Bitcoin Declared "Legitimate" at US Senate Committee, Value Climbs, Actual Use Remains Small

By Bixyl Shuftan

A few days ago, a US Senate committee held a hearing about Bitcoin, the noted virtual currency. The meeting was held following the closing of the Silk Road Website due to illegal activity in which users were required to pay with Bitcoins, and 3.6 million dollars worth of the money were confiscated through encryption keys found in confiscated computer equipment. Various representatives, as well as submitted reports were heard. Among the opening remarks was one by committee chair Senator Thomas Carper, "Virtual currencies, perhaps most notably Bitcoin, have captured the imagination of some, struck fear among others, and confused the heck out of the rest of us."

Among the reports heard by the committee was a letter released by the FBI, which stated that they recognized virtual currency as offering "legitimate financial services." The value of Bitcoin, which had plummeted to about $110 US dollars following the Silk Road closure and recovered to $200 by late October, quickly soared to $900, then dropping to just over $700. While it was agreed the rise was driven by speculation, the endorsement of the currency was also seen as a factor, "regulatory interest in Bitcon … traditionally has a positive effect on the price."

While the virtual currency has been turning a few heads, not everyone is impressed. Currently, there are only just over 70,000 transactions using Bitcoin a day. While more than the 47,000 per day in June 2012, and 64,000 in April 2013, as Hamlet Au of New World Notes put it, "There are probably more people using Linden dollars in Second Life then there are people using Bitcoin in the entire world." And this is "years after the hype wave over Second Life has long since died down" while Bitcoin is still clearly in it's.

It was the US government taking an interest in virtual currency that some feel was one of the reasons for Linden Lab suddenly banning third party Linden exchange services in May, a decision that was reversed weeks later. The Podex Exchange allows Second Life residents to purchase Lindens with Bitcoin.

Sources, BBC News, Bloomberg, Daily Dot, New World Notes


Bixyl Shuftan

Jacek Shuftan of Podex on the US Treasury's New Guidelines for Virtual Currency

By Bixyl Shuftan

On Friday April 5th, Second Life Newser wrote about the US Department of the Treasury's new guidelines on virtual currency. This move has consequences for Linden Lab as they'll have to spend time, and probably money on extra lawyers, on required paperwork for them. And it's likely this is just the beginning.

Over the weekend, I met up with Jacek Shuftan, the head of the Podex Exchange. He had spoken briefly about the matter at the time the article then was being written, "every coin has two sides, if (Linden dollars) were virtual currency, it would be more trustworthy, and (Second Life) will have more investors." I felt as a Linden reseller, he would have more to say on the matter.

I asked him, "Was there anything else you wanted to say about the US Treasury and Linden Lab?"

"I am still thinking how close it is, and if it (will) happen," Jacek answered, "For now, it is not an obligatory law. For now, it's guidelines. But it does appear there will soon be some regulations. I think that bitcoin is the main point of this, and Lindens is only side effect. But anyway, it can be a pain for us all."

"Anyway, it's too late to stop (the) economical revolution started with virtual currencies. If they ban LS, people will sell objects in SL for, bitcoins, Avination CS, or whatever else. It's only a few lines of coding. Even the real world is full of such 'currencies.' If you go to car wash and get a special metal coin to put into machine, what is it if not currency? You can sell it to other car drivers, exchange it for a glass of beer, or keep it and sell for a higher price when the price of a car wash will go up. Or you can just return it to car wash owner and get cash back. Isn't it currency like Lindens, guaranteed by the car wash owner."

"But nobody cares. and governments look at virtual coins because they are new, and the turnover is higher than a car wash (grin).

I asked, "So even if the Lab calls it's Linden dollars a 'transferable license' and not virtural currency?"

"Its not important what name Linden dollars are called," Jacek answered, "if real-life authorities say it's currency."

"I am afraid it's inevitable, governments can not let citizens have something independent of them."

"So you think it's more about control," I asked, "and not so much a desire for another source to tax?"

"Both," he answered, "It's not a secret that lots of bitcoins are used for illegal operations, and governments want to control it. But taxation is also something tempting for governments. If we go this way, ie if we tax Lindens, what about (virtual) land? It's also a possession. Should we write in a yearly tax statement - 512 sqm parcel by the sea? Ferrari car, 123 prims, bought on Marketplace?"

"I can bet any money that officials do not know what to do with it. So they are just testing now."

I asked, "So they're just seeing what they can do before people complain?"

"I think (to them), it looks like a pimple." Jacek answered, "New activity, like virtual economy, appears. Nobody cares at first, but its growing and growing. You try to ignore it as long as you can, because nobody likes having a pimple at the end of the nose. But finally, it's so big and painful that you must accept it, and we are close to this moment."

