What is a Lindenbuk REALLY worth?

That strikes me as an odd way to look at it considering that I paid off a huge mastercard debt last year using income from selling stuff in SL. I'm also wearing a pair of shoes and a t-shirt purchased with income from SL.

Yes. But you didn't send your Lindens to Mastercard, did you? You didn't really pay for your clothes with Lindens either. You took your Lindens to someone else, who agreed to pay your a certain amount of RL cash for them. Your Lindens are only worth what another person agrees they're worth. They have no backing as a legal currency, and there is no way for you to use them as such.
To the best of my knowledge there exists no precedent to consider the Linden as a viable RL currency, since the TOS explicitly states they exist only at the discretion of LL - and are only to be recognized as a form of license to be used within the environment of SL.
The fact you're able to cash your Lindens out of the game only exists because a third party agreed to pay you for them. Doesn't even LL refuse to convert your Lindens to cash? From their point of view, the only thing you can do is send money to Linden Lab for Linden $...not the other way around.

But those are all aspects of RL, government backed, currencies too, Argent. Any currency is merely a social contract...we collectively agree to use it as a medium of exchange. Bank runs are a real world example of what happens when that social contract breaks down, and people decide that a particular currency is, or may soon become, valueless. The reason that exchange rates between currencies fluctuate is exactly what you pointed out...people are working out, in the marketplace, the question of "what a currency is worth".

It's true that LL explicitly states the $L has no intrinsic value. This is a convenient legal position for them to take, which has (so far) gotten them out of all kinds of thorny legal and political problems that would arise if the $L was a "real" currency. But in practical operation, the $L DOES have value. It can be exchanged for goods and services. It can be bought and sold on the various $L exchanges, and exchanged for "real" currencies.

The dollar has no intrinsic value either. It's a piece of colored paper that costs a fraction of a cent to print. It used to be backed by and exchangeable for gold, but that's no longer the case. Instead, it is backed by "the full faith and credit of the United States Government", whatever that means. Its value is merely a collective fiction.

The Linden Dollar is a functioning microcurrency, and, once again, I applaud Linden Lab for implementing it the way they have. While the concept of microcurrency has been debated for years, LL is the first, and so far the only, entity to actually come up with a working model.

If all of Second Life goes away tomorrow, LL should still be applauded for this one invention.

Correct but misleading.

If I put US$100 into SL and take L$200 out, I can deduct the original $100 and pay tax only on the $100 profit. I have the proof that I put it in, it's in my SL transactions.

Of course, if my SL transactions show that of that $100 "investment", I used it to buy a sex bed, a race car, and a horse, and my income is from selling unrelated scripted widgets, an auditor might deny the dny the deduction.

But if you simply put money in and take it back out, you owe no income taxes on it, because it was not income. You have to be able to provide records proving that.

Also, no value was added, so no VAT tax *should* apply. Now, whether that's easy to document to your tax collection agency is between you and your government.

Odd but true. Of course, there's no guaranteed value of US$1either -- other than that it's worth US$1.

There is no guaranteed value of L$1 against any kind of measurement. However, we do find in practice that the value is quite stable against US$.

Well, this debate is starting to sound like the old one about 'value'.
"Is it a relative, or an absolute? 'Value' has no meaning other than in relation to living beings. The value of a thing is always relative to a particular person, is completely personal and different in quantity for each living human - 'market value' is a fiction, merely a rough guess at the average of personal values, all of which must be quantitatively different or trade would be impossible. This very personal relationship, 'value,' has two factors for a human being: first, what he can do with a thing, its use to him . . . and second, what he must do to get it, its cost to him."
Obviously not my words - but at least while I can't say it that precise, I know where to look for them.
Lindens are brought with real word money by the players, when they come into the system. Even the dancepads are giving away someone else's money. At some point every linden had paid for. (Well, ok, money trees - LL can inject small amounts of 'free' money into the system.) But my point is - you paid for those lindens. Or you spent your time on creating an object that someone is willing to pay for in lindens - for which he paid for in real money. So, yes, Linden$ has an exact worth - when you are buying it. But if you sell it? There is linden exchange - you just put it up, and HOPE that the general idea of the worth of lindens is the same as yours... Or, you can sell it directly to someone, and agree on the price face to face.
Linden Labs doesn't care. Once you payed THEM, they have no reason to. They know what some of the residents are failed to grasp - this is just another service, from which they getting their paychecks. It is like playing Monopoly - but paying someone in real cash for the time you use the board. At the end, you can't use your game money you won.

