Bitcoin - a peer-to-peer virtual currency - has reached the point in the media hype cycle were the inevitable backlash takes hold, and the Bitcoin ecosystem becomes a target for high visibility hacks.

The latest incident took place yesterday, when the bitcointalk.org forums were converted into a Cosbycoin ad site, complete with pictures of Bill Cosby, links to a cosbycoin.com web site and a simulated upload of the reader's digital wallet converting their Bitcoins into Cosbycoins. Buttcoin.org has an extensive collection of pictures from the hacked site as does nanimogold.com.

Cosbycoin takes on Bitcoin

There is speculation that a group associated with the SomethingAwful forums may be responsible for Cosbycoins and this hack does seem to fit with the SA goon's style. Whomever launched the hack exerted some effort. Rather than simply injecting Cosbycoin images into the forums, they also set up a cosbycoin.com site and posted to other bitcoin forums.

Cosbycoin.com

This Cosbycoin hack is certainly embarrassing for the forum operators, and raises questions about site security, as did a hack of the MtGox currency exchange last June that lead to a collapse in the value of Bitcoins. Timing of the MtGox incident was particularly unfortunate, coming shortly after a Gawker.com story about Silk Road - an anonymous illicit substance exchange site - which stoked demand for Bitcoins. 

simulated upload of Bitcoin wallet

Meanwhile, the mainstream media has begun to take notice of the potential - and limits - of the crypto-currency.

Earlier this week, New York TImes columnist and Nobel Prize winner Paul Krugman pointed out the value of Bitcoins has taken a nosedive recently and the system is vulnerable to "money-hoarding, deflation, and depression" - problems shared with real currencies backed by the gold standard. We can only hope that the know-nothing branch of the republican party takes note. James Surowieki of the MIT Technology Review also wrote critically about the challenges bitcoin faces in surviving the hype cycle.

The hype cycle backlash is one problem, but more a more immediate question for Bitcoin fans is how to address the challenge posed by Cosbycoin parodies appearing on their forums and an insecure ecosystem of currency exchange sites.

Matthew N. Wright of Bittalk.tv reports that there is support for the Cosbycoin hack by members of the Bitcointalk.org forum who are unhappy with poor forum moderation and a pattern of "shuffling important and popular issues under the rug" - exactly the sort of behavior that Second Life players have grown to expect from Linden Lab. 

a tip of the old Coffeepotting Gleefurs top hat to Ryokashi who first pointed me at this story - pixeleen

by Idoru Wellman, staff writer

Project Entropia has long been known as a hype machine rivaled only by Second Life, and it has also been known as a de facto online virtual casino. Now, according to Ars Technica, it is applying for a banking license – as in a legitimate banking license:

MindArk PE AB, the company behind sci-fi MMO Entropia Universe will apparently be able to let players conduct real-world banking from within its online game. Of course, Entropia Universeactually features a cash-based economy already, where players canexchange real money for game currency at an exchange rate of 10:1 (tenin-game dollars to one U.S. dollar) and then buy in-game items with themoney; the game itself has proven to be incredibly successful, havinggenerated over $420 million last year.

Now, though,MindArk's going to be just like a bank in the real world: it will bebacked by Sweden's $60,000 deposit insurance, offer interest-bearingaccounts for its clients, feature direct deposit options, let playerspay bills online, and apparently will offer loans to customers.

The interest, we suppose, is that other virtual world makers (or users) might do the same if this works out.

 h/t to Raph's blog

by Pixeleen Mistral, National Affairs desk

 A surprising note appeared on the Ancapistan Capital Exchange website tuesday evening – accord to the press release, IntLibber Brautigan’s virtual land business is having some difficulty covering land tier payments to Linden Lab due to the Lab’s L$ spacebux currency conversion limits.

Linden Lab has an officially sanctioned real money exchange – the Lindex – which players use to both purchase game currency and sell L$ for hard currency. While Linden Lab’s primary business is renting virtual land, a number of entrepreneurs act as middlemen between the Lab and ordinary game players, and accept payment for land rental fees (land tier) in L$. Although the Lab has promoted the in-world economy as a way to make real world money, it only accepts hard currency for land tier payments – and controls the amount of virtual currency that an individual can sell for hard currency.

