudulently obtained coins have gone via the blockchain, but they have no power to retrieve those coins - this makes accepting payment methods which can be charged back months later far less attractive to Bitcoin exchanges.

A quick Google search brought up a shit-ton of services which exchange Linden Dollars for other fiat and digital currencies.  A lot of these seem to operate as currency exchanger services - something which Mark has said in the past he emphatically doesn't intend MtGox to be - which are often regulated differently than commodity/stock exchange services (which is closer to how MtGox operates except that facilitate the trading of only one commodity).

Linden Lab itself actually collects VAT on European transactions between itself and its users and defines LD as a "digital service".  They're careful to state that LD themselves have no intrinsic value.

PayPal itself had to fight many legal battles in its infancy and is regulated quite differently in different jurisdictions.  It's a licensed bank in Luxembourg largely because it encountered so many regulatory issues in Europe.  In some other nations it can only process domestic payments.  For a long time PayPal tried to claim that it was merely an escrow service but it's clearly not in many jurisdictions because it also acts as a custodian of user funds in excess of those needed for individual transactions.  It holds user balances until they are withdrawn or otherwise spent by the user and that also means it's not just a money transmitter.

There's no one universal law which is going to apply to Bitcoin exchanges throughout the world.  They'll have to adapt to the local regulatory environment just like payment processors, money transmitters, deposit-takers, and other businesses acting as financial intermediaries do.  Licensing is only one issue.  AML/CTF compliance is another issue with which they're going to have to grapple in many countries.



All I can say is that this is Bitcoin. I don't believe it until I see six confirmations.
julz
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December 02, 2011, 04:17:06 AM
 #8

Bitcoin exchanges can track where fraudulently obtained coins have gone via the blockchain, but they have no power to retrieve those coins

Which is why I expect regulators to eventually implement tagging of known tainted coins and require certain key merchants and exchanges to freeze any payments with those tainted coins in their history.  Initially - they may only 'tax' tainted spends.. providing a gradual financial incentive to subscribe to and obey the regulators' various 'taint' tags.


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December 14, 2011, 04:44:05 AM
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good thread, good posts, thanks - you really have to wonder if the ability of Linden Labs to freeze/reverse LD transactions trickles down to the unregulated exchanges, or if they are just out the cash.

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