2. Potential Legal Issues Raised By Virtual Currencies ©2008 Bryan T. Camp Texas Tech University School of Law Lubbock, Texas

3. Relationships To Regulate Developers Users Non-User Third Parties

4. The Jurisdictional Puzzle Enforcement Jurisdiction Substantive Jurisdiction

5. Typology of Virtual Currencies A. Neither Exchangeable nor Redeemable e.g. World of Warcraft (gold) B. Exchangeable, but not Redeemable e.g. Second Life (Lindens) C.Both Exchangeable and Redeemable e.g. Entropia Universe (Project Entropia Dollar, “PED”) A. Neither Exchangeable nor Redeemable e.g. World of Warcraft (gold) B. Exchangeable, but not Redeemable e.g. Second Life (Lindens) C.Both Exchangeable and Redeemable e.g. Entropia Universe (Project Entropia Dollar, “PED”)

6. Banking Issues Banking Defined: combination of three activities: 1.Safekeeping; 2.Investment; 3. Transaction facilitation. E.g. 12 USC §1841(c): (1) “the term "bank" means...[inter alia]... (B) An institution...which both--(i) accepts demand deposits or deposits that the depositor may withdraw by check or similar means for payment to third parties or others; and (ii) is engaged in the business of making commercial loans.

7. Securities Issues Investment Contract Defined: When a person gives $$ to another person 1. in a common enterprise, based on 2. an expectation of profits 3. derived solely from the efforts of the other person (or third parties) SEC v. WJ Howey Co., 328 U.S. 293 (1946)

8. Tax Issues 1. Income Tax A. Accretion concept. E.g. U.S. - Internal Revenue Code §61 (“income from whatever source derived”). Commissioner v. Glenshaw Glass, 348 U.S. 426 (1955)(receipt of punitive damages was income because it was an “undeniable accession to wealth, clearly realized, over which the taxpayer had complete dominion.”

9. Tax Issues 1. Income Tax B. Source concept. E.g. Canada – Fournier v. Queen, 1999 Can. Tax Ct. LEXIS 1766 ($42,000 paid to settle workplace harassment claim was not income from a taxable source).

10. Tax Issues 2. Consumption Tax What is the added value? What is production?