Apparently, this has left IntLibber Brautigan in a bind, as he claims to have $8000 USD worth of virtual money trapped in accounts that are locked due to delinquent land tier payments.

Although it would be possible to use third party currency exchanges to convert the L$, the rates can be less attractive than the Lindex, and this would require access to Mr. Brautigan’s locked accounts – potentially creating a situation where Linden Lab limits access to assets required to pay the Lab’s tier fees. In the real world, this sort of situation might easily end up in court – could something similar happen with virtual assets?

According to the announcement, negotiations are underway between Mr. Brautigan and Woodbury University for an advance payment of six months worth of land tier in USD which would apparently resolve the problem – at least for now.

Meanwhile, on the ACE-exchange forums there was some skepticism voiced about the likelihood of a Lindex trading limit being the cause of the virtual business’s cash flow problems, with one critic pointing out that very high trading limits are possible. There is some uncertainty around exactly what Mr. Brautigan’s trading limits are at present, and due to his in-world ban, the Herald was unable to contact IntLibber directly for clarification at press time.

One might hope that the Lab finds a way to handle the situation gracefully, as the failure of a large in-world land business could have a negative impact on the residents who’s virtual homes would be destroyed in the event of removal of Mr. Brautigan ‘s estate. The loss in confidence in the virtual economy could be a concern as well, as eerie parallels to real world business bailouts loom. If the current negotiations fail, will Linden Lab nationalize the BnT estate?

by Jessica Holyoke

Fresh out of the Herald‘s Money office, (unfortunately located right next to Jimbo’s) is the 2008 Quarter 3 Herald financial report.  The compilation of this particular report was a bit harder to compile as a key piece of data was missing.  Zee Linden reported how the hours logged in for October of 2008 grew 11.4% over the hours of September to a record 37 million hours.  However, the number of hours logged in for September are not located on the Economic Statistics page.  And the graph used to show the amount of user hours logged in shows an aggregate for the quarter, not the individual month.

But algebra helps out this time.  If October’s logged in hours equals September’s plus 11.4% and 37 million, then September’s hours would be 33.2 million hours logged in — the fewest number of hours logged in per month for Q3 and lower than the amount logged in in June. 

Looking at the Total Hours Logged Growth Chart, the total logged in from the first month of the quarter to the last month of the quarter declined by 4.37%.   This follows two quarters of steady growth over the quarter.  Why this is being reported is that overall for a platform that needs to grow, more people should be using the service over time and from August to September, they didn’t.  In comparison, at the end of June and Quarter 2, THL grew by 16%.

The PMLF Growth Chart is determined by taking the weighted PMLF in the last month of the previous quarter and comparing it to the weighted PMLF in the last month of the current quarter.  The Q3 percent growth is a very low 1.46% compared to 3.56% in Quarter 2.

Average PMLF is the weighted PMLF averaged out for the entire quarter.  This number continues to grow as a whole.   Raw PMLF, the basic numbers that Linden Lab prints out, grew by 2.5% from the start of the quarter to the end.

QPC (Quarterly Profit per Capita) held steady at 0.18 for Quarter 3.  What this means is that people are making about the same per user hour logged in.  Now of course, this does not capture the land business outside of rentals and it does not capture people who get paid for in world services using off world means.  The overall picture looks the same from last quarter.

Where things get interesting is that we can compare third quarter results over more years now.  As a function of growth, Total hours logged in has seen the worse growth ever last quarter than any other previous Quarter 3 over the last five years of data.  PMLF quarterly growth was at the lowest point in a Quarter 3 ever in three years of data.  QPC is lower than any Quarter 3 result in the past three years.      

The World Stock Exchange, WSE, is back up and running.  A few new things have been added since the Exchange went down for updates in January.  WSE 4.0 is active on www.wselive.com.  After the updates, all balances are now in WIC’s or World Internet Currency.  People who opened an account prior to August 1st, 2008 will be able to withdraw their WIC’s starting September 22nd, 2008.  The WIC at the time of conversion equaled one Linden Dollar.

