AviTron, is testing out cryptocurrency as an in-world payment method in addition to its in-world currency, Tron.
The grid will be accepting Bitcoin and Dogecoin as payment for land rentals and in-world purchases, despite the fact that the currencies are highly volatile and pose regulatory and other hazards for grids.
“Bitcoin and Dogecoin as payment is something new that we are going to try,” grid owner Alexsandro Pomposelli told Hypergrid Business.
He added that accepting crypto payments could help the grid lower its operating costs — and thus allow for lower land prices.
The grid is already off-setting some of its costs by running advertising. For example, the Google Adsense program has helped AviTron cut region prices by more than 65 percent, said Pomposelli.
“Bitcoin and Dogecoin payments will go to our savings so the grid has some kind of a financial backing and maybe our currency could also be backed by these two coins,” he said.
AviTron recently ditched the Gloebit, a multi-grid, hypergrid-enabled currency system because of a lack of support and recent outages and payment problems, to go back to its own Tron currency. It switched from Tron to Gloebit in late September.
AviTron’s Tron not the same as the Tron blockchain
To make things just a little bit more confusing, there’s already a blockchain called Tron, which has its own associated cryptocoin, called the Tronix.
The Tronix is currently the 28th-largest cryptocurrency by market capitalization, valued at $7.3 billion. By comparison, Bitcoin, which is in first place, is valued at $1.1 trillion, with a single Bitcoin currently selling for over $60,000. Dogecoin, which started out as a joke, has a market capitalization somewhere between the two, at $31 billion. It’s a favorite currency of Tesla CEO Elon Musk.
A blockchain is a public ledger — basically, a list of transactions — where all the participants keep a copy of the same list. The list is secured against tampering with an encryption-based locking system, but is not itself encrypted. That means that anyone can pull up the blockchain and see all the transactions on it. So, if someone knows your wallet address, they can see all the payments in and out of your wallet. This allows security researchers and government authorities to track money sent to ransomware groups, but also creates potential privacy problems for virtual world users.
The blockchain technology itself is free and open-source, meaning that anyone can launch their own cryptocurrency at any time.
That is not what AviTron is doing. Their in-world currency, Tron, is simply a traditional grid currency that has no real-world value.
However, Pomposelli may turn Tron into a cryptocurrency, he said.
“I may go for our own AviTron Coin,” he said. “Place an infinite amount of coins available so its price would be more stable and won’t fluctuate as much. Like Dogecoin. Any coin that will be used for commerce cannot have so much volatility like Bitcoin and others. It needs to be stable.”
Cryptocurrency volatility a major obstacle to in-world use
A cryptocurrency’s price is based on public interest. So if, say, Elon Musk mentions the currency on Twitter, then bashes the currency on Saturday Night Live, then promotes it again, its price will swing dramatically.
Pomposeli said there are methods the grid can use to protect against volatility, like exchanging the currency immediately to US dollars, or creating a coin that has a fixed price in US dollars.
“I can leave the money in US dollars, earning up to four percent interest,” he said. “I can also wait till Bitcoin price really dips and I buy more for less dollars. So I sell high before the dip and buy when it’s bottoming up. You need to understand the markets to know when the dip will occur.”
This is obviously a risky strategy that can completely wipe out a grid’s finances, but Pomposelli is no stranger to risky strategies. In fact, his grids have shut down more than a dozen times over the past ten years due to bad business decisions.
Security and technical overhead also obstacles to crypto use
Despite the fact that the original premise of the blockchain was increased security and easier transactions than traditional national currencies, in practice, business have found it to be the opposite.
It is difficult to guard against fraudulent transactions with cryptocurrencies, said Zetamex CEO Vincent Sylvester, and cryptocurrency exchanges have questionable security standards.
Hackers have repeatedly stolen money from cryptocurrency exchanges, such as the $97 million recently stolen from the Liquid exchange, and from blockchain networks, such as the $600 million recently stolen from Poly Network. Hackers also routinely attack individual cryptocurrency wallets and have even successfully attacked the blockchain itself with techniques such as the 51 percent hack.
OpenSim hosting company and grid operator Zetamex has tried different cryptocurrencies but had to shun them altogether because blockchain requires a lot more hardware to maintain the integrity and security of transactions than centralized systems, Sylvester told Hypergrid Business.
“We have had crypto, various in fact, as payment processors for region and grid orders in the past, which was only trouble and ended up being more a headache to deal with than what it provided in lesser transaction fees,” he said.
Plus, the volatility means that pricing has to be in US dollars, and all payments need to be immediately converted.
“As currency it will only work if adopted for the entire market, if you still have to convert to other currency it’s practically pointless,” he said.
There is no commerce model that would make cryptocurrencies a viable option for most business expenses and the type of transactions in OpenSim, he said.