I don't doubt for a second that the Linden has a perceived "value"...just not one as a form of legal tender. You can certainly exchange it for a form of valid legal tender...but in and of itself, if has none whatsoever.

It has the same legal status as the imaginary money the Emperor Norton created and used in (where else) San Francisco.

Good post, although you're not quite on the mark about what "fungible" means. It means that all "things" of the given kind are equal. If I loan you a dollar bill and then want it back, you can give me a different dollar bill and your debt is legally cancelled. (If it was a collector's item, I have to specifically state that fact before I lend it or I'm out of luck!) The same is true for grain in a grain silo. A farmer pays "silage fees" to store grain until market time. When he sells and comes to pick it up, the silo operator can give him someone else's grain -- as long as it's the same kind.

WoW gold is equally fungible. It is not "liquid" since it can't be converted (legally) into RL goods. Weight is not a requirement for fungibility, but unambiguous counting in some unit is.

Fungibility addresses the individuality of the items being exchanged. If individuality or identity is unimportant, then the item is fungible. For example, racehorses are not fungible. If I loan you my racehorse and you return a different one, you have not cancelled your debt unless I specifically accept it.

$L and WoW gold have no uniqueness -- it isn't even *possible* to distinguish one $L from another. The only concrete characteristic a "specific $L" has (if there were such a thing) that differentiates it from any other $L is who owns it. That makes it fungible.

I think the bottom line is always going to be, L$ are only worth what someone will pay you for them. They have no intrinsic value, they don't even 'exist' as something you can touch and feel and hoard under your mattress. I've mentioned this in the past, but L$ seem to work a lot like 'Canadian-Tire Money' does. From what I understand of Marks & Spencer money, CT money is a similar thing. It's actually printed very much like real currencies are, on paper, with denominations. But it's not worth anything. It has no cash value. It's redeemable at Canadian Tire stores for merchandise and services, but they won't give you money for it. Some other stores have occasionally accepted it at face value, which lends credibility to it, but in the end, you can't give it to the government to pay your taxes, and you can't take it back to Canadian Tire and demand 'real' money in exchange for it.

And that maybe is where the L$ stays too -- Although you can trade it for US$ and use the US$ to buy things, you can't actually send the IRS a wad of L$ to pay your taxes. You can't send your municipal government some L$ to pay your property tax. And if you get a parking ticket, you can't transfer a few thousand L$ to the cops to settle the ticket.

Now you can argue that I (in Canada) cannot pay my taxes with Yen or Francs or Zloty but that doesn't mean these things are not real currencies. True enough. But Yen, Francs, and Zloty are accepted somewhere, by some government, and that does lend them some 'official' credibility -- about as much credibility as the governments themselves have, on the world stage.

So, maybe that's the ticket. For the L$ to gain the credibility of a 'real currency', Linden Lab will have to start backing them - i.e. accepting them in return for real-life debts (Tier, Membership) and Linden Lab will have to grow to the size of some of the big multinational companies. That will give the L$ some international backing and credibility.

In the meantime... L$ are worth only what other individual players will pay for them, and they are, at the end of the day, nothing more than a limited licence right to access certain inworld services...

-Atashi

By this argument, US$1 is worth US$0.70.

It's correct, but needs to be considered appropriately. A dollar of *income* is worth 70 cents of *cash in hand* (assuming a marginal tax rate of 30%, counting all income taxes).

And we could go on, saying that since where I live, there's a 7% sales tax, that US$1 is worth 65.1 cents. Well, not if I buy something in another state ... ok, let's not go there.

A better way to look at it is, an income of US$1 is equivalent to an income of about L$256 (at the rates given above, which fluctuate but are usually pretty close to that). And then you apply your tax situation. I generally think of it as worth about 4 cents. Works well enough for me, but then I don't move money in or out.