WIC’s can only be bought sold or traded on the WIC exchange, www.wicexchange.com.  In order to use the WIC Exchange, you have to create an account with them and provide your real name, your Second Life name, real phone number, real address and paypal account.   The Terms of Service which included some familiar sections on user generated content, prohibition against using obscene or vulgar names as account names, a prohibition against using the WSE trademarks in an unauthorized manner and that in the future, the WIC exchange might charge fees.  With all of the information requested, I checked their privacy policy at this address, http://www.wicexchange.com/privacy.php where I read their policy to say "not found" at 2pm on Sunday.

I had a friend fill out the forms and found that you can still only send WICS to those who have signed up for WIC exchange, or those who have given their personal information, including information linking a person’s Second Life information to their First Life.

Looking at the potential commodities, the WSE currently lists 11 companies, shares in the World Stock Exchange and the World Stock Exchange Trader’s Fund or WTF.  As a comparison, in January of 2008, there were 43 tradeable stocks, not including Hope Capital, the World Stock Exchange and the WTF.

by Jessica Holyoke

Zee Linden recently posted graphs reflecting the strength of the SL Economy here – and Zee is very happy to report that the SL Economy grew by 15%. However, the story is not that simple. By several other measures, the economy growing slowly if at all. For instance, the Quarterly Profit per Capita (QPC) shows an anemic growth rate of 0.18 for the first quarter of 2008, the lowest on record. This suggests that virtual economists may want to take a very careful look at Zee’s numbers.

Quarterly Profit Per Capita posts lowest growth rate on record

Zee’s first graph tracks User-to-User Transactions in SL It is an interesting graph because we’ve never seen user-to-user transactions before. The economic statistics page uses Resident transactions and counts. The raw data spreadsheet has L$ Supply and user-to-user transactions as a page, but only details the Money Supply on that page. The raw data used to create the first graph is not readily available. More importantly, the graph uses two specific terms, user and resident. In Second Life, a user is the typist, the person behind the screen. One user can control many residents’ user-to-user transactions – which would eliminate the transfer of money between alt accounts from the reckoning.

More importantly, Zee Linden is using user-to-user transactions as an indication of Gross Domestic Product, in spite of the fact that it could be anything but. The outside currency exchanges would be a User to User transaction. HippiePay would be a User to User transaction. Paying rent would be a User to User transaction. Giving your friend money so she can buy new hair is a User to User transaction. All of these actions inflate GDP – in many cases without reflecting production. While the purchase of the hair does reflect production, the transfer of the money between friends for the purchase does not.

Another point Zee made was that the transaction rates were annualized. An annualized rate plots the change in an indicator over the whole year as if the latest monthly or quarterly figure is presumed to persist for the rest of the year. This is calculated by multiplying one month’s change by 12 to produce the annualized rate, or one quarter’s rate by four http://glossary.reuters.com/index.php/Annualized_Rate – so the real numbers were transformed a bit in order before Zee used them on on his graph.

Zee Linden used User hours – and again using an annualized rate, Zee stated that the hours also increased by 15% However, the one problem with those hours is that there is an unknown Bot effect. How many of those hours have no economic value to them?

One way to measure the Bot effect would be to compare the Total Users logged in with the Number of Residents who spent money. While this may also pick up Residents who log in and don’t spend money, either way, it removes residents who don’t participate in the economy For June 2007, the last month on the archive with both sets of numbers available, 305,551 residents spent money in world. As of June 30, 2007, the 30 day log in number was 1,091,017 residents. Dividing the number who spent money by the number logged on suggest that only 28% of the world’s residents participate in the in-world economy. While many arguments can be made about how long a Bot is logged in for or if a Land Bot should not be excluded because it does spend money, at least 28% is a starting point. For now, Bot effect is not a good measure because we only have older statistics and it might not be helpful to see how the hours are being used now.

Positive Monthly Linden Flow bounces after falling off a cliff

Zee Linden also uses my favorite stat, Positive Monthly Linden Flow He states that PMLF grew by 11% from December 07 to March 08 – even though, 50,688 total PMLF residents in December to 57,888 total PMLF residents seem to be 14% growth. Even though PMLF has its limits, at its heart, it does measure the number of residents who earn more than they spend If you fill out $1000L of surveys and you spend $900L, you are counted in PMLF.

