The fallout from yesterday’s terms of service change blog post is now in full swing. The outlook for third party exchanges looks bleak from the posts I’ve seen, but confusion still reigns due to the discrepancy between the blog post, which explicitly stated trading on thier party exchanges is not allowed and the actual new terms of service, which make no such reference. This issue is not just in the area of third party exchanges either, third party viewer developers have also been sent a message relating to the Buy L$ feature in their viewers.
The problems started rather quickly, Maria Korolov over at Hypergrid business reported that First Meta Exchange had announced :
“We are really sad to announce that we will not be doing any linden exchanges from now onwards. Due to the recent changes in SecondLife’s Terms of Service we must SUSPEND ALL LINDEN TRADING IMMEDIATELY. We will be updating you via email with more information soon.”
Meanwhile other exchanges have ceased trading whilst seekig clarification on what the terms of service changes mean, ELDEXchange announced:
“you might have seen the changes of ToS regarding exchanges other than the Lindex. We try to get more information about the consequences. Meanwhile we cant accept new sell orders. We will inform you as soon as we have more information.”
VIRWOX, arguably the largest third party exchange announced:
“We have asked Linden Lab for clarification. Until we know what this all means, we have disabled deposits of Linden Dollars (the terminals will send them back), disabled the “Currency Shop” for Linden Dollar purchases, and disabled the withdrawal of Linden Dollars to Second Life. Other virtual currencies are not affected.”
Moneyslex announced:
“Linden Lab has recently changed their Terms of Service.Trading L$ as Third Party exchange Linden Lab interprets as “unauthorized” as “not permitted”.This would mean that we can at the moment not offer our service to Second Life residents.”
However as the confusion reigns, some third part exchanges are still operating.
Podex exchange seems to still be operating, although there are no statements from them on their website. DX Exchange are also still running and they made the following announcement:
“Following the new Terms of Service of Linden Lab, we have received many inquiries from customers. At this moment we did not receive an immediate notification from Linden Lab concerning the activities of DXexchange. However, we are in talk with other by LL previously approved exchanges to assess the situation. For now we will continue our activities as an exchange office.”
However, other exchanges have reported that they have been advised to cease trading. On the Second Life forum a user called xchange4ls Turbo reports that he has received the following email:
“As described on the Second Life blog, the updated Second Life Terms of Service disallow trading of Linden dollars (L$) on exchanges other than the LindeX. As an operator of a third party exchange, you should cease facilitating L$ trades on your exchange immediately to comply with the Terms of Service. Any virtual ‘ATMs’ or scripted objects in Second Life that are connected to your exchange should also be removed immediately.
Please be sure to read the complete updated Second Life Terms of Service and take the steps necessary to comply and keep your Second Life account(s) in good standing.”
Over at SLUniverse, Zoha Boa reports:
“We run a small exchange for our residents. They could buy L$ via our tier terminal. I did contact my account manager if we are still allowed to do this and got the following reply:
“We will shut down any resident for a violation of the terms of service if we discover they are trading L$ outside of the LindeX. “
…..
“The only authorized exchange is the LindeX.”
So we disabled our exchange. I did read also on a german forum that several exchanges got an email from LL to stop with it, remove all inworld terminals, …”
The issue isn’t just an issue for third party exchanges either, third party viewer developers have been roped in with Chalice Yao over at SLUniverse reporting that Oz Linden sent the following message to the Open Dev list:
“If you are a viewer developer, and your viewer includes use of a third party exchange for functions like ‘buy L$,’ it will need to be changed to use the LindeX instead.”
As I said, it doesn’t look good for the future of third party exchanges. The reasons are still open to speculation, there are some interesting comments in Inara Pey’s blog post on the subject, with Inara suggesting FinCEN may be the reason behind these changes, Inara suggesting that this may be nothing at all to do with FinCEN (See comments) or that it may be something else entirely, plenty of food for thought there.
FinCEN is a central plank behind Vaki’s excellent post on the subject. Vaki also points out how poorly drafted the changes to the terms of service are, which is something I most definitely agree with, confusion reigns because of the contradictory terms in the original blog post and the new terms of service. This is exemplified when you look at the new and old section of the terms of service (with thanks to Sassy Romano’s forum post):
The New ToS
” 5.3 There are other exchanges that are operated by third parties on which Linden dollars are exchanged.
Third party exchanges are not authorized by Linden Lab and Buying or Selling Linden dollars on third party exchanges are not authorized transactions. Third party exchanges are wholly distinct from both the LindeX exchange and Linden Lab and they have no affiliation with Linden Lab. We do not endorse or otherwise guarantee the legitimacy of the Linden dollar transfers offered on them, and we are not liable for purchases of such Linden dollars. Buying or Selling Linden dollars anywhere other than the LindeX is done so solely at your own risk.”
The OLD ToS
“5.3 There are other Linden dollar exchanges that are operated by third parties.
Linden dollars are occasionally Bought and Sold on third party exchanges, which are wholly distinct from the LindeX exchange. Unless specified by Linden Lab, these exchanges have no affiliation with Linden Lab. We do not guarantee the legitimacy of the Linden dollar transfers offered on them, and we are not liable for purchases of such Linden dollars. You purchase Linden dollars from such sites at your own risk. If you Buy Linden dollars that are traced to unauthorized credit card activity or other fraudulent activity, we will recoup these Linden dollars from your Account.
Purely for informational purposes, we may list on our Websites third-party exchanges that use our “Risk API” tool. The use of the Risk API may lessen the occurrence of fraud on those exchanges; however, in no event do we endorse, guarantee or insure your purchases from these unaffiliated exchanges.”
