Economy of Second Life

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Second Life has its own economy and a currency referred to as Linden Dollars (L$). This economy is independent of the Pricing, where users pay Linden Lab. In the SL economy, residents buy from and sell to one another directly, using the Linden, which is exchangeable for US dollars or other currencies on market-based currency exchanges. Linden Lab reports that the Second Life economy generated US$3,596,674 in economic activity during the month of September 2005,^[1] and as of September 2006 Second Life was reported to have a GDP of $64 Million.^[2] A Virtual Economy Analist at the Metastat statistics bureau in Second Life estimated Second Life's 2007 GDP will be between $ 500 million and $ 600 million, about nine times that of 2006. This data is of February 23, 2007.

1 Basis of the Economy
2 LindeX Currency Exchange
3 Economic Issues
4 References
5 See also
6 External links

[edit] Basis of the Economy

The basis of this economy is that residents (that is, users, as opposed to Linden Lab) can buy and sell services and virtual goods to one another in an open free market. Services include building help, businesses management, entertainment, and other personal services. Virtual goods include buildings, vehicles, devices of all kinds, animations, and works of art. To make money in SL, one must find customers who are willing to pay for the services or products that one can supply.

Because of the existence of virtual land, there is an active virtual real estate market. Originally all land comes from Linden Lab (which is part of the pricing and a revenue stream for them), but after that it is bought and sold much like real-life real estate. Mainstream media has reported on SL residents who earn large incomes from the SL real estate market.^{[citation needed]}

In addition to the main economy, some residents receive a small weekly stipend, depending on the kind of account they have, and when they joined Second Life. There are also the virtual equivalent of minimum wage jobs and charitable organizations that try to introduce new residents to the consumer economy.

[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 fluctuated between L$240/USD and L$350/USD between October 2005 and September 2006.^{[citation needed]}

[edit] Economic Issues

[edit] Acts of Linden

Sometimes, Linden Lab decides to make a change in the way Second Life works that dramatically affects some in-world businesses. One example of this is when the concept of Telehub (forcing teleports to an area to appear at a specific point) was made obsolete; many residents had invested heavily in businesses that depended on being near a Telehub, and when it went away, their business suffered.

[edit] A Pyramid Scheme

In January 2007 Second life was criticized for resembling a traditional pyramid scheme where only a very few persons are harvesting money from the large masses of players. Although the normal player also can make and exchange Linden dollars into US Dollars, these sums are dwarfed compared to what a very few SL Casinos owners and Virtual Real Estate owners cashes in. [1]

[edit] Anarchy

Second Life does not have a government. There are some sub-communities in Second Life that have small scale political structures, but for the most part Second Life is an anarchy, except for the laws of nature imposed by Linden Lab. One possible reason that this has worked well enough so far is that there is no need for food, clothing or shelter, and raw materials are almost free (with respect to the SL economy). Also, virtual goods are protected by an ownership system that makes theft and vandalism rare.

[edit] Legal position of the Linden Dollar

Linden Lab has been criticized for marketing SL as a viable business channel for making real money,^{[citation needed]} 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.^[3] While taxation of virtual economies is being discussed in committee in Washington, U.S. Representative Jim Saxton (R) holds the view^[4] 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 ^[5].

[edit] Currency management

Linden Labs have been gradually lowering the amount of the Linden Dollar stipend paid out to residents. In the past, basic accounts received L$250 starting money plus a L$50 stipend every week that they logged in. The weekly stipend was ended.

In similar fashion, the Premium stipend has fallen from L$500 to L$300 over time, though for each individual the stipend in effect at sign-up time remains in effect.