LindeX activity is skipped because no one has convinced me that purchasing Lindens translates into taking part in in-world production due to the other purposes for which those L$s might be used. For instance, the US dollar is a reserve currency. Other countries buy and sell goods and services in dollars even though those dollars are not used in the US.

So how does the economy track with the figures I used before? Using raw PMLF over Quarter 1 2008, the total number grew by 4.80% from January to March The average weighted monthly PMLF over the same time frame grew by 6.22%.

Quarterly Profit per Capita (QPC) shows Q1 08 shows a QPC of 0.18, the lowest that it has reached on record. Could this have something to do with falling virtual land prices?

by Jessica Holyoke

Who wants Kool-Aid?

LukeConnell Vandeverre of Hope Capital Ltd, made an announcement via video link outside of Second Life on Sunday about the status of the World Stock Exchange. (WSE). The WSE went dark fifty one days ago with an announcement that they would be down for a month.

In his opening remarks, Vandeverre reminded market watchers that the WSE is the first Internet based stock market/bank and role playing game. Vandeverre also reminded people about the history of the WSE, and how back in December of 2006, he saw a need for a virtual economy to have a virtual stock exchange. After the virtual financial history lesson, the topic turned to what is happening with the WSE in relation to Second Life moving forward.

While both the Linden dollar and the World Internet Currency are both fictional currency and game tokens, only the World Internet Currency was going to be used on the WSE from the time the stock exchange becomes operational again in mid to late March. The reason given was that with the banking ban, which is formally known as a ban on paying interest, the WSE foresaw the Lab making many decisions not in the WSE’s interest, including possibly doing away with the Linden dollar entirely.

To counter potential Linden Lab concerns about their role playing game, the WSE decided to transfer all stock holder’s balances from Lindens to WIC’s. Previously, the exchange rate was 1 US dollar equaled 1 WIC. With WSE 4.0, 265 WIC’s equals 1 US dollar. All previous WIC balances have been adjusted to reflect this new exchange rate. The WIC can be bought and sold on the WIC currency exchange for US dollars, Australian dollars and Euros via PayPal, Paymate and in the future Western Union. In addition, prepaid credit cards will be usable by those under the age of 18 to take part in the role playing game that is the WSE.

Vanderverre took the time to remind stock holders that CEO’s of companies on the WSE are not really CEO’s, but also role playing participants who are simply learning the stock exchange game themselves.

The reason why the new roll out is taking so long is not only due to using Ruby on Rails as their development language, but also that the WSE cannot afford their own full time developer. So within five days of the developer being finished, testing will commence and trading will resume. Previous versions of WSE have been afflicted with bugs due to unrealistic timelines and hurried expectations.

Many times throughout the announcement, Vanderverre reminded users that both the Linden dollar and the WIC are fictional game tokens that represent a limited license right that users buy and sell the right to, not the underlying Linden dollar or WIC themselves.

While selling off is predicting, Vanderverre reminded stock holders that there would be buyers who would be willing to make a profit off of buying low and then later selling high, although this is not an investment, but rather a role playing game.

With the technology in place, Vanderverre sees the WSE providing 24 hour/7 days a week trading capability and potentially handling real stocks and securities. [will WSE still be fictional at that point? - or is pretending it will be real someday part of the roleplay? - Editrix]

Additional features for WSE 4.0 include the ability to make buy and sell limit orders and not solely making market orders.

by Jessica Holyoke

Travis Ristow

Travis Ristow, CEO of BCX Holdings (traded on the International Stock Exchange) send the letter below to BCX account holders and shareholders today. In the letter, Mr. Ristow alleges that Spinchief Akina attempted to defraud BCX holdings, but was thwarted. Mr. Ristow goes on to thanks Echo Linden for helping return L$s temporarily removed from BCX holdings, and warns the metaverse that the alleged thieves may return on other alt accounts.

Despite the claims, Spinchief Akina is still in search as we went to press.  Unfortunately, both Travis Ristow and Spinchief Akina were unable to comment.  Mr. Akina’s Banqex group did not have other members listed available to comment.