I asked, "So that's how you think government sees it, in your opinion?"

"Yes," Jacek answered, "They tried to ignore it as long as they could. And now, its high time to do something. But nobody knows what. So they gave us this paper … And they can always say it's only guidelines if something goes wrong. We observe the same tendency in Europe, and in the USA. So it's a worldwide problem, I think."

" 'There is no such wickedness, or cruelty, which otherwise would not have committed a mild and liberal government, when it runs out of money.' Alexis de Tocqueville, at least through Google translator."

"We will see what the future brings. But people adapt fast. We are very flexible in Second Life."

The interview then ended, and Jacek went about his way.

Jacek Shuftan’s Podex Exchange, sometimes called the Podex bank, exchanges Lindens for several world currencies. Recently they moved to the Coda sim at (45, 218, 61).

Bixyl Shuftan

Podex’s Jacek Shuftan on Buying Lindens

Second Life Newser recently got in contact with the owner of the Podex Exchange, Jacek Shuftan. He had a few things on his mind. Notably among them were a few bits of advice on how to purchase Lindens safely. “Finances are not the sexiest part of Second Life,” Jacek admitted, though reminded a little knowledge in the area is helpful and convenient.

Jacek’s observation was that most residents on the Grid, “think it is not legal to sell Lindens, which is not true. And they think banks are illegal ... media (stories) make people scared (smile). So let’s start with the bank ban, that the majority of people think that banks are illegal. This is not true. What is illegal is to take deposits and offer (interest). Exchanging Lindens, ie, buying and selling, is legal. Linden Labs allows it. The catch is, it can be risky. But there are ways to minimize the risk.”

“We can describe buying Lindens and the risk with it as a pyramid,” Jacek commented, one with levels of safety, “At the top us Linden Lab, there is no risk buying from them. The next level are third-party exchanges. They are usually registered real-life companies with real-life addresses and telephone numbers, operating on the market. There is a tiny risk as they are not Linden Lab and not as large as they. However, most do not have prices as competitive as Linden Lab, as it depends on the currency rate. Their advantage is they have a larger limit on transactions, if they have limits at all, and a wider range of payment methods. Not just credit cards or Paypal, but they also take traditional money orders, in both buying and selling Lindens.”

The next and bottom level, Jacek explained, are individual avatars not connected to any company, “Let me repeat once again, it is LEGAL to buy and sell Lindens from and to normal avatars. Usually they have good prices, as they are often (content ) creators who sell their Lindens. But it is also the most risky way. If you buy fraudulent Lindens, are are at the biggest risk as they will be taken back from your account, and you can be given a fine 150 percent the amount, not to mention the possibility of a ban from Second Life, as you can be suspected of cooperation in fraud.” With third-party transactions, Jacek stated, there was no risk of fraud.

It was possible to lessen the risk from buying Lindens from individual avatars, “the best idea is to use your logic. If an avatar is one day old, and is offering to sell a hundred thousand Lindens, there’s a 99 percent chance it was stolen. So my humble advice, check how old is the avatar. It is also a good idea to ask how he earned the Linden dollars. He sells, so he should tell it. Check to see if he really has a shop or company/ If an avatar owns an island, he probably does not want to cheat you for twenty Euros.”

“To limit the risk, you can always send him half of the money, then he will send you some of the Lindens, etc. And never buy a big sum as your first transaction with an individual. Try with a thousand Lindens or less. If all is okay, buy more in a few days. Avatars dealing in fraud are usually banned in a few days. Do NOT trust avatars who sell Lindens at extremely low process, like half of Linden Lab’s rate. Why wouldn’t they sell it on the Linden Exchange? You can ask them yourself. Ask the seller to put the Lindens on eBay or any other auction portal which needs registering data. It can always be a fake account, but it needs some effort, so then you can verify him.”

“Ask your friends for recommendations. If someone bought Lindens and wasn’t cheated, you probably won’t be cheated as well. If you pay the seller by post office money transfer, ask him for full details with the address, pretending your bank needs it. You can also ask about telephone numbers, to talk with him personally. Anything that verifies the seller is good for you. If he hides something, that should make you worry. Legal sellers have nothing to hide. Check to see if the seller has a verified account in his profile, and CC connected. Thieves usually do not do it.”

A question that I had for Jacek was with non-US currencies, how does he figure out the exchange rate? “(I) calculate it manually or with script,” he answered, “but US dollars is always a base for calculation. And because of the difference between currency rates, Lindens can be even cheaper from third party transactions than with Linden Labs when you buy in your local currency, as Linden Labs charges in US dollars.”

Jacek Shuftan’s Podex Exchange is in the Moonberry sim at (26, 223, 34), and exchanges Lindens for several world currencies.

Bixyl Shuftan