The problem is that Bitcoin is not like any conventional currency - it has no central bank or issuing or control authority in the same way as a "conventional" currency. It is not tied to one nation, like a "conventional" currency. That scares nations, obviously! It is pretty much anonymous. It works at a distance without needing any trust.
One of the classic issues though, if Bitcoin is to be treated as a legal currency, and the legal burdens that can imposed, is how you define it. You cannot have the law say "bitcoin" as there are already many other similar digital currencies like Bitcoin, so you need to be more general.
The danger with a more general definition is including something like World of Warcraft Gold in the definition, or points in any other sort of game. Some games have in-game currency which is directly bought and sold (exchanged) for "real" money and used to buy things in game. It could be used to launder money - buying virtual currency, passing it in game, and selling it, so legislators may consider it worthy of the same legal controls.
But in-game money, like WoW Gold, does not follow most of the rules of "real" currency. Making it subject to the legal controls of "real" currency would be a problem. In the game, vendors sell things for WoW Gold and that WoW Gold does not go to the vendor account or a "Blizzard account", it just goes. Similarly there are things in game the provide WoW Gold or goods that vendors will buy for WoW Gold and again that gold is just created by the game, it is just a number. Overall the game has some controls, and so there is an internal market for goods and gold (the action house). But most of the way WoW Gold works in-game would not be allowed if it was deemed a "real" currency, and Blizzard might have to become a formal bank even!
Until recently and buying or selling of WoW Gold for "real" money was not allowed in the terms, but even so there are web sites selling WoW Gold, and they still exist. Players using them could lose their account. But Blizzard actually created a real way to convert money to WoW Gold in the form of a WoW Token. It is purchasable in the UK for £15 and can provider 30 days game play. However, you can also buy and sell WoW Tokens on the auction house, and they currently go for around 68,000 WoW Gold, which is quite a lot. This means there is an exchange rate for WoW Gold in the real world. Blizzard have been cunning, the game rules don't really allow laundering money - one could put money in to buy WoW tokens, but one cannot get money out of the game - you can only sell for WoW Gold or use for game time, so hopefully WoW Gold would be kept out of legal currency legislation.
But it is a fine line for legislators to make a sensible definition.
On a side note, this did mean I could be slightly extravagant, and for two WoW Tokens I managed to buy a vanity mount, one of the most expensive in-game things, a Grand Expedition Yak at 120,000 gold.
When have you known legislators (especially UK ones) make sensible decisions about something really subtle like this? If nothing else, it would require being well informed about the subject matter, something that legislators seem to avoid at all costs - it's much easier to draft legislation when you haven't got a clue (Internet Connection Records, anyone?)
ReplyDeleteI expect that nobody would be interested in a couple hundred £, but I bet if you were to purchase £50,000 of tokens your account would be flagged in some way for investigation...
ReplyDelete"In the game, vendors sell things for WoW Gold and that WoW Gold does not go to the vendor account or a "Blizzard account", it just goes."
ReplyDeleteThat's because Blizzard is the central bank issuing the currency. Money in the hands of the currency issuer is worthless bits: it can be created on demand or destroyed freely. This much is widely known.
Less well understood is that anyone with money lent to them by someone else can also create money on demand, and later destroy it. You do this by loaning the money to someone else (call her C). This has the effect of creating a sum equivalent to the amount you loaned, since the money is still in existence in C's hands, but the original person who lent you the money still has it and can ask for it back.
Of course, if you can't *give* it back when they ask, well, that's a bank run for you, and is why banks have a capital cushion. But nonetheless this is creation of money and strictly increases the amount of money in the financial system: similarly, repaying loans reduces the amount of money in the system, which is why after debt bubbles recession often strikes (everyone is repaying loans: even if they are also spending, the amount of money and thus the velocity of money in the system goes down.)
This is also why politicians are so pro-policies that get everyone massively indebted; as long as they don't have to pay it back anytime soon, this has the effect of boosting the economy, in effect borrowing economic activity from the future (after the next election!)
Bitcoin in practice ends up with banks, because people like storing their 'wallets' in the cloud. No regulation means high risk - see MtGox.
ReplyDeleteSo in that sense regulation is a good thing.. if you want to store bitcoin for others you need to treat it like any other financial transaction.
I'd say the same for WoW Gold too really, except Blizzard are the central bank and already somewhat secure (as it's in their interests to be so).