Economy of Second Life

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Second Life has its own economy and a currency referred to as Linden Dollars (L$). Residents receive an amount of L$ when they open an account if they supply credit/debit card details,^[1] and used to receive weekly stipends thereafter — only premium accounts and basic accounts that were already receiving stipends currently receive stipends. Additional L$ are acquired by selling objects or services within the environment.

Linden Lab has stated that the Second Life economy generated US$3,596,674 in economic activity during the month of September 2005,^[2] and as of September 2006 Second Life was reported to have a GDP of $64 Million.^[3]

1 LindeX Currency Exchange
2 Issues and Criticisms
3 References
4 See Also

[edit] LindeX Currency Exchange

Residents may purchase L$ directly through the client, or convert between Linden currency and U.S. currency through either Linden Lab's currency brokerage, the LindeX Currency Exchange, or other third-party currency exchanges.^{[citation needed]} The ratio of USD to L$ fluctuates daily as Residents set the buy and sell price of L$ offered on the exchange, and fluctated between L$240/USD and L$350/USD between October 2005 and September 2006.

The current lowest yearly membership fee in Second Life is $72 (USD).^[4] A premium user (receiving a L$400/week stipened) would accumulate enough L$ over the course of their subscription (L$20,800/year if they did not spend any of it), and they would be able to recoup their subscription (not taking exchange fees into account) if they were able to obtain an exchange rate of L$288/USD. At L$289/USD and above, the user would start to make a loss on their investment.

[edit] Issues and Criticisms

[edit] Legal position of the Linden Dollar

Linden Lab has been criticized for marketing SL as a viable business channel for making real money, while at the same time including provisions in the Terms of Service which give Linden dollars no intrinsic value as a form of currency. Linden Lab is not required to pay any compensation if L$ is lost from the database.^[5] While taxation of virtual economies is being discussed in committee in Washington, U.S. Representative Jim Saxton holds the view^[6] that game tokens have no value in and of themselves and should not be taxable as income directly.

[edit] Unusual phenomena in currency market

Services for buying and selling Linden dollars are structured in a similar way to real life currency dealing: amounts are bought and sold through brokers at variable market rates. However, because the actual economy of Second Life does not correspond to a self-contained country (a large proportion of the population have no way to earn money other than buying it with money from outside, and those who earn large amounts of money often only do so in order to sell it for money from outside), the currency market exhibits unusual phenomena: consumers and those with less money within SL have no limit to how low they would wish the exchange rate to fall, and sellers and the rich have no limit to how high they would wish it to rise. This creates conflict and complaints whenever currency market trends persist for long periods of time; consumers complain that a rising L$ gives them bad value for their US$, and sellers complain that a falling L$ gives them bad return on their work ^{[citation needed]}.

[edit] Effect of in-world economy changes made by Linden Lab

Certain changes made or proposed by the developers have had the effect of creating new markets, but also have on occasion destroyed or removed the value of existing ones, or inadvertently given a market leader at a particular time unique advantages that entrench them as a market leader in the future. The most well known example of this is InfoNet, an in-world newspaper and information delivery service run on a for-profit basis, and formerly (as with many such systems in SL) of limited effectiveness due to a limited range of access points. When the old concept of "telehubs" was removed from the game, Linden Labs replaced them with "InfoHubs" each of which including an InfoNet access point which was hosted for free on system owned land; it also placed InfoNet access points in the Welcome Areas where new users arrive, where no user is normally permitted to leave business-related objects. This had the effect of giving InfoNet an instant and substantial advantage ^[7].

[edit] Unbalanced Economic Effect

In order to protect the value of the Linden dollar, Linden Labs have been steadily lowering the amount of Linden Dollars automatically given to users. In past versions, basic accounts received L$250 starting money plus a L$50 stipend every week that they logged in; these were removed. In similar fashion, the Premium stipend has fallen from L$500 to L$300 over time. This attracted complaints on the Second Life forums from many users who complained that it was hostile to new users and had an exponentially worse effect on the users losing the money than the high exchange rates had on the users who were selling.