Lindens shut down exchanges—again

Reseller program cancelled

Update: Linden Lab has posted an official notice confirming the news.

Linden Lab is shutting down third-party currency exchanges, CrossWorlds exchange owner Tony Bastianelli told Hypergrid Business today.

According to Bastianelli, he received an email today telling him that his reseller account will be shut down on August 1, and he will no longer be able to purchase Lindens on the LindeX, or resell them to Second Life users.

Third-party exchanges such as CrossWorlds, Podex, DXexchangeEldex, AnsheX, ZoHa Islands, TeleDollar, Ruexchange, MoneyServers, FirstMeta Exchange, Coinek, Clip Market, Cash Services, Bulido, Affordable, Virtuatex, Viagame, Exchange4SL, vForEX, and Virwox have been allowed since spring 2013 as part of the Linden dollar authorized reseller program, but were only allowed to sell Linden dollars to customers, not buy them. Previously, exchanges were able to both buy and sell Lindens.

Many of these exchanges were based overseas, and made it more convenient and less expensive for international users of Second Life to buy the grid’s virtual currency.

Bastianelli said that he will close down CrossWorlds on June 30, since that is the end of the company’s tax year.

“There is nothing else to do,” he said. “Linden Lab has left all exchanges with no options.”

The Gibraltar-based CrossWorlds exchange was founded seven years ago, and serves around 6,000 customers, he said, mostly from the U.S., Canada and the U.K. CrossWorlds offers an advantage to users in that it accepts Bitcoin for payment. The official Lindex exchange currently accepts PayPal, credit cards, and Skrill.

The Skrill option was added this January, and supports a wide variety of international payment methods.

“We’ve found that these options support the vast majority of Second Life users, and we have therefore made the business decision to close the Authorized Linden Dollar Reseller pilot program,” Linden Lab announced in a post today on its website.

According to the letter to CrossWorlds, currency exchanges will be able to continue purchasing Linden dollars on the Lindex until July 1. After that, exchanges will only be able to sell their existing currency reserves. and money left on August 1 will be transferred to the exchange’s primary account.

“We realize this transition may be difficult and we are here to assist during the process,” the letter concluded.

There was no warning or any other communications, Bastianelli said.

“But I think we all knew this was going to happen, in our heart of hearts,” he said.

OpenSim impact

Some exchanges offering OpenSim currency services, including Virwox, Eldex, DXexchange, and Podex, make their revenues primarily from trading Linden dollars.

It’s not clear whether these exchanges will be able to survive on OpenSim transactions alone.

So far, none of the other exchanges have publicly commented on the issue, or responded to questions from Hypergrid Business.

Linden Lab spokesman Peter Gray confirmed the news, but did not provide any additional information.

Podex, the most popular exchange with OpenSim grids, trades currency for Avination, InWorldz, Virtual Highway, ZanGrid, Adult Grid, Lost Paradise, YRGrid, Great Canadian Grid, My Virtual Community, DigiWorldz, YSLife Grid, Bearkat Enterprises, Virtual Life, Island Oasis and Moebius Grid.

Virwox trades Avination’s currency but is best known for the Open Metaverse Currency, or OMC, a hypergrid-enabled, multi-grid currency accepted on 54 virtual worlds.

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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.

  • Frank Corsi

    The heat is on! It will get exciting now.

  • Even more reason to flock around a common currency that can be used across multiple grids.

    …I have a feeling their next move will be to lock their users to their viewer only by adding some licensed code that will be required.

  • Talla Adam

    I can only say that it looks like Linden Lab, in time honored tradition, is playing the dirty tricks game again. It suited this ruthless profiteering company to keep the exchanges on board while they didn’t have their own exchange method to serve foreign customers only to kill a bunch of small exchanges now when they had no need of them any more. And why not? It’s more money in the Lab’s bank account which may go some small way to make up for the steady loses from falling region sales (33 this week according to Grid Survey!). They’re probably thinking it will also help stunt the growth of Opensim (they wish!) by removing all those exchanges which, by serving many grids, helped to spread the word to the SL community there are alternative (cheaper) worlds out there.

    The Exchanges were helping to break down the barriers and they certainly were providing valuable services to the Opensim community as well as Second Life. Hopefully though, exchanges like Podex, which deal in Bitcoin and multiple currencies, will survive long enough for the Opensim market to grow which it surely is doing judging by the recently released Kitely Market statistics. And, of course, there will probably be a new market coming on from HiFi even if Opensim never gets into the big numbers.

    • The thing I don’t understand is… what does Linden Lab have to gain from this? They weren’t losing any money — all the exchanges were forced to buy their Lindens on the LindeX. They weren’t allowed to buy them back from users anymore.

