 Okay, get started. Okay. All right. Hello. I'm David Salomonoff. I'm the president of the Internet Society of New York, and I'm here today with our panel on what every grid owner needs to know about virtual currencies. And, okay, right, right. And we have, as our panelists, we have Alex Kodachnikov, who is an attorney licensed in New York and New Jersey, specializing in bankruptcy, immigration, health care, and regulatory compliance. Also, we have Timothy Rogers, who is the CEO of ZetaMEX, which is a virtual service network. And he describes himself as a big supporter of OpenSimulator as a platform for people to build and create worlds of their own dreams. Also, a big open source advocate striving to keep closed source software to a minimum in this platform where the ideal is for the community to develop and make it a better product. Okay. Okay, so basically, the, let me talk briefly a little bit about the Internet Society here and what we're doing. The Internet Society was formed by Internet Pioneers, Vint Cerf and Bob Kahn, to develop open standards for the Internet. And the organization has gone to advocate more generally for Internet freedom and open access and having a broader mission, as I say, and big interest in policy issues, including economic and legal ones. I'm having a heavy echo problem here that I need to address here. Right. Okay. Right. Okay. Sorry, let's see what this does for us. Okay. Not helping here. I'm sorry about this. We're having a delay issue here. Let's see here. Okay. Now I'm not hearing myself. That's good. Okay. Can other people hear me? Excellent. Okay. Great. I'm sorry about this. So we have some audio issues. Okay. So basically, the, I'll be really quick here and then get to the panelists and the good stuff. But basically, the Internet and cyberspace presents a real challenge to traditional political institutions. And of course, currency is, and controlling the economy, economic activity is an essential part of the modern nation state. So this creates some real interesting issues and conflicts in terms of economic activity in virtual worlds. And there have been some changes recently as the virtual currencies gain traction. So that, for example, there's a lot of concern about issues that happen to do with money laundering, illegal transactions. There's a online marketplace called Silk Road that uses bitcoins and specializes in illegal products and services, particularly illegal drugs. These types of activities are really attracting a lot of attention by governments and law enforcement. So naturally, that impacts other kinds of economic activities in virtual worlds as well. And we've recently seen some developments there in terms of restrictions, in terms of virtual currency, so that Second Life is restricting the resale of their lending dollars. And there are other kinds of issues there. So first, I'm going to throw this open over to Alex and ask him to give us an overview on what's going on with these new rules and restrictions. Again, Second Life changing rules for third-party exchanges, Kitely moving towards a fictional or closed-loop type of currency. And the final question is, how does this affect grid owners? What should they know about the changing rules? And also, how are international grids affected? So, Alex, give us your viewpoint on all this. Thank you, Dave. Thanks, everybody, for having me and hearing me out. Like Dave mentioned, I'm going to give you a brief overview of where regulations stand right now with virtual currency. In March of this year, the Financial Industry Regulating Agency, they are basically the enforcer of financial institutions. They issued a guidance statement for people who deal with virtual currencies. A guidance statement is not exactly a rule. It's not really law yet. It's something that lets them apply existing laws to a new issue. So in this instance, they apply the laws that apply to money services businesses and money transmitters to people who deal with virtual currency. In this guidance, they made a... Well, they tried to make a distinction between the users of virtual currency in exchanges and administrators. They're saying that users are basically anybody who uses virtual currency just like real currency. For example, you buy goods and services with it. At the same time, administrators and exchanges are people who accept virtual currency and sell it for living or otherwise. If you can imagine, the definition is kind of convoluted. Well, that's partly because it's so new. The whole issue of virtual currency is so new to them. Since I'm being a regulating agency, they don't really like to stay in the darkness. So that's why they came up with this guidance. It's more or less a way for them to gather information. One of the things that I personally didn't like about the guidance is that they made the currency laws apply to people who deal with virtual currency through the definition of a money transmitter. The reason I didn't like it is because there were... If people who were dealing with virtual currencies were dealt with as dealers in foreign exchange, this would have been a lot better. But the reason they came out with the money transmitter definition as opposed to the dealer in foreign exchange is because of the enforcement capabilities. If a person doesn't register with the state authority as a money transmitter, there's possible criminal penalties. There were a few reactions to FinCEN guidance. One of the first ones who reacted officially to US government dealing with virtual currencies was Second Life. The first in Second Life did was ban the third-party resellers. That lasted about 10 days because I guess people got up in arms about