E-Commerce

Strange Rumblings in Second Life’s Economy

“Due to exceptionally high volume, requests may be delayed up to 72 hours.”

That message may be mundane when posted at most Web sites, but when it’s posted at an online bank, it’s as dangerous as blood in shark-infested waters.

That’s because it’s tantamount to every banker’s worst nightmare: a run on their bank.

Best May Bolt

For some observers, though, that notice at Ginko Financial’s virtual online bank is a sign of bigger problems at the virtual world called Second Life.

Although the troubles currently being experienced by Second Life’s financial institutions affects only a small percentage of the virtual world’s purported 8.5 million members, they may have broader implications for the community, argued Benjamin Duranske, of Boise, Idaho, an intellectual property attorney who writes about legal issues that impact virtual worlds on his Virtually Blind blog.

“The one to five percent impacted by these problems are the people who have enough money to be impacted by these problems,” he told the E-Commerce Times.

“They’re the best builders and scripters and entertainers and business people in Second Life,” he continued. “So there’s some concern that if they lost a lot of money due to these problems and left, that that would have a dramatic long-term negative impact on the economy.”

A World Apart

Second Life was launched in 2003 by Linden Research, also known as “Linden Lab,” and is said to be inspired by the Metaverse — a virtual world in the Neal Stephenson novel Snow Crash.

In Second Life, members assume identities, called avatars, and socialize with other members, as well as play and conduct virtual business.

The virtual world even has its own currency — the Linden dollar — which can be converted into real money at an exchange inside Second Life at a reported rate of L$270 to US$1.

Runs on Second Life’s banks aren’t its only financial unpleasantness in recent weeks. Last month, it was reported that the virtual world’s stock exchange had been hacked and L$3.2 million (US$12,000) had been stolen.

An attempt by the E-Commerce Times to reach Linden Lab through its public relations agency, Lewis PR, was unavailing.

Gambling Ban

A significant factor contributing to woes in Second Life’s financial sector has been its recent ban on gambling within the community, Duranske noted.

“When gambling was banned, a lot of people who had a lot of money in Second Life decided to take it out all at once,” he observed.

“They didn’t have an obvious source of income any more and they decided to take what money they made and leave,” he added, “and some of them had money in these self-styled banks, like Ginko.”

Once the U.S. government made online gambling illegal, Linden had little choice but to ban the practice, asserted Michael Goodman, director for digital entertainment for the Yankee Group in Boston.

“When you start gambling for real money, you start transgressing federal laws about online gambling,” he told the E-Commerce Times.

Lucrative but Risky

Gambling has become a thorny problem for all online communities, added Rob Enderle, president and principal analyst with the Enderle Group in San Jose, Calif.

“There are often legalities that have to be dealt with across states, regions and countries,” he told the E-Commerce Times. “That’s why a lot of online folks have decided to avoid it.”

“That kind of thing can be lucrative,” he noted, “so the loss of it can weigh heavily on an online environment.”

Size Matters

Not much thought was given to real-world law when Second Life was created, Duranske explained, and that was OK as long as the world was a backwater on the Net.

“It’s now big enough that government regulators are starting to look at it,” he said.

“Real world institutions are starting to pay attention to it,” he continued, “and no matter how hopeful some members and users might be that real life law wouldn’t apply, it clearly does.”

For those seeking escape from the real world to a virtual one, the recent financial distress in Second Life should be a caution sign for avatars everywhere, Yankee’s Goodman added.

“It points out some of the risk that you take in playing in a world that’s trying to replicate the real world without some of the checks and balances that the real world has,” he said.

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