      They lost out on free marketing and support. These exchanges were part of a broader, SL-centered ecosystems. Other companies would KILL to become the base of a large, viable ecosystem.

      Other than them trying to bring everything back under their own control, it doesn’t make much sense.

      • It is most likely due to regulatory action.

      • Cinder Biscuits

        The Authorized Reseller Program was never out of trial. Apparently, it didn’t meet whatever goals had been set for it initially, so it was killed in favor of Skrill payments.

  • Headed for Sansar are we?

  • Alex Ferraris

    AviWorlds. Offers its own currency AV$s and we do allow qualified players to sell the currency via bank deposits in Brasil.
    You can currently buy the AV$s. via paypal outside Brasil.
    Any exchange company is welcome in AviWorlds.

  • Han Held

    This is an unsurprising part of LL winding down SL. Also those who do not learn the lessons of Gaming Open Market…

  • John Simmons

    This highlights ONCE AGAIN, that a closed currency on a closed grid is going to be stealing from you eventually. An open cryptocurrency such as bitcoin that is controlled and owned by no one is the way to go. YRgrid gets it with the uBTC, which is movable and spendable elsewhere without relying on a single-point-of-failure exchange. You don’t own anything in SL – not your funds, not your land, and if it gets contentious, not even your own work. I don’t expect SL 2.0 to fix this either. It now appears that my avination currency is stuck there as well.

    But what happens now in virtual worlds is only a preview of what is going to be happening to fiat currencies all over the world. What Cyprus did in raiding people’s savings accounts are only a peek at what is coming.

    • So far, Bitcoin has shown itself to be a lot less stable and less secure than any of the fiat currencies.

      Take the Russian Ruble, for example. With a war in the Ukraine, it’s lost a lot of its value recently. It went from around 20 to the dollar a decade ago to almost 70 to the dollar this winter: http://www.xe.com/currencycharts/?from=USD&to=RUB&view=10Y

      Meanwhile, over the past three years, Bitcoins have gone from being worth around $10 each, to more than $1,100 each, and down down to $237 each.

      Plus, given the track record of Internet-based virtual currencies in general — and the rapid proliferation of Bitcoin clones, and its low transaction volumes — Bitcoin right now is more interesting for its underlying technical infrastructure than as a workable medium of exchange. In addition, Bitcoin’s main strength — that it’s value is based on the network — is also its greatest weakness, since it’s subject to other network effects that can occur when there are no barriers to switching networks, such as the rapid potential migration of users from one network to another. For example, we’ve seen users abandoning one social network in favor of another. Bitcoin, as currently structured, does not provide an particular reasons to stick with it, whereas fiat currencies are anchored by national tax systems, banking institutions, and so on.

      That may change over time, as virtual currencies evolve but, right now, I would not recommend that anyone keep more money in any virtual currency — and that includes both Bitcoin and the Linden Dollar — than they can afford to lose.

      Keep it in an FDIC-insured bank account instead, which have been extremely reliable over the past 80 years. Yes, it’s possible for the US government to collapse — but, if it does, your Bitcoin balance is probably not going to do you much good either. We’ll all have much bigger problems to deal with.

      • Cinder Biscuits

        I don’t think anyone is suggesting that Bitcoin is more stable than fiat currency, at least not right now. It’s still very much in its infancy and more than likely won’t be the champion cryptocurrency in the next century, but I’ll take Bitcoin over a virtual currency run by a private company who sets all the rules, rates, and, ultimately, could devalue the virtual currency on a whim or drain my account over a period of inactivity or flat out close my account. I had Linden Lab rob me of over a million L$ when they closed my first account (plus my USD balance and a sim) and it took a class action lawsuit to get any compensation from that.

    • BitCoin is not particularly suited for the purpose due to the finite number of BitCoin that can be generated. Other scrypt based currencies could work better.

      • Cinder Biscuits

        Geir, you really don’t think a supply of 21,000,000,000,000 coins is suitable to support OpenSim even for a while? You’d rather have an infinite supply which also ensures infinite inflation?

        • The supply will stop when 21 million blocks of 25 coins have been issued. After that they will have to do something with the protocol to continue. The scrypt based currencies does not have the limitation in supply.

          • Cinder Biscuits

            and if you are counting in microbits not full coins, which is close enough to L$ and OMC, that’s 21 trillion. That’s not enough supply to sustain a virtual world? You need more than twenty-one trillion “dollars” to sustain virtual world economy? I’m failing to see what the benefit of an infinite supply would be.