Comparing the new and old sections, you can see why some people don’t think these changes are that serious, on the face of it, it just looks like Linden Lab are emphasising that if you use a third party exchange, you have no recourse at all from Linden Lab. However the posts and comments elsewhere suggest this is a far more serious situation.
Whatever the outcome, Linden Lab really really really need to sort out their communications.
Whatever reason, good or otherwise, there is for the change, doing this overnight with no warning whatsoever is utterly ridiculous. It is *really* telling people to never trust doing any serious business with LL and in SL, and it is not the first time we see that.
Agreed, it’s not the first time and it sends the wrong message completely about Linden Lab being a serious business partner. They seem to shoot first and ask questions later.
Actually, I said I don’t think FinCEN is the primary reason for the changes in terms of Vaki’s post and liability for other MSBs actions / accountability:
I’m not 100% convinced the FinCEN guidelines were the motivating factor behind the update. For one thing, there isn’t anything in the guidelines to suggest that LL would in any way be held accountable for any failure on the part of a third-party MSB than is currently the case.
What I did say is that if there is a cross-over cause with the FinCEN’s guidelines, then it is more likely to be that the Lab are trying to further distance the Linden Dollar from being considered a virtual currency by effectively ring-fencing how and where it can be obtained / redeemed (i.e. only through their own mechansim), in an effort to maintain its given status by the company as a gaming “token”.
Obviously, there are many question marks as to how effective this might be, and what reaction FinCEN might have.
Overall, I still look at this as potentially a three-pronged move:
– Adding a level of immediate protection between themselves and external disputes, as I’ve mentioned in your earlier post on the subject
– Attempting to ring-fence the exchange of L$ for direct revenue gain (as WolfBaginski Bearsfoot points out on my blog, LL are potentially missing out on around $500,000 in transaction commissions going through VirWox alone)
– Attempting to limit the L$’s exposure to external mechanisms and thus bolster the Lab’s stated position that it is not a virtual currency but “merely” a “gaming token”.
Ok Delicia Whipsnaps I’ve ammened my post. I suspect it may be to do with FinCEN and avoiding the Linden Dollar being deemed something other than a game token.
Thinking about this, the only place you’re supposed to sell gold for Diablo III is via their auction house, the same goes for in game items that can be sold for real money. There are plenty of sites selling gold, but they are not allowed.
LL seem to be aligning their model more with Blizzard’s, but LL’s problem is that they start from a base where these third party exchanges were given the nod.
In my experience with Lawyers they are phenomenally clear when writing language for contracts and other such agreements (of which the SL ToS is one). EXCEPT in cases where they are not fully clear themselves on the supporting law or when they wish to give themselves a bit of wiggle room.
In light of the recent FinCEN developments, I would say the supporting law is still very unclear, thus part of the reason LL’s attorneys have left the language in the ToS somewhat vague. Also remember that the Blog Post has zero reliability when attempting to understand LL’s Intent; the ToS is always the final say in any dispute.
What is extremely clear from LL’s actions is that they are concerned over the FinCEN decision and felt it prudent to start making changes to protect their assertion that the L$ is a worthless (outside of SL) coupon. We can surely expect LL to make at least one more revision in the ToS, probably within the year, making their intentions absolutely clear. I also suspect that the change will forbid all outside Exchanges with absolutely no wiggle room whatsoever.
You’ve hit the nail on the head where the FinCEN document is concerned – as it is a set of “interpretive guidelines”, rather than a “change in the law”. As such, and while they are intedned to clarify FinCEN’s poistion vis virtual currency and the BSA, they still are “interpretive” and open to potential questioning (and revision / further clarification).
Your point on ToS “vs” blog post wording is similarly well-made, and mirrors my own, as does the expectation of further tightening / changes as the FinCEN situation becomes clearer.
While I get the FinCEN connection with this decision and it may be part of it. But the Labs actions have happened without warning and demanding immediate compliance. Legislation is always painfully slow in being implemented and there is no way that they could not have known or been unable to prepare for this. If it is FinCEN that has prompted this, then the Labs actions are even more reprehensible.
I prefer to give them the benefit of the doubt and think it may have something to do with a fraudulant situation that could not be ignored and had to be dealt with. Maybe I am being Polly Anna. But to think of shutting down exchanges , who incidently hold a ton of the Labs customers L$ in a frozen state, without warning and without the means to effectively bridge the service gap between the 3rd parties and their own frankly inadequate system on the basis of legislation that they would have plenty of warning of, just beggers belief.
Drift, this is one well-documented habit that Linden Lab has become well known for … the sudden and drastic massive change in Policy / Procedure / Regulation without lead time or forewarning. There are many theories as to why they always operate in this manner, but I still hold firm to my belief that it’s a combination of internal communication problems and a “Head in the sand” attitude that they are the one and only voice.
When the Lab reacts to fraud problems, we generally see a lot of whining and belly-aching from the Residents long before LL takes action. (The RedZone Fiasco comes to mind.) But in this case there has been no indication of discontent or any sort of related issue … near as I can tell. If the level of fraud were reaching the point where LL felt they had to react with this type of overnight lead-fisted mandate, I have to believe we’d have been hearing about it somewhere, somehow, long before this went down.
You kinda make my point Darius. 🙂
Liden lab of doing things, they still belive are the ony selllers of virtual word addtion!
I think it may have something to do with the Linden dollar’s recent popularity as an intermediate step for converting real-world currencies to Bitcoin. You can bet that a fair proportion of the SLL flowing through Virwox were never actually earned inworld or intended to be spent there, and that is not good news if you want to maintain the position that they are purely game tokens.