that. And 10 days later, the Second Life changed its stand and said that now third-party resellers, they can't cash out. All they can do is sell the Linden Dollar. I don't think that changes anything for the third-party resellers. They would still have to be registered with FinCEN, but I think it makes things a little easier for the user. So some of the latest developments in this area of virtual currency is that in the United States, the state regulators have started jumping on the bandwagon of regulating. For example, New York came out with its own guidance of how it thinks virtual currencies should be regulated. The good thing about it is that in its guidance, it hinted that it'll come up with a whole new set of guidance for virtual currencies because if current money transmitter rules are applied to virtual currency dealers, it'll cost them a whole lot of money. What I mean by a whole lot of money is by the current rules, everybody who's a money transmitter has to put up a bond, a half a million dollar bond. As you can imagine, that's pretty expensive for somebody who doesn't have a large income from what they're doing. How does all the virtual currency gotten supplies to international people who deal with virtual currency internationally, for example, who own grids internationally, it's confusing to say the least. Right now, there's a statute on the books that says everybody who's a money transmitter, no matter where they are, they have to register with FinCEN and the state regulators. Can I interrupt? That would be in the United States, that would mean potentially every state you would have to be registered with. Am I getting that correct? Yeah, every state where you're dealing with virtual currencies, where you sell a real currency, that would be right. So that's very, very difficult for a small grid owner, rather a small currency exchange, when the actual amount of transactions is still fairly small. It's a very big barrier to entry at all. Am I understanding that right? Yeah, you got it right. Like I said, the silver lining is that New York is not doing anything right now as far as making people who deal with virtual currency put up a half a million dollar bond. They are kind of taking the wait-and-see approach and they are saying that we'll get the reactions, we'll see the comments from the industry and we'll play it by ear, we'll make more concrete rules in regards to virtual currency when we get some reaction to all of this. That's what the gist of all of this is. Okay, great. Okay, right. So let's go over to Tim now and can you give us kind of an overview of the options that are available to grid owners, kind of the pros and cons of different ways of having financial transactions in your world? Oh, yes. Actually, I was going to share a couple of these and briefly go over your different options and the things that you should consider before choosing one of the options. So, things you need to consider is do you want control over the currency? Because there's a couple of different options out there for grids to choose whether that they want to have full control over their currency or rather have another company such as Verox, which is a long well-standing company, or First Meta, which is also another long-standing currency exchange. The next one is what are your payment options your business and or country can accept? This is something I've run into a lot being in my line of work. There's a lot of customers who come to me and they say, I can't do PayPal because I live in such and such country and PayPal does not work in my country. So that is another thing you have taken to consideration when you're choosing to do a currency. And then lastly, I'm interested in having a live or play currency. The control and oh, go ahead. Yeah, do you want to clarify the difference between the live and the play currency there? Yeah, I've actually got a couple slides here that I'm going to answer all these questions. That was just a brief overview of what I'm going to cover in these upcoming slides. Just a couple short slides here. All right, so with the control and currency, PayPal is amazing, but as I said already with my past experiences that it only works in so many countries. I have had the lovely chance of speaking with a company of Verox and First Meta exchange, which used to be very popular working with Second Life. However, with the new changes, they were no longer allowed to stay within Second Life some system. But that being said, that they are willing to work with open sim grids as spoken with them and they're more than happy to work with anyone who's willing to work with them. The advantages of working with them is one, you don't have to worry about too much of the on you burden, whereas they handle all your money. And I'll explain some advantages and disadvantages of that here in a moment. And then lastly, letting companies like Verox and PayPal handle your currency versus you handling it directly. All right, the difference between lab and play. Well, if you're wanting to have a fictitious currency, best examples of grids that want to do a fictitious currency are those who want to, you know, if you're an educational grid, give currency to people for doing tasks, training exercises with rewards, or if you're just going a little gaming grid or currencies that have absolutely no real world cash value. These are common examples of wanting to do a more play like currency, which means the money has no real world value. Whereas then with a live currency, you have currency exchange, you have the supply and demand, some grids of which I see a lot with open sim grids, they have a fixed exchange where one US dollar would