Currency exchanges: sign petition to keep us alive

A week ago, Linden Lab announced that third-party exchanges have to stop offering Linden dollars, which will effectively put all or most of them out of business.

Exchange operators are now asking users to sign a petition to keep them alive. So far, this petition has already garnered 600 signatures.

Since third-party exchanges all have to buy their Linden dollars from the official LindeX exchange, the third-party exchanges do not cost Linden Lab any money, but do offer more payment and support options for customers.

“We emailed Linden Lab a formal protest and our Berlin partners have started a petition to change Linden Lab’s mind about this rigorous measure,” DX Exchange told Hypergrid Business. “We have some hope that we get at least the chance to continu our services to the end of this year.”

If Linden Lab does not change its position, DX Exchange will have to shut down, a spokesperson told us.

“Linden Lab doesn’t show any courtesy to the exchanges who have supported Second Life for almost ten years,” they said. “In the case Linden Lab persists to stick to this rigorous plan we have to face the fact that we can not service our customers anymore after August 1. Although we do our utmost to prevent that, we want to be open and clear about the consequences for our customers.”

Another benefit for some customers for buying Linden Dollars from local exchanges had to do with the European VAT taxes, Gyndex founder and co-owner Bart Bockhoudt told Hypergrid Business. He said that the Gyndex exchange had already closed before the news came out.

“If this is true it will for certain affect all exchanges and be the death of an industry started big in 2006,” he added.

Linden Lab explained their decision by saying that they have added more payment options for international customers. Specifically, they began accepting Skill payments in January.

But that still leaves many international Second Life users unhappy.

“We have received many questions about how Russian users will be able to purchase virtual currency to make purchases and pay for their land,” RUExchange posted on their website. “Unfortunately, the official payment methods, PayPal and Skrill, do not satisfy the majority of our users.”

They recommended that Russian customers buy as many Linden Dollars as they can ahead of time, while they can. RUExchange can continue to buy Lindens until July 1, and is allowed to sell off its Linden reserves until August 1.

“At the moment we are negotiating with Linden Lab about the future of the Russian community, and unfortunately, our technical support can not give you a comment on the situation,” they added.

One exchange is planning to stay up, however, and that is the Podex Exchange.

Podex terminal on the Virtual Highway grid. (Image courtesy Podex.)

Podex terminal on the Virtual Highway grid. (Image courtesy Podex.)

“Linden Lab is not stable in its decisions, as history taught us before, so I do hope that their decision would be changed in the future, as it happened before with 3rd party resellers closure,” Podex CEO Jacek Shuftan told Hypergrid Business. He was referring to 2013, when Linden Lab first said that it was shutting down all exchanges, then reversed course.

“The motives of present shutting down are completely unclear,” he added. “Last time we could suspect FinCen influence, but as far as I know there were no big changes regarding virtual currencies last days in American law, so I do not understand why Linden Lab made such decision.”

Whatever the reason, the Lab is only shooting itself in the foot, he said.

“Payment methods which they offer are not accessible in many countries so they will not only lose profit but also their best clients who invest real money in grid and now will not be able to do it,” he said.

The decision might prompt more users to switch to OpenSim, he predicted.

“This process has already started and this decision will surely make it faster,” he said. “Linden Lab decision will affect the Podex Exchange, as well as all other currency resellers, but Second Life is only one of the 16 grids which we serve so we only lose part of our profit.”

maria@hypergridbusiness.com'

Maria Korolov

Maria Korolov is editor and publisher of Hypergrid Business. She has been a journalist for more than twenty years and has worked for the Chicago Tribune, Reuters, and Computerworld and has reported from over a dozen countries, including Russia and China.

  • Talla Adam

    I can only imagine that Linden Lab have the most underhanded of motives in preventing the currency exchanges from operating in Second Life since they don’t stand to lose anything by allowing them to continue. The Exchanges offer currency services that benefit both the SL community and Opensim grids so it would seem likely to me the Lab’s move is aimed at making it more difficult for the open Metaverse economy to flourish and try to slow the loss of sims and income they are experiencing themselves. There are many Exchanges in Second Life and, from what I’ve seen, businesses like Podex have been offering multiple currency services including BitCoin and that probably doesn’t go down well with the Lindens who generally do all they can to protect their monopoly. To me it stands to reason the Lab can do without these exchanges helping their competition.

    With all that said though, I think an exchange like Podex which is well established on many grids, and dealing in BitCoin too, may well gain by the reduction in competition. Opensim is still growing and Hifi is likely to be attractive to both Opensim and SL users looking to upgrade to next gen’ virtual worlds so should think they would be well placed if they can hold out.

    • Talla — I can’t believe that Second Life would shut down all exchanges in order to make life slightly more difficult for OpenSim grids. Third-party currency services is a nice-to-have for commercial grids, but not critical. In fact, many grids are growing without any currency at all.

      For Second Life, however, currency sales are its lifeblood. If customers can’t get money to Second Life, they can’t pay for land, and they can’t shop in-world or on the marketplace. This is why Second Life reversed course two years ago — because one of the reasons that third-party currency exchanges have become popular with customers is because Second Life is bad at taking people’s money.

      The third-party exchanges are buying the currency from Linden Lab, and reselling it through various local channels to local customers throughout the world. If they weren’t offering a service that people needed, folks would simply buy the currency from the LindeX directly, and save themselves whatever fees the third-party exchanges charges on top of the base LindeX cost. (The third party exchanges have to make their money somehow — otherwise they wouldn’t be in business.)

