Linden Lab changes terms of service prohibiting third-party trading of Linden Dollars

Update: Linden Lab changes its mind and allows third-party exchanges with some conditions. Details here.

The online world SecondLife comes with its own currency, Linden Dollars. A number of virtual currency exchanges make a significant portion of their income buying and selling Linden Dollars. Third party exchanging of Linden Dollars has been happening for years and is an important service particularly to SecondLife players outside the States who otherwise do not have a means of purchasing Linden Dollars.

Last week Linden Lab, the SecondLife operator, changed their terms of service to prohibit third-party trading of Linden Dollars.

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Banks too scared to work with Bitcoin businesses

What was an incident now appears to be a trend. Banks are refusing to work with Bitcoin businesses…It would seem out of fear.  In the latest example TransferWise, a business that offers low fee international money transfers, has announced that they will no longer be processing transfers to Bitcoin exchanges as their banking providers are “not comfortable with Bitcoin”.

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Will FinCEN attempt to regulate virtual currency exchanges outside the US?

We’ll just have to wait and see, but it looks like they might try. In a ‘guidance’ issued in February last year FinCEN believes that a business may qualify as a Money Services Business “based on its activities within the United States, even if none of its agents, agencies, branches or offices are physically located in the United States.”

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What FinCEN’s guidance could mean for Bitcoin

As you would expect the Bitcoin world is abuzz with commentary and speculation about the consequences of the FinCEN paper. Some of the more interesting theories on its implications are below…

FinCEN’s guidance may lead to Bitcoin businesses being required to obtain separate money transmitter licenses in 48 states; a difficult and very expensive task. Payment Source.

Could FinCEN’s target be Bitcoin’s anonymity? Might they target Bitcoin mixing services? The Ümlaut.

The guidance may imply that every person who has ever had any virtual currency and exchanged it for ‘real’ currency can now be considered a money transmitter.  The Bitcoin Foundation.

FinCEN Issues “Guidance on Virtual Currencies”

fincen.header-editThis guidance was issued to “provide clarity and regulatory certainty for businesses and individuals engaged in an expanding field of financial activity.” Or put another way, FinCEN explains who exactly they intend to regulate.

FinCEN covers their bases here discussing “users, administrators, and exchangers… persons creating, obtaining, distributing, exchanging, accepting or transmitting” virtual currencies, both centralized and de-centralized, e-currencies and e-precious metals.

  • FinCEN sees those dealing in virtual currencies as their regulatory responsibility
  • Users, and Bitcoin miners seem to be exempt from regulation for the moment
  • Buying or selling virtual currencies for “any reason” can make you a money transmitter and subject to FinCEN regulation
  • Virtual currency dealers are NOT necessarily foreign exchange dealers
  • FinCEN rules can also apply to those dealing in e-precious metals
  • However, Prepaid Access rules do NOT apply to virtual currencies

Summary below.

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Wrestling with Bitcoin. Why even hard-core goldbugs should respect and support cryptocurrencies.

Don’t get me wrong, I’m not suggesting you sell your gold for Bitcoins. What I’m saying is although they may not realize it, Bitcoin is a goldbugs friend. It has a real chance of changing the way the average person thinks about money and that is good news for anyone who is not a fan of fiat.

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