equal anywhere between 250 whatever their credit currency is called, or 300 other credit currency. Some grids have a buy-in only such as Kitely, which is the one that's most known right now where you can just buy in, but they don't have the ability to cash out. A lot of these other grids still offer that. Getting into the top three, I put some bitly addresses in here. I try to make them super simple. If you want to find out more information about them, you can see them up on the slide show. It's right underneath the screenshot of that site. But the first one that is most popular is Mod Paypal. This is by, I hope I do not butcher her name or his name, Snoopy Pepper. This is the owner of Dreamland Metaverse, also 3D World Hosting Company, one of the largest three. I judge the setup of this one for anybody. It used to be intermediate. The tutorial is right on the GitHub, which you can get to right from here. The interface works directly with PayPal, meaning when you perform a transaction, the grid owner doesn't have any ability to directly earn from it. When somebody buys something or tries to sell something, it goes straight through PayPal by passing any chance for a grid owner to make a profit from it. When I say a grid owner doesn't have the ability to just make a direct profit from it, I mean in the sense of in OS, well not OS, but in Second Life, when you buy Lendon's or you cash out Lendon's, you have this exchange rate and then you have a fee. Second Life will charge you a fee and this is how grids can make some extra money based on the fees they charge for the buying and selling of currency. With the Mod PayPal function, you can't do that because the currency is handled directly by PayPal. Then your next biggest option, the one that is the second largest that I see so many grids use and want to want to run with is ONC, Open Metaverse Currency. This is maintained mostly by Grand's University of Technology. However, Burrocks is the people who handle the money transactions, but all the development is handled by Grand's University of Technology. This is the most simple one to implement. However, it does require you to send a couple emails to Grand's University of Technology in order to make sure you can get the setup and they can move you from the test system to the live system. It's super simple to install. You drop in a couple lines into your configuration file, drop in the two DLL files and start up your simulator like normal. Super simple. They are the largest. They accept Bitcoin, PaySafe card, Skrill, PayPal. This one, one of the biggest things people have always said though with OMC is you have to confirm every transaction on a web page. Now, this is something that a lot of people don't know and I want to bring this up is they have a new feature that's been around for a while. So it's not really new, but at the time that OMC came available, no one, they didn't have that feature, but they're not really good at advertising that they have this feature, but they have something called pocket money. What pocket money is, if you do use OMC in your grid, to avoid your residents actually having to go and confirm every transaction on a web page, everyone in your grid can go log into their web account and say, I want to move so much of my currency to my pocket. What your pocket is is a set amount of money you're willing to have on hand in the world before it actually requires you to start confirming transactions again. It's a great way for users to not have to complain about the annoyance of I just want to pay this person one L, but I have to go through the whole click, confirm, confirm again on the web page, enter my password. Yes, I do want to send it. It's a bypass for that. But again, with this currency, you don't, the grid owner has no ability to directly earn from it because again, this is going straight through Verox's money exchange and not the grant owner. Yeah. Can I just ask to clarify there? So the pocket money, the grid owner cannot take a piece of or have a commission or a service fee for that, but transactions that are not pocket money, they can. Did I understand that correctly? Actually, any transactions that happen with the OMC, the grid owner has no access to it all, not with the pocket money, the not pocket money. The only advantage of pocket money is for users to avoid having to confirm every single transaction on a web page. This is great for security, especially over the hyper grid, because we all, I know a lot of people, if you're ever come from a second life, those scripts, you res out and you click on it and then all of a sudden all your lending's gone. Having that confirm on a web page was their advantage to bypassing people doing malicious scripts and opens them. But it's very annoying for people to have to confirm every transaction on a web page so they introduce pocket money, which is where you can set aside money to be accessed without a web page needed. Okay. All right. And then my last one, which is the largest is DTL NSL money server. Granted, I don't know what the NSL stands for, but the DTL is for decentralized. It's a money server system that runs parallel to the open sim process. This is the only one where you are directly in control, and it is the most popular. Now noting what we've just heard from our legal advice here. A lot of grids might want to double take about using this now. I know a lot of them have built off of this currency, but you can also use this currency as a play currency or a live currency. Essentially, this currency, maybe a little bit of back history really quick, is maintained by Tokyo University of Information Sciences in Japan. The web page looks a little