          • I corrected my post above, but the finite number of bitcoins is 21 million. Meaning bitcoin is exceedingly prone to inflation, whereas the L$ to USD exchange rate have been more or less constant for years. So, no bitcoin is not suitable. The scypt based coins are less likely to see inflation at the same rate so they are more suitable.

          • Cinder Biscuits

            Until the currency operator decides, no, you can’t sell your imaginary money to this person or that person; you can’t sell it on eBay or amazon; you can’t buy it from merchants other than us; you can only spend it on virtual items within our walled garden; you need to give us a dollar in real money and a percentage of your imaginary money if you want to exchange it for fiat; you’ll have to wait a few weeks to exchange it too because we say so; we may deplete it from your account or hold it indefinitely for any reason at any time because we’re in charge here and you’re not.

            Yeah, sounds much more suitable for the metaverse than Bitcoin, you’re right. lol

          • Litecoin is a scrypt based currency, it is convertible, can be mined on affordable hardware and is not as prone to inflation as the supply will be 84 million coins. Other scrypt based coins are also convertible. https://en.wikipedia.org/wiki/Litecoin I am not talking about a grid launched coin, although that is possible.

          • Cinder Biscuits

            You have your terms confused. A finite supply doesn’t lead to inflation it leads to deflation, which a lot of people would argue is beneficial to merchants and investors, and I fail to see how mining or hashing algorithms play any part in how a currency functions for the consumer in a virtual world.

          • The ability mine coin on consumer equipment may be attractive to grid members as they then can generate currency for participation in the grid economy. Kindoff like camping in the old days.

  • Nathan Adored

    The first thought that came to my mind when I saw this is… some misguided US government goon showed up at Linden Labs office saying, “If you don’t make *this* change by *this* date, you’re going to jail!”

    • I agree, most likely due to regulatory action.

  • Joe Nickence

    The nice thing about being in more than one type of VR is that you see a pattern building. As a resident in IMVU, I am experiencing the same kinds of company centered currency takeover. All exchanges that dealt in IMVU Credits have their hands tied as well. So I’m of the opinion that this all has to do with FinCEN and its goal to reign in rampant money laundering. Especially now that Frank Corsi has mentioned the GameTokens site officially sponsored by FinCEN. Eventually I believe that most if not all VRs will need to move to this GameTokens model, if not adopt the currency outright. And what FinCEN is learning about gaming currency in general, you realize that they will share with the Central Banking system, and global nations will eventually tap into their share as well.

    • The potential issue with GameTokens for a non-us company is your transaction flow will be reported to the IRS and they will do have to do a 36% tax withholding. The website does not say how they will handle this, but this has happened before when using US based payment solutions.

      In such a case, the GameToken is useless to anyone but US companies and individuals owning a grid.

      • I’m also still very unclear about exactly HOW GameTokens complies with anti-money laundering regulations. I’ve been covering this area for about 15 years now, and the rules are very onerous — and very, very expensive. It’s not just about registering with FinCen, though that’s the start of it. There are numerous other compliance processes to go through.

        In particular, there’s the very thorny question of redemption. This is where the “know your customer” laws apply, and the international anti money-laundering regulations come into effect. Doing it legally is extremely expensive.

        The last time I talked to Frank Corsi about this — Frank, let me know if I’m wrong on this — redemption is handled through third-party “exchanges.” Is that still correct? Or does GameTokens now officially guarantee redemption through its main operations?

        This is where it gets really thorny. Many currency operators just sell the currency to users, but don’t buy it back — but if users sell the currency to each other, well, there’s nothing they can do about that, right? That’s where Linden Lab stood for a long time, at least, until they shut down third-party redemption two years ago. Even today, if you want to redeem your Lindens, you’re actually selling them on an exchange to other users, not back to Linden Lab itself.

        This is a really important qualification – if a company handles its own redemptions, the amount of compliance regulations it has to deal with goes up DRAMATICALLY.

        There is only one major exception that I know of to the redemption compliance trap. It’s where ordinary consumers can buy your virtual currency, and can spend it at member locations, but only participating merchants can cash it out.

        It’s kind of like selling “mall bucks” to mall visitors that they could spend on stores in the mall. The stores themselves can convert these mall bucks back — but the average consumer can’t.

        This is what happens with, say, Apple iTunes. You buy a gift card at the supermarket — that’s the virtual currency, the gift card. You can only spend it on Apple iTunes. But when you buy stuff, the merchants you buy stuff from — the musicians, the movie companies — get your money. Amazon gift cards are the same way — you can only spend money in the Amazon ecosystem, you can’t redeem them for cash, but when you buy stuff, the merchants you bought the stuff from get their money.

