Mad, Beautiful Ideas
Second Life Bans Unregistered Banking

Evidently, Second Life has been having problems with people stealing money using fake banks as fronts. In response, Linden Labs has decided that all banks must be properly, and provably, registered to operate as a financial institution within the jurisdiction in which the operator lives.

It’s really quite fascinating, because the reasons Linden Labs has implemented this policy very closely mimic the circumstances that led to the formation of the banking infrastructure we have in the US today. Banks were opening which were offering ‘too good to be true’ interest opportunities, which were unsustainable, and the investments backing these high rates collapsed, taking the bank, and all the depositor’s money with it.

Banking is an inherently dangerous business, as was shown in the depression when one-third of banks failed in only a few years. Holding money that can be taken at any time, but has been invested largely in loans is risky. Modern banks have mitigated this by offering far lower interest on standard, easily liquidated, accounts in favor of bank investments (CDs, and the like) which have steep early withdrawal penalties.

Linden Labs really wants Second Life to be a reasonable virtual counterpart to the real world. L$ as directly convertable to real world money, they’ve got systems in place to facilitate virtual ownership of goods, and everything is transferable. The economy is based on a real economy, and in theory Second Life is a great means to do business.

Of course, Second Life is likely going to fail in it’s grand experiment. The technology just hasn’t met up with the idea. It isn’t emotive enough for true interaction, and quite a lot is lost in having to communicate via typing (voice communication is in the works, though I know not how well it will operate). The world is filled with people who enjoy engaging in disruptive behavior, whether it be sexual in nature, or merely grief causing. Admittedly, some of the grief caused in Second Life is really funny, but a lot of it isn’t and is simply destructive.