scary when you get there, but they have a button in the top left that says English, and they do have an English version of the entire site. So don't freak out too much, and they have a forum. They do speak English. They're very kind. They were very helpful to me. They are very awesome. The setup is intermediate because you do have to download a bunch of files. You have to do a lot of configuration, but this gives you full control of your currency. You have every ability that you want. You can do it as a play currency, set it up where you only give people money when the task is explained earlier, or you can set it up to do live currency. Now, there is no built-in system that says PayPal. If somebody pays this PayPal so much, it generates that money, but they have scripts with detailed tutorials teaching people how to set those things up. The reason they don't have those connected is mainly because of what you just heard from Alex over here. If they do that, then they can risk that ability of being held slightly liable just for offering it all bundled together. So that really concludes what I was presenting today, and I hope if y'all have any questions this last slide, there are tutorials on this at the Zadara website. It's the news section, and if you have any more questions, you can contact me at my email address up there. I'd be happy to help anyone to do the best I can with currency, but I can't make any promises because you never know what's going to happen with OpenSim technology. It's always changing. I'll hand it back to you. Okay. Basically, I'm going to throw this out to both of you here. What we're really seeing now is a situation where what you would call live currencies are much more looking like they're going to be much more heavily regulated, and grid owners really need to be very aware of that in a way that wasn't the case before. Basically, a situation where offloading some of the management and the administration has a much more valuable now of a service than it was in the past. I'll throw that out to both of you to respond. Yeah, I think I'll try. Well, I think that actually registering with FinCEN and complying with their regulations is not that hard. I mean, if you look at all of the, like for example, in the real world, the check cash in places, they're all registered with both the federal regulators and the state regulators. I mean, they're essentially their mom and pop shops and they are compliant. They don't have law departments doing that. So it's really not that hard. Right now, to use the example of, you know, I work at a poor, my day job, a poor part of Brooklyn where there are a lot of check cash in places. But of course, there you physically go to the check cash in place and cash your payroll check, let's say. And that all happens in Brooklyn, although, you know, the check might be from someplace else. That's a lot more localized than transactions in virtual worlds. So there are more complexities there in terms of the fact that people, the partake of a transaction could be any part of the anywhere on the planet. And that creates a lot more complexities there. Am I right about that? Yes and no. Okay. In a way, in a way, what the rules that both people in the virtual worlds and in the real world, the rules that they have to comply with, they're essentially the same. So what it does is if there's a, if an owner of a check cash in place sees a suspicious check and the way the rules classify as a suspicious check is anything over $10,000, I believe some something in that amount. That same amount would apply in a virtual world as well. So it doesn't really matter where the check is coming from. It's more, it's more the amounts that they're dealing with and other things that that may seem off about a transaction. I do understand that in the virtual, in the virtual world, it may be a little harder to distinguish what will be off about the transaction, but yes. Right. It's still a work in progress, even for the regulators. Right. To use that example, in a virtual world or in cyberspace, it's very easy to automate things where your large illicit transaction could be broken down into a number of smaller transactions that could be quickly handled for actively the same effect there. Whereas in the real world to go to, you know, many different caching, check caching places, you know, with different checks that physically would be very difficult. But again, in cyberspace, you can do that much more easily, which creates different challenges in terms of illicit or fraudulent transactions. Yeah, I can't argue with that. Right. Okay. Tim, you want to give us your perspective here? As I said, I don't, well, as I said before, the conversation just started. I'm really not able to comment too much on the legal side of things. It's really outside of my realm. But I do want to say that in the earlier question that you proposed, I do think this does scare a lot of more people who are up and coming off grids that they're probably going to rely on services such as First Meta Exchange or OMC just because that fear of needing that money backing. I mean, I didn't even know about that till today. And it's kind of a scary thought of needing so much money when your grid would probably never even come close to that for your first, maybe two or three years, even if that. Right. Right. Right. Well, somebody proposed a question for questions from the audience. I don't know if you can see that all the way back there. Or if you can see the questions from the audience, I can see them in the local chat here. I do want to address one from address. I kind of addressed it in local while y'all are talking. But to answer you in more