        The merchants have to be registered with Apple or Amazon. It’s not a particularly difficult process — anyone who’s sold ebooks or songs on these platforms has gone through it.

        I know of one virtual currency startup that’s currently working on getting something going with this approach, and they’ve spent a lot of money on legal opinions to get this set up just right.

        Is that what GameTokens is doing, as well?

        Finally, the other issue with GameTokens is that, so far, they only seem to be accepted on the Atek Grid, which isn’t particularly useful for consumers looking for a multi-grid payment option.

        • I am totally at loss on how VirWOX handle this in the European market which is close to 100% unregulated when it comes to virtual currencies. Since they are in Austria, they don’t have any regulations on BitCoin either like Germany and the UK have.

          Where I live the closest to a legal definition would be a game token in an online consumer product, but it is not a taxable object subject to reporting. If exchangeable for real currency at some point it would have to be reported as ordinary business income (if for a business.)

          I would think that for a non-US company to register for use of GameToken in their grid, you would have to set up some kind of business registration in the US where the 36% tax withholding would kick in unless there is a tax treaty in place. The entire area is very uncharted territory.

          • Frank Corsi

            Nobody needs to register anywhere to use Game Tokens, not true 🙂

          • Frank Corsi

            Any income can be seen as a taxable item. Game Tokens are purchased from members for paypal funds.

          • But where is that taxable income reported? – Are you saying there is no reporting to the IRS of the funds that flows through a business account established for Gametokens? – Point is as non-US companies, we don’t want any of it reported to IRS at all, but only through our local reporting mechanisms for taxation (if applicable). Paypal will report outflows to the local authorities.

          • Frank Corsi

            From paypal, that is where you would directly collect your income from.

          • So this FinCEN registration does not involve any IRS reporting on your side that can be used for taxation of non-US companies in the US?

          • Frank Corsi

            Im not the person within our company that handles any reporting, but my understanding the only reporting is in case of fraud

          • I am asking because if you sell something on Turbosquid they do a 36% tax withholding + their own commission so at the end of the day it is hardly worth it. It would be good if someone could clarify exactly how this will work from a non-US perspective.

          • Frank Corsi

            Our company strictly purchase the game tokens via paypal, and we do not need to report anything unless there is fraud

          • …and the grid purchase the tokens from you to hold a balance on the grid (since the moneyserver can be installed), or does it work like the OMC where there never is any balance on the grid, but only with VirWOX that handle all transactions both for individuals and for the grid (registration) account?

          • Frank Corsi

            There is an in world money module with in world balances for each avatar. And also an account balance that is just GT’s in their account on the website. People can easily move GT’s from avatar to account and then from account to any avatar in any grid we operate in. For SL we only have account balances, since we can not transfer GT’s to in world avatar balances. But still someone in Sl can click on a vendor and make a purchase with GT’s. Our website manages the balances.

          • Frank Corsi

            You can test the GT’s in AtekGrid.com

          • OK, so the grid owner will have to install the money module, and create a grid currency that holds avatar account balance on the grid. Meaning they take on full liability of the accounts held on their grid? You have the liability of the GT holding on the account website where they purchase additional currency via PayPal?

            If the person behind the avatar was to spend their GT on another grid, they would have to register an account with that grid, and it would have to implement the GT in the same manner as above?

            … or could they, like with the OMC, do a hypergrid visit to another grid using the OMC and make spendings there without being registered on that grid?

          • Frank Corsi

            A grid operator will never have any liability at all.
            The GT’s can be used in several ways. We do offer a money module, we also have in world vendor system that does not use any money module. Currently the grids using GT’s are also CloudServe hosting clients, which allows us to fully manage the servers and the money system.

          • OK, understand. Thanks!

        • Frank Corsi

          Game Tokens are redeemable for paypal as it is stated on the website!
          Back in 2010 the virtual currency was not legal as it is now. Therefore we had no choice but to use 3rd party exchange operators. Not so anymore, as I told you Maria on our most recent chat about this topic several months ago. 3D Virtual Web is registed with FinCen and also each state we operate within as directed by the regulations.

  • Gunnar Schwede

    is anyone even still using bitcoin? out of those folks, how many are involved in opensim… pretty small percentage I assume….. so, big deal !?

  • Alex Ferraris

    Second life has its own currency exchange named Lindex.
    However; I would not shut down the other currency exchange. I would make LINDEX more competitive against the other currency exchange companies.
    That would create a competitive market and keep a good amount of choices for the residents.
    Monopoly is not a good way to go.
    Alex