The bottom line, though, is that most people who make money in SL can make more money in less time in RL, so the main reason to make money in SL is because you *enjoy* it. That's despite the fact that "variable cost" in SL is zero (no manufacturing & supplies costs, per item sold).

If you simply put money in and take money out, *and* your auditor agrees, you are in good shape.


However, in that case you have put a huge burden of proof between you and your own money. It will smell like money laundering, too. Why are you moving money in and out?

In the United States, the *very best way* to trigger an audit is to make money 'out of nowhere' - i.e. it just popped up and landed in your lap.

And that's exactly what $L cashouts look like.

Also in the United States you have to declare *all* income, and you get to expense things if you can. What, no business licence? Then how can you possibly have a business expense? Tax payment, please, and call the 1-800 line if you want to dispute it, otherwise it will be pulled from your bank account automatically.

Ah, and since you didn't say how it was earned, the government will presume it was work until proven otherwise. Plenty of people dodging medicare, social security and unemployment payments - so let's make you prove that you aren't one of them. All of these wage taxes due and payable with fines for delinquent filing, plus you'll need to fill out forms 940 and 941.

100 USD isn't likely to trigger an audit in the United States, at least. But you'll have to prove beyond a shadow of a doubt that what was going on was legitimate, or simply pay the taxes *even* if you just put the money right in.

In the example above, the US IRS would say: "Oh, 200 USD spent on video games, 100 USD taxable misc income - what, your online game is a business expense? LOL! Where are your customer receipts, your licence?" And keep laughing.

I've been dealing with the US IRS since 1986, and believe me they won't care one whit about 'in game' $L except in one way: if they think you are hiding assets from them somehow. Then expect the most overblown accusatory appraisal known to man. Auditors aren't paid to look out for your interests - that's your problem. They are paid to collect taxes from you.

Actually, the IRS is trying to figure out how to value assets in-world for tax purposes! I first heard about SL about a year ago, in a WSJ article on this very subject. Fortunately, it's a bureaucratic task force, so I don't expect significant results any time soon.

And you're definitely right that if you're gaining steady income from SL and want to claim any deductions, you need to document your expenses. However, I worked as a self-employed subcontractor for years and didn't need any kind of registered business to deduct my expenses, so that's not a requirement though it might make matters simpler.

Or have the rules changed?

BTW, perhaps it's best to sell $L on ebay, since it won't look so much like money landing in your lap? (Seriously, I doubt this is true, just asking.)

This is where all the "Its not a game" people have hurt us.

The value of my stuff in a computer game should not be TAXED!

Jeez.

Tax any income I make through SL , but thats it.

Which touches on the point I usually try to drive home...you can't have it both ways. If an "asset" in a computer game has any tangible value (a lindenbuk or some object you own), and that value comes in the form of a legitimate form of legal tender...then you've got no choice but to recognize your assets as taxable.

Either lindens are real, taxable forms of currency...or they're imaginary playthings that have no legal value whatsoever. Currently, I think they're kinda grey...but as soon as someone assigns them a legal, tangible value - then the "game" has really....really...changed.

Yeah, I heard about the discussions, but quite honestly think that even if they appraise 'inworld assets' they will have a rough time assigning any value of significance to them.

Might end up much like 'raw stock' or 'raw materials' with a huge appraised risk factor for the odds of it just, well... vanishing from inventory, our service provider going under, &c &c. I.e. taxable but not worth much.

Flipped around and considered the other way, I think the US IRS knows that if they kill the goose with the golden egg, 'USD credit' with a bankrupt virtual service provider would be worth pennies on the dollar anyway. In all honesty I think they will let us fatten up some before cooking.

Self-employed subcontractor - the laws are really sticky there, it depends on the city, the state, the industry. I think all the Feds care is that you have a tax ID and you pay wage taxes.

I've done that myself (still do) as part of my RL business, and learned early on to take things *very* seriously and formally incorporate years ago.