detail address, I can offer you some tutorials and guides on how to actually install it. But as far as actually getting it set up and working for OMC, you'll need to actually contact Ranch University as they are the ones who can activate it. All I can help is guide you through the actual setup procedure. Okay. Other questions? So far, if you'll have questions, post them in local. And I'm sure one of two of us, if it's a more techy question, maybe I'll probably be able to answer it if it's a more legal question. I'm sure Alex would be more than happy to. Right. Okay. Who has a question? The question is, will grids eventually go closed loop non-refundable currencies? I personally don't think so. Like I said earlier, it's really not that difficult to register. And even at least with the federal government, you don't have to spend a lot of money a year to comply with them, especially if you're a small business owner. Because there's a lot of drawbacks to closed loop currencies as opposed to open loop. Essentially, virtual currency gives the grid owner ability to control the economy, whereas a closed loop is basically a gift card. So I don't think second life or any grid owner will want to deprive themselves of that ability, but that's a business decision. Yeah. I gotta step in and just point out that a live currency means that basically that you can sell something in a virtual world and take the proceeds and go and buy something in the physical world. And that is a huge advantage. That's where the virtual and the traditional nation-state economies start to merge, which is a very interesting and challenging thing, but it has tremendous opportunities for grid owners. If they have a popular grid and there are a lot of transactions there, they can take that and directly use that wealth in the real world. So yeah. Okay. Well, to answer that question, Dirk, I think if what you're asking is, is it possible to put it in one place and put it out elsewhere, I don't know if you're talking about a specific module or if you're talking, because I know in the sentences, let's say, for example, OMC, OMC actually works over the hypergrid. So essentially, if you were, say you hypergrided here and one of these regions had OMC enabled and you had so many OMC in your wallet and say you bought something from one of the stores here, that money would then transfer to a grid owner here, then you would, that person who's selling the object here would go into the site and cash it out. This is like a vendor selling something. I put currency in getting something from the vendor and takes out my dinner. Well, yeah. I mean that, I guess essentially what he was saying in a closed currency is something like a gift card. I guess, I know Kitely, it seems like Kitely's gone towards that area, whereas you buy in their currency, but you can't cash it out. I've heard them speak a couple times. I don't know if they've actually got anyone to do it yet, but where you, they're going to eventually have another company offer caching out, but it will not be through them. But as far as I know now, they don't ever play on doing it themselves. Dirk, also to answer your question, one currency that I can think of that does that is Bitcoin. And that was, I think, really why the regulators decided to step in, because it's so easy to move it around. I mean, the reason business owners or even merchants who now accept people, the reason some of them love it is because the cost of transaction is so negligible. It's like it's in the fraction of a cent. But it certainly does what you are saying. You can put it in one place, take it out at the other end of the world, and it's really easy. That's what it was designed to do. Well, I want to answer this and then talk about the Alex, but Second Life didn't make third party exchanges illegal. They just changed how it works, just to reiterate what he was telling us, because this was something I actually investigated myself. Third parties can no longer exchange your money other than to purchase lindons. They can no longer cash out your lindons. It's more of a reseller program in a sense for them now. For example, if you were to buy lindons from Verox, you would end up purchasing, let's say you purchase a pay safe card from your local store in your country, and then you go to verox.com and you use that to purchase. You no longer have that ability to go in world and say, I have a thousand lindon, I want to cash it out to my PayPal. You can't do that anymore, but you can still purchase, but you can no longer export. That's the only thing that they changed. They didn't make it illegal. They just changed the rules for third party currency exchanges. I mean, Alex can add more to that if he wants. Yeah, I think the reason they did that was that they tried to limit the amount of third party exchanges that they had. They had a lot more third party exchanges before they made the rule change. The reason they want to limit it is probably it makes compliance a little easier. That's why, I mean, they are a big company, so they have to keep track of what they do in light of the recent changes. Right. I also want to point out just so people are aware, just as when Maria pointed this out before, in the event of World's Inc., when the patent was made for virtual worlds, there is also a patent for microcurrencies such as the lindon exchange and whatnot, and I have looked back in their work cases where the labs did have to pay royalties for that patent. That is another thing to look out for. If you get big and somebody decides that company who owns the patent decides to do something and make you pay that royalty to use it, just a heads up in that location. Okay. In