To Our Valued Shareholders & Account Holders,

Firstly let us state that we have chosen to make you all aware of the details below for several reasons. Two in particular: one as you have consistently seen with us in the past, we always endeavour to be as transparent as possible and ensure that you, our customers and investors, are fully aware of anything pertaining to the operations of BCX. The other main reason we decided to post this, was due to the fact that, as I think you will agree, we have all seen FAR too many individuals operating in unethical and underhanded practices in SL. We hope that the information we provide may assist you in issuing caution when dealing with the individuals or companies mentioned below.

As you know–BCX has been developing the financial software to be used on other grids platforms to satisfy their financial needs.  Last weekend-in order to incorporate some of the new modules into our existing platform-we implemented some updates on our servers/software behind the scenes. The changes were temporary, to allow us time to connect modules and prepare for launch of the new software on other grids. We considered taking the ATMs offline to do this, but felt that it was far more beneficial to all, to allow our customers continued access to the ATMs during this time. By leaving the ATMs online while we implemented these updates, it was necessary for us to disable part of our usual ‘fort knox’ style security system and rely more heavily on our back up security software during this temporary period.

On Monday-Febraury 11, 2008 a group of avatars:  Spinchief Akina, iblack Afarensis, chyk2u Arado, and Petrucci Jonson, all operating from the same IP address, attempted to steal over 4 million lindens from our system.  He was NOT successful, however he did initially manage to remove L$203,366 before the fraud parameters of the back up security system kicked in and prohibited him for initiating any further transfers or withdrawals. Our security system immediately reported his attempts to us.  It is important to note that even our back up security system alone is of a VERY high standard. The security system enabled us to provide extensively documented proof of his theft and fraud including the IP address of himself and his alts (which was the same IP address), and all statistics relating to the trail of the funds. We then contacted Linden Lab with this. Echo Linden moved quite quickly and was able to assist us & returned the L$203,366 to BCX.  Our full security system has been brought back up & will continue prevent even the smallest amount of theft again in the future, as it always has done in the past.

BCX did NOT lose any funds during this attempted theft-all were recovered due to our documented proof. Our security system, even being only the back up system at the time, DID stop, catch, track, & record the full details of the attempted theft. It was due to this very reason (that even our back up security system is so efficient), that Echo Linden was able to use that information to prove the theft and return the stolen L$ to BCX. To re-iterate, our full security system is back online now and will not need to be taken down again to this extreme as the work we needed to accomplish with the new financial modules has been completed.

As previously mentioned, one of the main reasons we supply this information to you is due to the nature of this persons business activities in Second Life. Spinchief Akina and his alts (proven by our IP address tracebacks) of iblack Afarensis, chyk2u Arado, and Petrucci Jonson run a financial business in Second Life called "Banqex" (http://banqex.org).  He also runs an Investment Group in Second Life, among other ventures.  Linden Lab has removed his accounts at this time.  However it is not uncommon for thieves to figure out a way back into Second Life.  BCX feels it is our duty & community obligation-even though we recovered all our funds-to notify the general public of this company and the type of people running it.   We do not condone theft or fraud & will work with Linden Lab as well as real life authorities to punish those who commit crimes to the fullest extent possible.

We’d like to extend our gratitude to Echo Linden and the Linden Governance Team for the quick action & response to this matter.  Echo worked swiftly and efficiently to resolve the matter.  Our updates & additions of new modules are complete and our security system is back to fully functioning.  If you have any questions or concerns-please feel free to IM me at any time.

Sincerely,
Travis Ristow
CEO-BCX

by Jessica Holyoke

After the banking ban, there are commentators who state that the Second Life Economy is in a recession and then there are the opposing commentators that say that the Second Life Economy is not in a recession. 

According to Wikipedia, a recession "is a decline in a country’s gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year."  Linden Lab does not have figures on GDP or economic growth.  But the Economic Statistics page does provide two numbers that can assist in seeing if there is a recession, Positive Monthly Linden Flow (PMLF) and total User Hours Logged. 

PMLF is the number of unique users that showed profit over a particular month.  On the statistics page, they are grouped by number of users that have experienced a degree of profit in U.S. dollars.  This number is better than the other monthly spending numbers because it eliminates any Alt effect.  For the resident transaction numbers, if I gave an Alt any amount of money, it would be counted in the totals, even though I was not spending money, just shifting it around.

