Virtual Banks

Last summer, Second Life got a lot of bad press because of financial cracks.

The most widely known one was the case of Ginko Financial, which had offered a spectacular interest rate around 40%  a year, but ran out of funds when masses of investors tried to withdraw their money from virtual ATMs.

Last tuesday Linden Labs announced a policy change that ends all unlicensed banking activity in Second Life.

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.

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.

A lot of users complained that this is a form of censorship and a further step in the direction of a bland, boring and fantasy-deprived clone of Real Life. I strongly disagree: on the contrary, the more Linden Labs is able to cope with this kind of problems, the more they will be able to preserve the entertaining nature of the virtual environment and keep it free from intrusive regulation.

For an in-depth discussion on regulation issues I recommend Robert Bloomfield's post on the Terra Nova blog.

[Photo by ShoshanaEpsilon, some rights reserved]

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