The Second Life Money Exchange

Second Life is a multi-user online game not unlike the Sims game, in which players create characters and live their lives online. Characters can buy land, build homes, get married, go to school and church, shop for clothes, go on vacations, and much more. Something like the mutant step-child of World of Warcraft meets MySpace, Second Life gained enough fame that businesses and even some government states decided to build a virtual presence in Second Life. The real US Army, for example, has virtual recruiting station in Second Life, and North Carolina's Duke University opened the Duke Metaverse in Second Life to explore the virtual environment's potential as a learning environment. But what makes Second Life truly unique, compared to other virtual worlds like World of Warcraft and EverQuest, is its economy. Its virtual money, called Linden dollars, can be bought and sold with real dollars on the Second Life Exchange.

Who Would Pay for Pretend Money?

Linden dollars of course have no spending value in the so-called real world, but Second Life's virtual world has a thriving virtual economy based in the Lindens. Players who want their characters to be able to buy homes, clothes, coffee, and cars in the virtual world can get their Linden dollars in one of three ways: they can get them the old fashioned way by earning them, they can sign up for a premium account with Second Life and earn an automatic 300 L$ per week, or they can buy them at various Second Life Exchanges with real dollars.

The official Second Life Exchange is called the LindeX, and the going rate for Linden dollars is $1 for 264 L$. But LindeX is not the only Linden Dollars Exchange. For example, you can visit TradeLindens.com and buy 5,000 L$ for a mere $24.78, or 100,000 L$ for $415.00.

In other words, for some savvy entrepreneurs, buying and selling Linden dollars translates into real world income.

The Real Estate Mogul of the Virtual World: Anshe Chung

The most famous of the Second Life entrepreneurs is the character Anshe Chung, whose owner Ailin Graef started to dabble in the Second Life economy as an experiment. A Chinese native living in Germany, Graef wanted to see if she could earn enough money through her Second Life enterprises to sponsor a child in a third-world country. As it turned out, she could... and much, much more.

Anshe Chung made her money buy buying property which she then leased or sold in smaller portions to other characters in Second Life. In 2006 Chung was the first virtual person in Second Life whose net worth exceeded 1 million L$. Her virtual business became so busy that she opened a real world studio with ten employees in China. The full-time job of the studio was to build Second Life creations, such as homes, to be sold in the virtual world.

Today, Anshe Chung Studios employs 80 people. Not only does Chung sell to "regular" Second Life clients, they also build impressive virtual homes for major clients, including the German state of Baden-Wuerttemberg.

Is Second Life Outliving Its Hype?

Since Anshe Chung made the cover of BusinessWeek in May 2006, Second Life's economy has peaked and now seems to be declining. In fact, SocialTimes reported in January 2008 that Second Life might be headed for a depression. Realizing that Second Life's economy might one day need some virtual banks, several banks had sprung up in Second Life, taking Linden dollars, investing them, and giving their character investors a return - sometimes of up to 200%. When there was a run on the banks and no FDIC to back them up, several virtual bankers found themselves in hot water. One bank owner, whose real life name is Joshua Zarwel, now owes his customers several thousand Linden dollars. Even the real life Wall Street Journal covered this story of the virtual bank runs, because players lost real money. Raising the question of whether game developers could also serve as bank regulators, Second Life's owners Linden Labs decided that only officially chartered banks (read: real banks) could operate in Second Life.

Near the end of 2006, perhaps because of Anshe Chung's rags-to-riches story, Second Life experienced an economic boom. But after several consecutive quarters of increasing volume of trade on the LindeX, trading declined for the first time in the second quarter of 2008. Although it grew again by the third quarter, onlookers may wonder if the Second Life economy was just a flash in the pan, or if Linden dollars are here to stay. What's more, businesses that had established Second Life outposts, such as Reuters, are now closing these venues and pulling out of the virtual world.

It could be argued that the decline in the Second Life economy is nothing more than the real world's economic slowdown taking its toll in the virtual world. Will the Second Life economy make it back to its days of unbelievable growth? Will there be more Anshe Chung's, turning virtual fantasies into real food on the table? Time and the LindeX will tell.