“Cryptocurrency is a blight on society being partially responsible for both hiking hardware pricing and driving gambling addictions the world over,” he said. “Blockchain isn’t a magic word to solve the world’s ailments and it most certainly won’t provide any more useful monetary transaction medium than PayPal, Gloebit or Podex already do.
Kitely CEO Ilan Tochner also confirmed that switching to a cryptocurrency won’t reduce a grid’s operating costs.
“Adding a public blockchain doesn’t contribute to cutting down virtual world costs as it doesn’t decrease any of the costs associated with running your own OpenSim grid or renting one from someone else,” he told Hypergrid Business.
And it doesn’t help with security or privacy, he said.
“Accessing any online service — OpenSim, websites, or otherwise, provides information about you and your activities to the systems you accessed,” said Tochner. “Currently that information is mostly accessible just by the entities that operate those systems. Moving some of that information from their systems to a public distributed ledger doesn’t increase your privacy, improve your security, or add anonymity. On the contrary, it’s more likely that it makes it harder to protect them.”
Most of the technologies implemented in blockchains to manage user privacy and increase security, like zero knowledge proofs or homomorphic encryption can be implemented more securely on other, better, systems, he said.
And the blockchain can’t be changed after the fact, he said. That means that mistakes can’t be fixed.
“Compare that with Kitely Market which, with our assistance, and under certain conditions, enables people to change who they bought items for after the fact at no cost,” he said. “For a example, because they mistakenly ordered the items to be delivered to an avatar belonging to the wrong grid or to a different avatar from their intended one. Doing so changes the original order information, which would not be possible if the order information was stored on a blockchain.”
Also, a user can’t invoke their “right to be forgotten” for information that is stored on a blockchain – which would make it hard for grids to comply with GDPR privacy rules and similar regulations.
Kitely has spent years developing solutions for how to manage digital assets, their distribution, ownership and potential monetization on Kitely Market and other virtual worlds, he added.
Prior to founding Kitely in 2008, Tochner founded and ran an Internet security company. He also has an MBA in finance and a BSc. in Computer Science.
Instead, Kitely uses PayPal and Kitely Credits for the Kitely Market and Kitely Credits for in-world transactions.
Kitely has no intentions to adopt any cryptocurrencies at the moment, Tochner said. “The costs of doing so would greatly outweigh the benefits.”
Another problem with using cryptocurrencies for in-world payment is that governments are increasingly cracking down on crypto transactions.
Last week, the US, together with thirty other countries, met to discuss the issue and released a statement pledging to address the exploding problem of ransomware in multiple ways, including increasing regulatory controls on cryptocurrency payments.
“We will enhance the capacity of our national authorities, to include regulators, financial intelligence units, and law enforcement to regulate, supervise, investigate, and take action against virtual asset exploitation,” they said.
“The only reason the Bitcoin currency has any value at all right now is because of ransomware,” said Hypergrid Business editor Maria Korolov who covers cybersecurity for CSO magazine and Data Center Knowledge.
Traditional currencies are either backed by governments and are guaranteed for acceptance for real-world payments such as paying taxes, settling debts, and paying groceries, she said. Other common currencies — such as, say, gift cards and coupons — are backed by the companies that issue them and have value as long as they haven’t passed the expiration date and the company is still in business.
Bitcoin, Dogecoin and other popular cryptocurrencies have no such backing. They’re used for currency speculation — basically, a legally-sanctioned form of gambling — and for paying ransomware and buying illegal goods on the dark web. Actual use for real shopping is almost non-existent because the currencies are so volatile and cumbersome for companies to support and for shoppers to use, she said.
The only major company to accept Bitcoin as payment, Overstock, reported losing $700,000 last year on cryptocurrencies, up from a loss of $569,000 in 2019.
Cryptocurrencies are popular with ransomware hackers and drug dealers not because they’re anonymous, she said. “They’re not.”
It’s because they’re still mostly unregulated, she said. For normal banking transactions, banks have to comply with know-your-customer laws and anti-money-laundering laws. That doesn’t make it impossible to set up fake bank accounts and send money to sanctioned criminal groups, but does make it a lot more difficult.
“Bitcoin doesn’t have any practical, legitimate, real-world uses,” she said. “It’s worthless for stored value or as a hedge against traditional currencies because of the volatility and lack of underlying value.”
Telling people that a grid accepts Bitcoin has some marketing value since there are OpenSim users who like the philosophy behind cryptocurrencies.
But it actually hurts marketing if the cryptocurrencies are used in-world, where the prices have be posted in US dollars due to the volatility of crypto.
“When the pricing is in virtual currencies, users feel like it’s ‘play’ money and spend more,” she said. “That’s one of the main reasons games have in-world payments instead of just pricing everything in dollars. That’s why they make you buy ‘farmbucks’ or ‘gold coins’ or whatever before you can spend them — because people spend more that way. Because of the volatility of Bitcoin and Dogecoin, if those currencies are used in-world, prices have to be listed in dollars.”
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