I'm feeling old lately. First it was my visceral reaction to the paranormal super-poking goings-on on Facebook and now it's this news regarding Linden Lab's Second Life that has my head spinning.
It seems that the intersection between the virtual and physical worlds is continuing to inch ever closer.
In fact, it's hitting people where it really counts, their (virtual) wallets.
We first saw something like this bubble up with in-world gambling issues and now Linden announced in their blog today that any virtual "in-world banks" must be registered with real-world financial/banking regulatory agencies:
As of January 22, 2008, it will be prohibited to offer interest or any direct return on an investment (whether in L$ or other currency) from any object, such as an ATM, located in Second Life, without proof of an applicable government registration statement or financial institution charter. We’re implementing this policy after reviewing Resident complaints, banking activities, and the law, and we’re doing it to protect our Residents and the integrity of our economy.
Why? It seems there's more bad juju brewin'. A virtual bank shuts down and defaults. What's next? A virtual sub-prime loan scandal?
Since the collapse of Ginko Financial in August 2007, Linden Lab has received complaints about several in-world “banks” defaulting on their promises. These banks often promise unusually high rates of L$ return, reaching 20, 40, or even 60 percent annualized.
Usually, we don’t step in the middle of Resident-to-Resident conduct – letting Residents decide how to act, live, or play in Second Life.
But these “banks” have brought unique and substantial risks to Second Life, and we feel it’s our duty to step in. Offering unsustainably high interest rates, they are in most cases doomed to collapse – leaving upset “depositors” with nothing to show for their investments. As these activities grow, they become more likely to lead to destabilization of the virtual economy. At least as important, the legal and regulatory framework of these non-chartered, unregistered banks is unclear, i.e., what their duties are when they offer “interest” or “investments.”
There is no workable alternative. The so-called banks are not operated, overseen or insured by Linden Lab, nor can we predict which will fail or when. And Linden Lab isn’t, and can’t start acting as, a banking regulator.
Some may argue that Residents who deposit L$ with these “banks” must know they’re assuming a big risk – the high interest rates promised aren’t guaranteed, and the banks aren’t overseen by Linden Lab or anyone else. That may be true. But for all of the other reasons we’ve set out above, we can’t let this activity continue.
Thus, as we did in the past with gambling, as of January 22, 2008 we will begin removing any virtual ATMs or other objects that facilitate the operation or facilitation of in-world “banking,” i.e., the offering of interest or a rate of return on L$ invested or deposited. We ask that between now and then, those who operate these “banks” settle up on any promises they have made to other Residents and, of course, honor valid withdrawals. After that date, we may sanction those who continue to offer these services with suspension, termination of accounts, and loss of land.
Wow. Loss of land! I thought overdraft fees were harsh!?
Ed Felten from Freedom to Tinker summed it up nicely:
This was inevitable, given the ever-growing connections between the virtual economy of Second Life and the real-world economy. In-world Linden Dollars are exchangeable for real-world dollars, so financial crime in Second Life can make you rich in the real world. Linden doesn’t have the processes in place to license “banks” or investigate problems. Nor does it have the enforcement muscle to put bad guys in jail.
Expect this trend to continue. As virtual world “games” are played for higher and higher stakes, the regulatory power of national governments will look more and more necessary.
So far I've stayed away from Second Life; I've got enough to manage in my First one. Perhaps it's time to take a peek and see what all the fuss is about?