Monday, January 14, 2008

The value of Virtual Money

The dust seems to have settled on Linden Labs recent 'Banning of Banking Activities'. A long overdue statement by Linden Labs who have taken a stance against malicious scammers, some who have managed to acquire over 700.000USD in two to three years. Several banks have protested, as well as several clients and residents. Casualties of this decision by claiming to do fair and honest business, or just general concern to get their money back.

But what caused the most controversy in my opinion is the fact Linden Labs seems to have acted as a 'Network Overlord', ruling law between citizen disputes. In earlier 'bannings' many felt Linden Labs hand was forced by long existing, international real world laws, such as the gambling policy and the stance against 'ageplay'. Dramatic extrapolations of this decision to ban banking speak of moral policing, where Linden Labs as owner of Second Life begins to seriously force their own values on their users resulting in the following question: Is Linden Labs policing citizens, interfering with things that aren't their concern in the spirit of free economy?

I don't think they did, I think they struck first at a potentially very dangerous, juridical situation, and here is why:

The value of the Linden Dollar

Just because the residents of Second Life pay money for their virtual 'credits' doesn't make in real money. You won't be able to exchange it outside the realm of Second Life, or Second Life related websites, its value is bound to the laws of its software (or rather its popularity), and it has a lot more flexibility than a real currency. But the Linden Dollar has more resemblance to real currency than any other 'gaming money'. It can be bought and redeemed at variable costs, based on supply and demand. There is an overseeing institution and it can buy services, even products not related to the software (Second Life) itself. But even though the Linden Dollar has some properties to qualify for a real currency - its not in the eyes of the current juridical system. So why then, would Linden Labs be afraid of lawsuits resulting in scams based on this 'play money'? As Rheta states in the comments - Couldn't Linden Labs easily claim "banking is a game activity like any other, and that losses are no more prosecutable than losing a fight in Counterstrike?"

Law & Order in the Metaverse

Even if the Linden Dollar is just 'Virtual property' instead of real money it doesn't put Linden Labs (or its users) in the clear. In the Netherlands a group of teenagers recently got arrested for 'Virtual Theft'. In the virtual chatbox Habbo Hotel they scammed furniture out of the account of several other players. Habbo Hotel works a bit different in the way that teenagers pay Habbo Hotel in order to get their 'online credits' - credit cost US$5.25 per 25 Habbo Credits. The players (mostly teens) are able to buy furniture of the Habbo Hotel owner, the Sulake Corporation - and only of the Sulake Corporation - to increase their status within the community by 'pimping' their rooms. This furniture can then only be traded, and Habbo Credits can not be changed back into real dollars.

But what the Habbo incident has proven is - at least in the Netherlands - Virtual Property has juridical value. It can be stolen, and the thieves can be held responsible for real life laws. In October 2007 a bank collapsed with estimated assets of over 700.000USD, the Habbo Hotel thief stole furniture worth about 4.000 Euro. Linden Labs new policy is only a confirmation of what can only be the logical conclusion to a fact real life laws have yet to catch up on in meatspace. The Linden Dollar is real money, real property, and stealing it is real theft. Not part of the gaming process.

Linden Labs strategic decision

So to answer the question "Is Linden Labs policing citizens, interfering with things that aren't their concern in the spirit of free economy?" - No they are not. The banning of banking activities was a preventive strike at what could be a major problem for the Virtual World in the near future. Linden Labs has declared their money 'real'. Real money, real scams, real crimes, and by doing so they have paved the way for the continued development of Second Life as a serious Business Platform. It fits perfectly in the line of banning gambling and 'ageplay' because of international law, it's just Linden Labs struck first this time instead of waiting for yet another media outrage.

Disclaimer: This was a guest publication by Rick van der Wal (Digado). My views may not necessarily represent those of Veejay Burns, main author of this blog.

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Blogger Rheta Shan said...

Ah well, ta for the quote, even if it is a bit misleading :). The point I was trying to make in the comment to my post was that LL could conceivably have argued that losing money on a « play money banking game » is no different from any other game loss as a way to cover their butts.

Personally, I wouldn’t agree with that assertion, and most certainly second the notion that the L$ is a very real, if privately issued, currency. But the above possibility, as well as some other indicators, make me doubt that LL’s decision was only a reaction to a legal problem in the making. They haven’t been that proactive or farsighted in the past — plus they have opened themselves to a whole avenue of new problems by reversing their previous « Economy ? There is no economy, it’s all virtual » stand.

Monday, January 14, 2008 1:41:00 PM  
Blogger Digado said...

On the quote: I apologize - I modified the quote to represent that better - my interpretation was was a bit vague on that. Hope you are okay with this one.

The point I am arguing, the 'its just a game' argument wouldn't have worked for them in the long run, if international law would catch up on them. And as was proven in the Netherlands - this isn't as far away as it sounds. In fact, the article in in technology review I linked shows it could be very close already.

As for the 'there is no economy stance' - I think they (LL) will do everything in their power to get rid of that image rather then to enforce it. LL Wants SL to grow as a business platform, not just a playground - they have made that very clear trough 2007.

Monday, January 14, 2008 10:27:00 PM  
Anonymous Poianone said...

Uhm, Linden Lab behaviour perplexes me a bit. In their terms of services, they deprive the statement that residents own the IP rights of their creations, as they do not recognize any property rights on digital items - IP and property rights are not the same indeed. So, does it have sense to speak about real property rights on virtual items, when there is not ownership? For example, LL has the right to delete your SL account, regardless of intellectual property rights! From the Tos, point 3.3: "Your intellectual property rights do not confer any rights of access to the Service or any rights to data stored by or on behalf of Linden Lab"
Moreover, I hardly believe that banning banks will favour the development of business in SL. An economic sistem cannot simply grow without money. Period. And, moreover, who may want to invest into a world where your business depends on what Linden read on the journal? The question is, Linden Lab medicine is banning, when better results may be obtained through regulamentation.

Tuesday, January 15, 2008 7:07:00 PM  
Blogger Digado said...


I don't agree less banks means less business. Sure, a few business cases might have benefited from these (VERY expensive) SL loans because they couldn't afford micro loans in RL, but otherwise people with good ideas can come up with the money to start something in SL. It is really not that expensive.

Intellectual property did not change at all, what changed is how residents, are to treat virtual property. Not LL themselves.

I think regulation is something a lot of investors are waiting on - the chaos that is SL probably excludes as many businesses as it attracts (if not more). The big debate of metanomics was on the necessity of these banks, an

Furthermore. The economy does not depend on SL moneybanks. There are RL banks who can offer loans, even micro loans at far more attractive rates. If for some reason you can not get one of these loans in RL i think its a good standard you won't be able to get one in SL either. Of course there are exceptions to this, but starting a business in SL is really not that expensive, and serious business will not stop with just not being able to loan within SL itself.

Tuesday, January 15, 2008 8:35:00 PM  

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