January 16, 2008

Repeat After Me: IT'S A GAME

I'm sure that most of you have heard of the online massively multiplayer computer game called Second Life. Basically, the point of this game is that it is a virtual world where everything is created by the players. No rules. No regulations. Just build stuff and do whatever you want. As a social experiment, I can see how playing this game could be very interesting. You would be able to observe, in a relatively small amount of time, how societies form and how the "understood" rules that govern such a society come about.

But somewhere along the way, a lot of the players of this game crossed a line. People started investing real money into this. Linden Dollars, the currency used in the game to buy different things, started to gain actual value. You can buy these Linden Dollars directly from the game developer, but more fascinating is the fact that real businesses have sprung up around the manipulation of this "currency" which has no legal value. Because of this, businesses have also sprung up in the game itself. There are even people who make their living entirely by playing Second Life. I bet Linden Research never saw this coming in their wildest dreams.

What happens when you create a business environment with no regulation? Well, everything you would expect to happen. Every con that was ever run on the simple-minded is going to be run again: ponzi schemes, pyramid schemes, you name it and it's probably been done. The problem that Second Life is facing now is a total economic collapse because Linden Research is now regulating virtual banks, which would seem to go against the point of their game. You're supposed to be able to do anything, right? Of course, this is not the first time that Linden Research inserted regulations into their virtual world.

Allow me to take a couple of steps back. The banks in second life are, of course, horribly run, as many are run by regular people with no financial background. They promise enormous amounts of interest (some up to 60%!) on deposits made. Amazingly, this was actually sustainable for a while, as the banks would use gambling as means of gaining funds. However, in July of 2007, Linden Research stepped in and banned gambling in Second Life. With the loss of this revenue source, it was only a matter of time before banks began to fail. There was an outcry among the population for regulation, and so Linden Research has stepped in and declared that no one may run a bank in Second Life, unless you are able to run a bank in the real world.

For a while there, it almost sounded like I was talking about a real world economy. The line has definitely blurred beyond recognition in Second Life. The amount of money changing hands in this game is now in the equivalent of millions of dollars (US). Now, I can't for the life of me figure out what on earth possessed people to invest their hard earned real money into a virtual economy. I seriously can not understand it. Is it just basic human greed? The hope to get something for nothing? I can bring myself to accept that part, but how can you justify investing your funds into a system that has no regulation? We have a hard enough time dealing with corporate fraud (Enron anyone?) in the real world with a huge amount of regulatory oversight. How could you possibly think it would be smart to invest into a system with not only no regulations but, for all legal purposes, doesn't even exist?

In my opinion, I think that where Linden Research went wrong was in the handling of its currency. If you wanted to buy some Linden Dollars to play the game, the only legal source should have been the development company itself, and buying from any other source should have been against the terms of service. Instead, they have allowed, if not encouraged, the use of third parties in the handling of this currency. Once this happened, they lost a lot of the control of their in-game currency. Also, the purchase of Linden Dollars should have always been a one-way transaction; selling Linden dollars should never have been an option. Sure, there are going to be people who will set up sites which would violate the terms of service, much like the gold farmers in World of Warcraft, but the impact would be far less severe, especially if Linden Research did their best to ban accounts guilty of violating the terms of service.

I think their second mistake was to introduce any sort of regulations. Their stance was and should have always been that the world is what you make it and we will have no part in it. If you're stupid enough to invest tons of real money into it, then tough luck. This sort of message should appear in huge bold letters every time someone logs in to the game, as well as being a part of the terms of service. They should never have accepted any responsibility for what was happening. I think that once they did that, their legal position became a lot more dangerous.

It will be interesting to see what happens in the near future. Will there be runs on the banks that are going to have to close? Is the entire virtual economy going to collapse? Will Linden Research be forced to create even more regulations, turning this game more and more into an online government? All I know is that I'm leaving this planet when Second Life applies for membership to the UN.

Random Parting Thought:
Seriously, why don't people think? I blame reality TV.


Matt said...

It may just be a game, but what my e-girlfriend and I have is real.

Our furry love shall outlast the cosmos.

Anonymous said...

So what you have said here is that it is no longer a game.

But then, it never was.

Matt Silverthorn said...

I think it is very much still a game. Just because people are not treating it as such does not change the reality of the fact, and it's going to end up hitting a lot of people really hard where it hurts the most: the wallet.