I've had two friends who didn't bother to do this get audited. They learned very quickly that 'common knowledge' and 'what I've been doing for years' doesn't wash with the US IRS whatsoever. One friend had been expensing his lunch for many years. Poor b*****d! They nailed him to the wall over that and a bunch of other things.

I can't quite recall how things tightened up (as I am a California corporation in RL) but I do know that a number of years back there were some very tough restrictions put on 1099-form workers. 2001? 2003?

I've never had the guts to casually expense stuff - I'm sure much of it is 110% legitimate, but it's sort of like walking in and out of a bank repeatedly, carrying your own bags of hundred dollar bills. Sooner or later the bank's Pinkerton guys are gonna stop you, just because it looks so fishy.

* * * * *

As for selling $L on Ebay - that's just scary. It might make for a good tax dodge, but it might also really smell like money laundering too.

Here's the really sticky thing about all of this: no receipts. When someone buys your $L even on the LindeX, there's no receipt, no RL location, no nothing. It's done through our service provider.

Being in the land business as I am, one time a decent fellow asked me for a 'receipt' for the USD he paid me so he could expense the land (I was to deliver his land a week later).

I said sure, I could write a note that I recieved X amount of $L, but no way could I write a receipt for the USD. How could I? The $L were paid for by credit card, and in no way did I process that card, our service provider did. And I can pretty much guarantee that our service provider declares income and expense off those receipts, by virtue of the fact they are still in business.

This is the huge gulf between inworld business and regular business - $L are effectively poker chips.

I use LindeX myself, and carefully follow the advice of my CPA. Advice which I won't get into here, because the worst thing I could do would be to try to dispense professional tax advice to people not in my business, not in my country or state.

Last night. He said it was the best he's had in a long time.

Another Heinlein fan! Starship Troopers rocks (the book, not the crummy movie).

Give our regards to The Sunglasses of Justice when you get to Miami.

Fair comment Desmond, and you raise another point of which I feel I should restate.

I do not give first life financial advice on these BBs, although in the past I have expressed a personal opinion about matters financial within SL.

Those folks who run businesses within SL, beyond that of what you could call a profitable hobby, of which I define being no MORE than £100/£200 per annum profit over expenses should seek accountant advice. I am afraid tax is a natural follow on from the ability to cash Linden dollars out, of which is expressly permitted by Linden Labs.

So tax on Linden dollar profits is both legal and necessary

You did that last year but could you do it again in 10 years? What if LL decides to scrap SL? Everything everyone invested in is lost. There is no promise from LL that SL will be around forever and most likely it will not be or at least not the way we know it now.

If you can make a business in SL or make profit in anyway go for it and do it while you can and as long as you can. Just don't bank on retiring from it. Always be prepared to go back to work in RL.

I agree, and with the rest of your post as well.


Yeah, I hear ya. I suspect that assets under L$100K won't be worth appraising at all, and that the IRS will only be concerned with large amounts of $L or land, places where significant value in $US could be hiding. I think that IRS and law enforcement are more worried about disguising income and money laundering than whether we're improving our standards of SLiving. (BUT, I could be wrong about that!)

I mean, it's all just a big monopoly game, right?

Well, yes but no. It's a monopoly game where the board, tokens, and money never go back in the box rendering all "gains" temporary and thus meaningless. And it's a monopoly game where you can sell the funny money for real money.

But in the end, it will come down to diminishing returns for the IRS. They don't want to spend inordinate amounts of money tracking and policing assets where the end result is pennies in tax revenues. Well, they DO that for estate taxes, but that's a political football! SL isn't, and they won't want to bother with extra paperwork unless it yields something.

Or so I hope!

You can say that about many professions, in a changing economy. Consider the textile industry in the US, for example. Of course, I agree that SL is more tenuous than most.

one linden is worth 1/3rd of a penny aprox

only at certain amounts bought, and sold, and only for now, and only in USD

And something even more interesting to consider when you think about an "asset". Once created, there is no limit to the number of times a creator can reproduce something. It would be like having an automobile factory that never had to pay for raw materials.

How do you assess value on a thing that can be endlessly replicated? Frankly, I don't even think it's possible.