the SL Economy

That's what I love about some people, how they only ever relate everything to whats happening in their own backyard.. SL is a worldwide platform... to put a point forward, the UK Inland Revenue actually quoted SL as being one of the platforms/games they are looking into as an actual earnings/revenue generating platform whereby they WILL apply taxation at the point of withdrawl/conversion into legal tender, utilising the transaction reports generated ingame deplicting its token swapping form of trading.

[url="http://news.independent.co.uk/business/news/article2833957.ece

Not ALL statements are related to the USA Government.... but as soon as the ball starts rolling... they will change their tune readily enough.

I'm certainly not a lawyer, but many people that use local currencies have found lawyers that assure them it's legal as long as certain conditions are fulfilled.

http://www.nocohours.org/LearnMore/FrequentlyAskedQuestions/tabid/59/Default.aspx
http://en.wikipedia.org/wiki/List_of_community_currencies_in_the_United_States

are examples of legal alternative currencies in use in the U.S.

And they are growing in use all over the world. The international nature of SL definitely makes the issue more difficult, yet also full of potential.

Thanks for those links, very interesting information. btw, that list on wikipedia links to this very informative page:
http://en.wikipedia.org/wiki/Local_currency

Response to Bozo.. oops *Bobo.. edited to near blankness because the best response to an imbecile is none.

As far as I know, there has never been any doubt that you have to pay tax on the US$ earned by selling your L$.

The danger is that if L$ were ruled to be a valuable currency in their own right, you would have to pay tax simply for receiving L$ in world, regardless of whether you cashed them out or not. Naturally, the taxman wouldn't be interested in receiving L$ (in spite of considering them valuable) so you would be _forced_ to cash out, or to pay your own tax from your US$ account.

I'm still baffled, after having waded through many redundant (and, frankly, fairly convoluted) posts here. Since the "LindeX is bad for us" posters seem to be expressing a heartfelt concern, I really would like to understand the argument and what might actually remedy the situation, if there is one.

Let's imagine there is no LindeX and that a whole new in-world Medium Of Exchange, the "Moe$", were to be established. Let's imagine that the Moe$ is exchangeable exclusively by some trusted third party for coffee futures on a non-US exchange. Now, the Moe is EXACTLY THE SAME as the Linden$ as far as the US currency and securities laws are concerned. (That is, a problematic medium of exchange does *not* have to be convertible directly to any *currency* by anybody, foreign or domestic.) The only difference here is that the "trusted third party" would hold liability for the exchange, not LL.

But unfortunately, it's *not* just the operator of the exchange that would lose, were the Moe$ to be found in violation of currency or security laws. Any *use* of the $Moe would be illegal, leaving LL--and by extension, us--with much the same risks as before.

Now (for reasons I think rather more pressing than this one), LL should be and probably is preparing to create multiple legal entities to protect different aspects of its business from liabilities and risks of other parts. But in this specific case, as far as I can see, spinning off or outsourcing the LindeX, or replacing it with some other virtual currency altogether, doesn't remedy the problem that's being posed, were it ever to become an issue.

As far as I can see, the only way around this would be to turn L$ transactions into real currency micropayments. This is certainly possible: the whole telecoms industry has relied on this transaction model for decades. But I'm guessing that's not what the "LindeX is bad" argument actually envisions... so, where am I again missing the point?

(Oh, just in passing: the telecoms industry--particularly wireless--has its own "Moe$": prepaid Minutes of Use. Consumers buy these things, save them, spend them, sell them, trade them for credit on goods and services, etc. Not entirely sure how MoU differs from L$, really. Similar for airline miles, credit card loyalty programs, etc. Maybe these offer some clue as to how to escape a problem, were one ever to arise.)

(Note: I'm taking at face value the statements that everyone here understands this topic to be COMPLETELY IRRELEVANT to the gambling ban; if anyone still harbors the illusion that there's any way for LL to take US credit card payments for *anything* associated with SL, and still allow gambling for *any* token exchangeable by *anybody*, for their own sanity they need to read enough of the relevant laws to disabuse themselves of that illusion forthwith.)

thank you for the suming up of this thread. would you like coffee.

(Qie, maintaining a delicate caffeine equilibrium, nods gratefully and holds out his mug, his hand just noticeably shaking.)

decaff and no sugar

Brilliant question.