Second Life users with positive monthly L$ cashflow getting harder to find

PMLF does not include land sales.  According to the source, land sales are investments and not receipts.  So they do not get counted as business receipts.  This makes land comparisons more isolated and it takes out any land businesses, like land barons and banks.  PMLF covers the buying habits of everyone who is not in the land business.

In looking at the PMLF, I took the mode, or the central number, of each category except for the $5000 and above category.  For that category, I used $5000.  I then multiplied the amount earned by the number of users in that category.  I then added all of those sums to create a monthly total which is an estimate of the total PMLF.  I was then able to compare the average PMLF for a calendar quarter and track percent growth within that particular quarter.  Growth is measured as the difference of the starting value and the ending value divided by the starting value.

Quarter 3 and Quarter 4 2007 both saw negative PMLF Growth. The percentages were not more than 2%, but they were both negative.  Negative economic growth for two calendar quarters is an indication of a recession.

Total hours logged also decline

THL also avoids the alt effect because it measures how much total time is spent in world.  While certain content creators do not need to spend any time in world, people searching, purchasing and using their products do need to be in world to use their purchases. 

THL growth was negative for Quarter 4 2007.  The only other time it was negative was in Quarter 1 2005.  In talking with wise resident Gwyneth Llwellyn, around that time, the Lindens stopped paying L$500 for each host of an event.  This may have created a negative use rate.

In dividing the quarterly values of PMLF by THL, you get an index I will call the Quarterly Profit per Capita (QPC).  Because of the lack of historic PMLF values, QPC cannot go back before quarter 3 2006.  While QPC is lower now, it is not dramatically lower.  QPC was 0.26 during the Quarter 4 2006 boom and 0.20 for Quarter 4 2007.

Quarterly Profit per Capita

So while total profit might be down, and showing recessionary signs, the strength of the economy based on the people who use it have only slightly slipped.

Total positive monthly L$ flow

A week after the announcement of the upcoming Linden Banking Ban, Lindens and residents are reacting in different ways.  The Linden reaction is that "payment of interest", the main prohibition on offering a bank goes both ways.  Paying interest on deposits is prohibited, but according to some Lindens that responded in writing, receiving interest on loans or credit cards is also prohibited. 

Various banks are coming up with new business plans.  While BCX Bank and SL Investor’s Bank are exploring new possibilities, some banks like Bank of SL are no longer going to be paying interest on balances. 

Other banks, like SL Business Bank, have disappeared from Search.  JT Financial is transforming to an Avatar to RL Merchant exchange service called SL Wallet.  All cash balances will be transferred from JT Financial to SL Wallet, presumably under the Arbitrage Associates LLC name. 

BnT is looking to the Middle Ages for a solution called "Contractus Trinium"  where the depositor agrees to deposit a sum of money in BNT Financial for zero interest on a daily, monthly, quarterly, or annual period, the depositor agrees to purchase, from BnT, insurance against default in an amount of 2.5 L$ per 1000L$ deposited, per day and then the depositor, agrees to sell to BnT, all rights to profit from use of this capital, for the amount of 10L$ per 1000L$ deposited, per day.  At the same time, BnT is registering as an LLC. (source: www.ancapex.com)

Two banks with trustworthy reputations are going two different routes. SL Bank, a small quiet contender on the financial scene, as featured on Virtually Blind, is closing its doors after offering instant withdrawals for all of its customers.  L&L Trust, known for its reasonable interest rates, is chartering the entity as a credit union and will be able to offer similar financial services as before. 

Ginko Financial was supposedly the cause of the ban, while other frauds unmentioned include Jasper Tizzy’s The Bank, where Tizzy just disappeared, and Dylan7679 DeCosta’s Banca d’Italia, which was rumored to have illegal off-grid currency auctions. 

In Ginko bailout news, Shaun Altman recently announced the sale of Ginko owned land netting L$300,000 for the Ginko depositors, now on record with the on-hiatus WSE.  Altman is currently waiting to unload Ginko’s holdings of BnT stock, which is being restricted so that the market is not flooded with shares.