WSJ Article on user run Second Life banks

If it sounds too good to be true, it probably is. Just like the current sub-prime mortgage crisis, the main grid of Second Life (AKA: Adult Grid) is having a banking crisis. If you set no rules for a virtual world you’re bound to run into problems (can you say “scam” and “pyramid scheme”?). Just like the spam email informing you that someone wants to give you free money, there have been opportunists in Second Life trying to make money with other people’s money.

The Wall Street Journal has a story online about this phenomenon, and Linden Lab’s recent crackdown on these user run banks and investment firms:

Cheer Up, Ben: Your Economy Isn’t As Bad as This One

First there was the big crackdown on in-world gambling a few months ago, now Linden Lab is cracking down on all non-chartered banks. Over the past six months there have been many articles warning about this sector of in-world businesses booming, and how there were no regulations or restrictions being placed on them. It now appears that some players have been burned. And now that there’s a crackdown, some that were legitimately running functioning in-world banks are being hurt by a rush of players all trying to withdraw their funds (sound familiar, a run on the banks?).

“The banks of Second Life were operated by other players, who enticed deposits by offering interest rates. While some banks paid interest as promised, others used depositors’ money for unsuccessful Second Life land and gambling deals. Under its new banking rules, Second Life says only chartered banks will be allowed — though it isn’t clear any real chartered banks will operate in the virtual play world.”

This is yet another example that these virtual worlds need to move past the “wild west” attitudes that have prevailed, and start adopting rules and terms of service agreements that protect the residents and give some logical (and legal) structure to these virtual societies. How many of these crackdowns will it take before some oversight is applied to virtual worlds attempting to enter the mainstream?

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