The cleanest method is to simply avoid applying real life expectations to the Second Life economy.

Subscribers receive a weekly stipend. Call it a paycheck. You can save, sell, give it away, or spend it by purchasing land or products.

To inject control into the make believe economy, across the board limiting of expenditures to in-world funds received as part of membership would force the Second Life economy to scale.

When members purchase $Lindens in order to pay the asking price of an object, the value of your stipend and the Second Life economy have no relationship to each other.

Keeping in mind that the Second Life economy is make believe, the general expectation of a seller is to make a profit in $Dollars, not $Lindens.

In addition, the purchaser who cannot wait until enough $Lindens are saved up, contributes to the general skewing of the economy by devaluing the $Linden with the purchase of $Lindens.

If you want to improve the Second Life economy, leave your $Dollars at home.

i don`t think so. some people are just touchy about talking about issues it seems.

Please see my earlier post about why this would run the non-gamers out of Second Life. I am here to do things which have a strong RL component, not to level grind. I bring my RL skills to this process and expect to be able to pay with my RL funds.

If the L was pure funny money and could not be purchased, you'd see the SL economy move from the grid to websites enabled for micropayments, and all that would accomplish, would be to free up a lot of space now occupied by malls - the economy would be the same as it is now, with people paying others in micropayments so that the greatest skills can specialize. It's Adam Smith 101.

It would also, however, make another change: being RL money it would be more clearly exposed to the legal system for purposes of tax, lawsuits (or upstream complaints) for product description/functionality, etc..

So.... on that basis as I am not an American Citizen, I am exempt?... or is the point stretched on the basis that the servers are in the USA... then what about the accountant server here in the UK?... or the proposed European server... or the interconnecting telephone wires....

SL's development route is to become either the foundation or the leader in blending the 2D internet, into a 3D internet. In the essence of the internet, it requires multinational trading.. I see the portals both into and out of SL, the only real difference is that enroute it uses its own form of 'trading tokens' in the transition (L$), which can be bought and sold at each end of the portal. The goal for some, is to increase the value of the input, to the output portals and therefore create a profit/increase in value of investment. The post has formed into whether SL should shut off those portals and creating an enclosed economy.. my answer would be, in doing so, you will prevent SL ever becoming the framework environment for the 3D internet.
Given the mico values of the 'trading tokens', I would not use my credit card to make an ingame purchase, simply due to attraction of a transaction fee and a minimum purchase value of £1 (about 550L$). Therefore from my perspective, I buy bulk 'trading tokens' and make micro payments, returning my investment into the pool, before taking out the residual profits (assuming I make any).

You reiterated my point except for the part about the economy being the same with or without artificial inflation brought on by the introduction of $Dollars.

The question from the OP was what could improve the Second Life economy. I answered that question.

You need to understand that the question addresses economy, not preference in style for playing the game.

I believe what you describe as a "micro-payment" is something already in effect in Second Life. It is the basis for using $Lindens in place of $Dollars. The coin has a different name but spends the same.


The stipends are a constant. The objects for sale are not. Either the objects for sale are reduced in availability, driving the price up, or fewer $Lindens are available, driving the price down.

And thank you for the reference to Adam Smith. Although he isn't relevant in the context of your reference, a little research proved that what little material there is available from Adam Smith serves as a source in agreement with my answer.

It has nothing to do with the servers, it's where there headquarters are -- US in this case. They could operate server farms out of Romania, Borneo and Tierra del Fuego, they'd still be a U.S. company.

What you seem to be saying is that the ability to spend US$ on L$ means that there are more L$ in circulation, thus driving up the value of L$ and devaluing the stipends provided to Premium users.

This isn't actually true, though - when US$ are spent on L$, the L$ come from other users who were selling them, or from Supply Linden who sells the L$ that are "sunk" from the world (on Classifieds, Uploads, etc.) No new L$ are created so the total amount of currency remains the same.

Also, you're still missing two key points about the SL economy: first, for a small minority of the population, L$ are _worthless_ except as a means of exchange for US$. That is only a very small minority of the population, but that is also the minority who create the most content for everyone else. Often the reason L$ are worthless to them is that any content they want or need, they can create themselves, so why would they need L$ to buy any? Without the ability to earn US$, there would be no motivation for these people to share their content at all.

