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Friday, April 5, 2013
New Guidelines on Virtual Currency by US Government Mean Complications For Linden Lab
By Bixyl Shuftan
interpretive guidance" (pdf link) or guidelines for the regulation of virtual currencies. Alex Kadochnikov of the "Modern Payment Systems" blog had a few things to say about the matter and what it means for Linden Lab. For the average Second Life resident, these guidelines don't directly affect him/her. But for Linden Lab, "FinCEN now considers Linden Dollar as a convertible centralized virtual currency," and it means regulations and paperwork.
To begin with, Linden Lab's terms of service doesn't refer to Linden dollars as virtual currency but each being a "virtual token" or a "limited license" that could be traded, "Linden dollars are not real currency or any type of financial instrument …" But these words haven't meant much to residents who've treated it as money within Second Life, the only risk being if they ever lost their connection to the Grid. As Kadochnikov wrote, "FinCEN goes by the approach 'If it looks like a duck, and quacks like a duck, it is a duck.' And Linden Dollar sure does 'quack' like one. Linden dollar is a virtual currency because it has value in real currency (a buck will buy you about 270 linden bucks); and people buy good and services with it."
As "an administrator and an exchanger of virtual currency" they were a "Money Service Business" or MSB under US Treasury guidelines. As a result they, "must register with the Treasury Department and make Anti-Money Laundering and periodic reports." This means more expenses for Linden Lab as, "these reports are not little one page chores a trained monkey can do. There is a reason corporate compliance departments are stacked with lawyers and accountants. As you can imagine both of these items cost a lot of money."
Hamlet Au thought that this would mean Linden Lab will have to hire two or three additional lawyers just to deal with this matter, costing them about a half million dollars a year. The only other option it seems would be to abandon the Linden dollar and deal just with real world currencies. While it would save them these bureaucratic headaches, it would be "like turning off a printing press that prints money. And who in their right mind wants to do that?"
Hamlet Au thought there was one additional complication. If the Lab was thinking of selling Second Life, it just became more difficult as any buyer would have to deal with these regulations and expenses. One result of the Treasury Department's new guidelines may be that Linden Lab can pretty much forget about someone buying the virtual world from them.
Second Life Newser did briefly discuss the matter with Jacek Shuftan, the head of it's sponsor Podex Exchange. He expressed suspicion of the US Government's motives, but "every coin has two sides, if (Linden dollars) were virtual currency, it would be more trustworthy, and (Second Life) will have more investors." So perhaps the move has some benefits.
Sources: New World Notes, Modern Payment Systems