Guiding consumers since 2009

Virtual Meltdown?

By Staff Writer

 From theage.com.au/

 January 15 2008

By Nick Miller

The bank is packed with customers: red-haired elves, fetishists in their underwear, spunky girls with furry tails. And they all want their money back. Yep, there's a banking meltdown in the 3-D virtual world Second Life, too. Seems that it's virtually impossible to avoid the global financial crisis.

Even in the internet depths of Linden Lab's Second Life, avatars are milling around the foyers of virtual banks, demanding the government take real action to stop their virtual money disappearing.

The panic began late last Tuesday, US time, when Linden said it would strictly regulate the banks in Second Life, after one collapsed amid a credit crunch that Linden said posed "unique and substantial risks to Second Life ... likely to lead to destabilisation of the virtual economy". It sparked a run on in-world banks.

Second Life's economy is based on the Linden dollar ($L), which buys virtual products and services.

It can be exchanged with the US dollar for about $L270 to $US1 ($A1.12). Some less scrupulous virtual-world inhabitants built "banks", or "ATMs", that were Ponzi schemes: paying high interest rates with the money of other depositors.

They helped juice the economy but were unsustainable. Last August, Ginko Financial offered 44% interest but collapsed after a crash in confidence and a run of withdrawals, leaving customers $US700,000 out of pocket.

Despite a policy of generally leaving Second Life as an uncontrolled experiment, Linden Lab has decided enough is enough - as it did with gambling and simulated pedophilia.

From January 22, it will prohibit offering interest or any direct return on an investment in Second Life without proof of an applicable government registration statement or financial institution charter.


"Linden Lab has received complaints about several in-world 'banks' defaulting on promises," it said.


"These banks often promise unusually high rates of $L return, reaching 20, 40, or even 60% annualised. As these activities grow, they become more likely to destabilise the virtual economy."

But Linden's action has destabilised the economy. Late on Wednesday, US time, the well-established virtual bank

JT Financial announced: "The system has temporarily suspended trading ... due to price fluctuation." It described the crisis as "truly one of Second Life's darkest hours" but promised to honour withdrawal requests and assured customers it was "100% solvent".

It's not only banks complaining. Commentator Shaun Rolph has pointed out that Second Life could be considered a Ponzi scheme, as Linden does not guarantee any right of redemption for $L to real money.

Another commentator, Aldon Hynes at Orient Lodge, says there are plenty of loopholes left for dodgy financial operators in the virtual world, but Linden has apparently banned legitimate actions.

Benjamin Duranske, founder of the Second Life Bar Association, blogged that "it is

a smart move from both a business and legal perspective, and it stands as further evidence that Linden Lab is growing up".

The move has also sparked heated discussion in various online forums about what "virtual economy" actually means, whether a virtual bank can be a real investment opportunity, whether real-world money is in fact real, and what the hell does "real" really mean. I mean ... really?

Recent Articles

Featured New homeowner? Be aware of these extra expenses

You’ve overcome all the hurdles of buying a home. You’ve managed to pay your deposit and your closing payments, and now you’re a proud title deed holder. However, there are other expenses waiting around the corner. Are you prepared?

Your biggest credit conundrums – answered

Understanding your credit health is one of the most important factors in managing your finances. This is because it gives you insight into your debt, your borrowing ability, and your financial history. While many understand this, there are still many questions on how to do just that.

Avoid debt collectors, choose debt counselling

There are two things you can do when you are struggling to pay your debt. You can either let your creditors hand your debt over to debt collectors – or you can let debt counsellors help you deal with your debt.

Retail notes: easy investment option for new investors

Being a newbie in the world of investing can be challenging because you don’t know where and how to invest. With so many investment options, you could easily be befuddled. Justmoney looks at how retail notes can help you cut your teeth in the world of investing.   

Deals

Spur's South African Combo Special

Price: R80
When: Mondays
Where: Nationwide

De'Vara Beauty Spa Monday Madness Special

Price: From R580
When: Mondays
Where: Cape Town

Pepperclub Hotel Summer Sale

Price: R1,701
When: From 23-27 October 2019
Where: Cape Town