what situations would somebody have to pay royalties on the patents to clarify that a little bit? To clarify, well, I think Alex can probably clarify what a patent is better than I can. No, I really can't. Oh, okay. Well, and even though, I mean, you know, even, even some courts can't clarify what a patent is, so it's, it's really, patents are really the gray area. And I really think they have good intentions, but I think they're broken. Yeah. Actually, what a patent is supposed to do is say, I have an idea. I want it protected from anyone else using it. And then it grants you the right to say, well, that was my idea. I've had to, now you have to pay me royalties, but you don't have to pay those royalties unless that person decides to say you're using it. That's my idea. If they don't, in a sense, catch you doing it. And I know that's not the right words, but in a sense, they don't catch you doing it. You really, you're fine. And they normally only go after big people that they know they're going to win money from. Yeah, they normally go off the deep pockets, basically. Because if they're going to do some small grid owner, they know they're like, well, probably the best I'm going to get out of them is like 100 or so bucks. And that's not really a lot for them. So it's not worth their time. Court fees would be higher. Yeah, that's what it pays to be judgment-proof. Judgment-proof is a nice word to describe a person with no money. Yeah, there are ways that patent rules, that is companies and individuals that specifically, rather than developing technology, just strictly use litigation regarding patents as their business model will go after, they have a way of going after the easiest targets to set a precedent and then shaking down people with more money. But this is really in violation of really the original belief or the original intention of the framework of our Constitution in terms of patents. The idea was there are things like patents and copyrights being a way to incentivize innovation for a period of time before things went back into the public domain or what we might call now open source. And a lot of people feel that there's a real major kind of patent reform is necessary to continue to foster innovation, rather than inhibit it. But that's probably a topic for another conversation. I do want to, oh, sorry. We just got another question and I don't know if you see it in local Alex. Yeah, I see it. I can answer that. Yeah, Chris, the answer to your question is if you're making virtual items, you don't need to register with any US agency. It's just, it's a product just like anything else. If you are selling those same virtual items for virtual currency and then you're cashing it out or rather using it to pay somebody else, then it's a murky area so far. I would say yes on the safe side, but it's kind of a gray area at this point since you're in Canada. I'm sorry for interrupting you there. It was just that question. I don't want to make sure we got whoever. Okay, we're kind of coming down the home stretch now. So what I'd like to do is ask both Tim and Alex in either order to kind of wind it up with their final thoughts and we'll go from there. Tim? Okay, well, I was the first one. My final thoughts on this whole thing, I learned a lot. I mean, me coming here today, I knew there was a lot of different changes, but I didn't realize a lot until I heard it from Alex. I even learned something attending today. I do think it adds to the scare factor, but I think it's not a huge deal. I think it's a huge deal, yes. I'm thinking for a lot of these smaller grids, I see them migrating to using these tools that I've shown today in the presentation like OMC and Monpaypal, because it keeps the money out of their hands. It makes them feel a little more secure about dealing with having a virtual currency in their world. I think that we're not really going to see a change so much in our worlds, because I think we might see some people operating illegally now, just because they probably don't know these wallet changes and whatnot, and hopefully they get the knowledge and they can get the resources they need. I'm definitely going to inform clients who end up ordering services from me with currencies that are out of my control that they might want to consider these laws and make sure they're in compliance before they go through it, but I don't think we're going to see too much of it affecting the open sim world, just because at the moment the open sim world seems to still remain more free as to oppose a paid place as Second Life and In-World, but that's just from my perspective. Okay, Alex? Yeah, first of all, thanks everybody for being here. Thank you to Tim and Dave for what I learned a lot from you guys today. I think the legal side of this issue, it's still developing. It'll likely be developing for the next few years. I mean, laws are always changing, especially on a tech subject, but it's not all in all, it's not that scary. I mean, for a small grid owner to register with FinCEN, it doesn't take a lot. It doesn't take a lot of time and it takes almost no money. So just follow what follow the legal climate out there and just don't be afraid. Okay, great. Okay, thanks everybody for a fantastic presentation on a breaking topic here. As a reminder to our audience, you can see what's coming up on the conference schedule at conference.opensimulator.org. And I believe in this room, the next session will be viewers and open simulator. We'll be the topic of the panel with Justin Clark Casey, Cinder Biskas, and LaRue Fares. And thanks again to our speakers and the audience, and we'll soon have another session. Thanks a lot. Bye.