(This is exactly what happened on IMVU, by the way. That has a system where you can buy "credits", but not sell them. Some people created some excellent content - which on IMVU is mostly avatar accessories, as it has no scripting - and in response earned millions of credits, but had no use for them as they could already create any avatar they wanted. So they created their OWN credit exchanges, selling them for US$, and undercutting the IMVU company itself.)

The other problem is that the SL economy _can't_ be independant of the real life one because of the need to pay US$ for tier. If there was no way to transfer L$ into US$ then nobody would ever run a large area or build, because the larger it gets the more US$ it will cost them every month. If L$ are non-transferable then no matter how successful they become in world, they are left with millions of non-exchangable L$ and a US$295/month bill. Which is not a deal most of them are going to be interested in accepting. "So, why don't LL let us pay tier in L$?" Because they can't pay L$ for their hardware and maintenance costs. Yes, if Supply Linden sales were to become incredibly strong and reliable there's a possiblity they could make tier a L$ sink, but it's a huge risk, and things seem to be working as they are.

I understand your point, but I hope this never happens. I agree with Brenda on this one.

The SL economy is not the real-world economy, as you said yourself. If your idea were adopted, there would come to be real social strata in SL. People would not be equalized by the stipend; those who are able to make a lot of money in-world through business activities would become an upper class, while those depending on the stipend only would forever be cash poor. It's not guaranteed that prices would fall significantly, depending on how many denizens were in the more affluent class.

It would also play havoc with business activities. No one would be able to operate at a loss for long without the ability to bring in money from outside to pay rent and advertising. Many SL businesses (including mine) always run at a loss and the people do them just for fun. Others do eventually turn a profit but rarely immediately.

These factors may be ok for people who want to spend a lot of time building and scripting, or having a job in SL, but it would make SL a much less pleasant experience for those who just want to play and shop and are happy to spend their FL money to do so. The ability to bring in outside money is what equalizes us.

The fact that LL have announced that you can pay 50% of your teir in L$'s, would suggest that it actually places a currency value on a L$... they have made that distinction, not some federal law, IRS etc... equating half the value of a RL service, previously payable only in USD, is now split!!!!!! How will a IRS, or other Taxation department view that?

Where and when did they announce that?

Here: [url=http://blog.secondlife.com/2007/08/14/the-second-life-economy

QUOTE:
Would these sinks be sufficient to adequately re-adjust the money supply? Currently there is approximately L$2.6 billion in world held by 1.7 million accounts. The average held in each account is L$1,687 and the median is L$161. In an average month, more than 75% of the in-world money supply moves through the LindeX. Each month our sinks represent about 3% of the money supply, stipends represent 7% of the supply, and our L$ sales on the LindeX represent from 0 to 5% of the supply.

Although we currently do not accept L$ in lieu of land sale and maintenance fee payments, we could. Acceptance by Linden Lab of just one month of land sale and maintenance fees in L$ denominated payments could cut the in-world money supply by more than 50%. In general, its our goal to maintain large enough sinks such that the only day to day and minute to minute mechanism that we need to manage the exchange rate within a narrow band is to sell L$ on the exchange. Since August of 2006 this has kept the exchange rate quite stable as you can see [url="http://secure-web8.secondlife.com/whatis/economy-market.php

Um ... you think this says you can pay 50 percent of your tier in L$? Because it doesn't. It says (read the second paragraph) they could but they DON'T accept payment in L$, but that if they did it could cut the supply of in-world money by more than half.

Jeeze, that was dumb...

The issue is that SL does indeed have these strata all the same - athough I'm hesitant to call one class "lower" and the other "upper". Instead, there's the "platform class" are those who are taking real money out of SL for profit, and the "game class" are those who are putting it in.

Just as in real economies, the game class may resent the platform class, but they depend on them to provide content (just as the RL lower class resents the upper class but depends on them to provide jobs and leisure. The platform class may consider themselves better than the game class, but they depend on them to pay in the US$ to support the structures they create (just as the RL upper class considers itself better than the lower class but depends on them to do the necessary hard manual labour). Neither can function properly without the other.

Apart from that case, though, there is little correspondance with platform->upper and game->lower class. Some members of the "game class" live in a fully furnished mansions that they bought via US$ input. Some members of the "platform class" have no land at all, they build in public, friends', or companies' sandboxes. (One of the most well-known and profitable businesspeople on SL, Enabran Templar, only ever owned 512sqm of land.)