Linden Dollars Helped Fuel Bitcoin's Early Hype -- Even Though L$ Are Still More Used Than BTC

Pretty interesting article from the news section of Bitcoin.com, explaining how Linden Dollars helped drive up the value of Bitcoin back in the early days of the cryptocurrency roughly a decade ago:

During these nascent times, a few fiat currencies were trading with Bitcoin. At this time, Second Life’s Linden dollars (L$) were also exchanged for large sums of Bitcoin as well. Linden Dollars are featured in the virtual world called Second Life, a game developed by Linden Lab in 2003.

When Bitcoin was kickstarting into higher gears in 2010 through 2013, Second Life’s L$ and the virtual world also saw rapid growth. Second Life’s virtual economy met Satoshi’s creation in April 2011, back when the company Virwox allowed L$ and BTC trading pairs.

Bitcoin had a fascinating relationship with Second Life users because L$ could be exchanged for fiat, which gave BTC an alternative fiat gateway in the early days. Not only did the two virtual currencies form a symbiotic relationship, but it also caused people to speculate on which virtual asset was better.

Without this exchange ability made possible by Linden Dollars, it's quite possible Bitcoin might not have achieved enough escape velocity to enjoy the euphoria it does today. Then again, "euphoria" never translated into Bitcoin becoming an actual currency used to buy actual goods and services on a mass market. As I'm quoted in the Bitcoin.com post:

James Au also laughed at Bitcoin three years later when he said the L$ daily transaction rate was larger than BTC’s 100,000 confirmed transactions per day recorded in 2015. James Au’s 2015 editorial said that BTC is “lauded weekly in the tech and mainstream press for the last 4-5 years.”  

Of course, nowadays Bitcoin is lauded almost every other day in the headlines and there’s a lot more than just $400 million invested in crypto startups today. Second Life’s L$ has faded into obscurity, while bitcoin has propelled itself into the limelight reaching $64K per coin this year. After BTC reached $20K in 2017, mainstream media pundits said the crypto asset was “dead,” and they claimed no publicly-traded company would add BTC to its balance sheet.

Skeptics also never thought a country like El Salvador would adopt Bitcoin as legal tender either.

But the thing is, in 2021, Linden Dollars are still more used than Bitcoin:

There's roughly 400,000 daily active Second Life users, most of whom use L$ at least once (but often many more times) every day... while daily Bitcoin transactions still rarely even surpass 400,000 a day.

As for why El Salvador adopted Bitcoin, there are some interesting reasons why that happened you can read about here that have nothing to do with whether it's useful as currency.

Hat tip: Gogo.

Comments

[Erik Mondrian]

Never knew about that L$-to-BTC connection before! Seems like I'm always learning new things about SL's history (even after more than sixteen years there). And I very much agree, by the way, that touting the El Salvador move as some sort of "validation" of Bitcoin as a currency is rather misleading, to say the least.

The other issue that I think is important to bring up in this context is exchange rate, which weighs the scale even further toward the Linden Dollar. Thanks to its rate remaining relatively stable, Residents can pretty much assume that 1 USD will be worth about 250 L$—now, tomorrow, next week, next month, and next year—an assumption that has a lot to do with the health of the Second Life economy and the willingness of people to accept and rely on Linden Dollars as a form of payment and stored value.

Contrast that stability with Bitcoin—its infamous fluctuations and the astronomical rise over the years in how many thousands upon thousands of US dollars you'd have to pay to get just 1 BTC—and it should be obvious why using the latter as a currency is ridiculous. It's much more like investing in the stock market and then hoping that enough other people will want to buy in that the value of your "asset" keeps going up. (And also hoping, of course, that a certain billionaire CEO doesn't tweet something that sends its value falling again.)

Seen in that light, comparing daily transactions is almost beside the point, since these two "virtual assets" represent entirely different expectations and mindsets. Bitcoin evangelists, like those cited in the article above, celebrate the so-called milestones of BTC reaching ever higher exchange rates and total amount invested. Meanwhile, in Second Life, we use the reliable ol' Linden Dollar to do what people tend to do in any society with a functioning currency: buy and sell goods and services (and pay our rent), trusting that the money we use to do that with will still be worth more or less what we gave or got for it the next time we're asked to open our wallets.

[Rita Jane]

If anyone thinks it's quite not possible that Bitcoin might not have achieved enough escape velocity to enjoy the euphoria it does today. let's chat about this in the cryptocurrency community with the experts. There are people who are eager to help you with any cryptocurrency and with new technology. Great Blog!!

[Rob H]

Investing in BTC isn’t like the stockmarket. Buying stocks is based on actual work going on to create value. The stock can return something (thanks to dividends) without having to find someone else later willing to pay more than you, which is what makes BTC more like a ponzi scheme.