      As far as I can tell, these third-party exchanges were providing local-language support and transaction services in places where the Lindens weren’t.

      • Talla Adam

        Okay, you think Linden Lab wouldn’t shut down the Exchanges to make life slightly more difficult for the Opensim economy and yet you replied to Alex Ferraris saying, “So I have no idea at all why they did this, other than to consolidate control over all operations, even at the expense of revenues.” If gaining control over all operations isn’t about protecting their monopoly and making life hard for competition I don’t know what is.

        You obviously have more faith in Linden Lab than I do but I think that Opensim, while posing no serious threat presently, does offer a glimpse of greater problems to come for the Lab. Second Life is dated and Opensim, by sticking rigidly to the same protocols in every aspect, has been limiting it’s own development. HiFi is very likely, in my view, to offer the best option for Opensim users to move on and, in all probability, Second Life users too who feared Opensim’ weaker content protection controls in the past. They will now find Hifi presents a better platform than Sansar by virtue of the fact it is open source and offers the same kind of freedom Opensim does.

        Linden Lab’s Sansar project aims to create a next generation platform but the business model is hardly likely to change. It will still be a walled garden. Hifi on the other hand, ironically, being the brainchild of Philip Rosedale who created Second Life in the first place, is looking effectively like is will be a very good replacement for Opensim just as Sansar will replace Second Life. Opensim doesn’t pose a real problem for Second Life presently but I think Hifi does. I see the battlelines being drawn in the latest action to shut out the Exchanges and there is a serious turf war looming. Hifi is ahead of the game so far with an active platform while Sansar is still very much under wraps and the Lab chooses to be evasive about what is coming probably in the belief they have a loyal following who will dutifully move over to Sanar when it officially launches. I think they are gambling on misplaced loyalties instead of spelling out what they are building but Hifi already has it all open and usable if still in development. And I doubt if Hifi will be very much different than Sansar in operation ultimately.

        Don’t tell me the Lab is not worried about this.

  • Alex Ferraris

    Linden Labs motive by cancelling the exchanges is simple. They want to make the money that the exchanges are making. Why give it to the exchanges if they have LINDEX exchange? That is their thinking.
    If I was SL CEO I would not cancel out the other exchanges but simply would ENHANCE LINDEX EXCHANGE. Making it more attractive in order to compete for the money made in that type of business.
    To attack businesses like this is not good and only shows how bad LINDEN LABS is in administrating a business. They are only alive now because they were the FIRST ones and had some investments when starting out.

    • The third-party exchange don’t cost Second Life any money. All the third party exchanges had to buy their Linden Dollars on the Lindex, anyway.

      They stopped being able to buy back Lindens from customers two years ago.

      So Second Life is not losing any business at all to these exchanges. The reason people are using them is because they provide local-language support or take local payment options that SL doesn’t offer. And people pay for this — these exchanges have to charge a little bit extra over the LindeX currency cost in order to stay in business.

      If customers didn’t need the exchanges, they could buy from the LindeX directly.

      If these third-party exchanges close, their customers — people who were buying Linden Dollars from them — will no longer be able to buy Linden Dollars. That means that they won’t be buying stuff in Second Life stores, and won’t be paying their land rents. That’s going to directly hurt SL’s bottom line.

      So I have no idea at all why they did this, other than to consolidate control over all operations, even at the expense of revenues.

      • I agree on your analysis. They do it most likely due to regulatory action.

        The other option might be to control and dry up the inflows to SecondLife once Sansar is where they want their customer base to invest.

        • Joe Nickence

          Yeah, I’m sniffing a wolf in sheep’s clothing called Sansar myself

      • Rene

        The IRS ruling for virtual currency exchange to fiat currency is that the exchange is treated as property transfer instead of a currency exchange. This causes an ordinary income tax on the recipient and a capital gains tax on the seller. So LL now has extra tax considerations. These rulings were made in 2014 but further enforcement has started this year. All this fuss is the IRS reacting to BitCoin and creating a broad class of exchange property which includes much more than BitCoin, as in L$ I’zs OS$, etc. http://www.gibsondunn.com/publications/pages/Developments-in-Virtual-Currency–Regulation–Enforcement-Actions-Gain-Momentum.aspx

        • Thanks! – Interesting read. That just strengthened my view that for non-US entities to trade in US based virtual currencies will be less attractive as there is risk for (future) IRS tax withholding.

        • This is unfair, since virtual moneys used in virtua worlds are a normal exchange money with a real value, if not a legal tender. If we receive a large gift in izzies, it is taxed as if we earned money in a business. Even worse, of we buy izzies, and the cash them back, we pay a tax on our own money! All this is unfair, and even goes agaisnt the other laws. This may force people into using legal money instead.

          The statute of bitcoins is different, because its variable rate makes it usable for speculation purposes, which is not the case for izzies.

          Actually this ruling has probably a cause: it is difficult for the tax bureau to check which of our virtual income is from business, gift, or other causes. Indeed bitcoin exchanges are not tracable,
          But a company like Inworldz LLC keeps several years of records of our exchanges. More, they appear as “gift” or “vendor”, which makes them usable to an automated check, upon reception of the file, without manual operation.
          OK, we have a choice to do: a little less pricacy, versus a little less taxes. Allowing the tax bureau to rumage in our virtual life can save some unfair taxes.

  • MVC administrators invited RuExchange to start their virtual money exchange business in the My Virtual Community grid and RuEx started prepare their office in MVC Plaza region 🙂