Linden Lab on the Linden Dollar & Virtual Banking

After God gave man the fire, he stopped talking to us. The Linden gods beat that by doing two major ‘communication’ blogposts in one day. But how could they not react, after the First Life press jumped on the Ginko story. Linden Labs on the Second Life Economy, as understood by Vint:

*Not said out loud.* RL press is drewling to describe the Ginko debacle as yet another Second Life failure. We must quickly tell that the Linden Dollar is a safe investement and we in no way supported Ginko, nor do we support the Second Life stock markets, as individual residents are responsible for those. *End not said out loud.*

Just what is the Linden Dollar (L$)?

The Linden Dollar is a virtual currency, thus not real money.
There is no guarantee for a RL value to it.
LL needs to keep it healthy for their own best interest.

Given real world economies have seen currency collapses and hyperinflation, what’s to stop that happening in a virtual one?

Total value of the SLeconomy is the total amount of Linden Dollars in play.
LL increases that value with weekly steepends and selling L$ on on the exchange.
LL decreases that amount by asking money for certain features: uploading textures, classifieds, … .
On average more L$ are added (sources, SLeconomy values rises) then withdrawn (sinks, SLeconomy value decreases). So the overal trend is that the value of our economy increases. An overview of those sources and sinks you can find here.
When the Second Life population growth stabilises they will find new ways to charge us for stuff/services. (They say it that cute: ‘As population growth stabilizes, the use and development of Linden Dollar sinks will become more prominent.’

Would these sinks be sufficient to adequately re-adjust the money supply?

One way to redraw more money from the SLeconomy would be accepting L$ for land sales and maintenance fee payments.
One month of doing that would cut the amount of L$ present in-world in half. So either a lot of people spend a lot of money on land and maintenance fees, or the SLeconomy is not worth that much as we would like you to think.
We kept the L$ vs. USD Dollar exchange rate rather stable since August 2006. Please applaud.

Why haven’t you put in place any regulations for “virtual” banking institutions in-world? Are there plans to regulate?

There is no reason to put your money into an SL bank, because it not even near more safe there. (Neatly phrased: ‘Because Linden Lab holds everyone’s L$ as a database entry in each account, virtual banks don’t offer a superior “storage” alternative.’)
The virtual banks are not comparable to real life banks. Major difference: first life banks are regulated by real life law.
We won’t go through the hassle of trying to regulate such things.
We advice you not to give your precious Linden Dollars to any in-world bank.

And just some final thoughts to all those people saying you shouldn’t deposit your L$ into an SL bank because there is no official gold reserve or something comparable to back it up:

Total worth of gold ever mined by man: US$3 trillion in April 2006. (So that’s way way way higher than the actual gold reserves.)
The entire global market capitalization for all stock markets was US$43.6 trillion in March 2006.

Tags: linden dollar, linden lab, SLeconomy