The common issues with ‘Bitcoin’ and ‘Linden Dollars’ are that there have been suspicions these virtual currency schemes are operating as Ponzi schemes, there is a high level of anonymity with regards to these virtual currency schemes and that there is only one regulator who oversees the system.
The issue of Ponzi schemes are justified for virtual currency schemes such as ‘Bitcoin’ and ‘Linden Dollars’ but for different reasons. For ‘Bitcoin’ it greatly resembles a Ponzi scheme where people can convert real currency into Bitcoins but when they want to convert Bitcoins to currency they would need to find another person who wants to buy their Bitcoins. For ‘Linden Dollars’, Second Life Banks started offering very high interest rates on deposits which led to many users in Second Life converting real currency into Linden Dollars to receive these returns.
The high level of anonymity is also another issue that virtual currency schemes face as there are many risks that users of these schemes may encounter. Due to real economic transactions in Second Life, there are many people and business that have created accounts on Second Life to obtain real profits. Creating accounts on Second Life require little information and from the creation of accounts, players in the game do not know who they are actually performing transactions with as they are performing transactions behind computer screens and would not be able to judge the credibility of the other player.
Due to having only one regulator who oversees the system, these virtual currency systems are decentralised and display information irregularity in the system. For ‘Bitcoin’, due to the complexity of the system not all users completely understand how it works which leads to risks some users take without realising the consequences of those risks.
Creation of Monetary Value
The creation of monetary values using virtual currency such as ‘Bitcoin’ and ‘Linden Dollars’ can lead to risks and implication for