I'm afraid this isn't true, or perhaps more precisely, it isn't meaningful.
What is it about "real" money that makes it real to you? The physical bill? If so, then that's wrong. If everyone, including all the corporations, went to their banks and started cashing out all of their checking and savings accounts, the government printing presses would have to work overtime to print enough bills. The bills don't all physically exist. That's why economists talk about the money supply in layers (M0 being physical currency plus Fed. Res. accounts, M1 throwing in checking accounts, and M2 throwing in most savings accounts and money market funds.
There isn't even any gold behind it, since the US is off the gold standard. So what's real about it?
Conversely, if Linden, or for that matter, anyone else wanted to, they could start printing their own Linden notes. It's perfectly legal. (Counterfeiting laws apply to making things that could be confused with bills issued by the government.) I seem to recall a town in New England doing exactly that, basically raising money for the town from the exchange rate. In fact, it might be a fun idea for Linden to do this, though it would be difficult to prevent others from counterfeiting their notes, or to make it profitable.
What is it about "real" money that makes it real to you? The physical bill? If so, then that's wrong. If everyone, including all the corporations, went to their banks and started cashing out all of their checking and savings accounts, the government printing presses would have to work overtime to print enough bills. The bills don't all physically exist. That's why economists talk about the money supply in layers (M0 being physical currency plus Fed. Res. accounts, M1 throwing in checking accounts, and M2 throwing in most savings accounts and money market funds.
There isn't even any gold behind it, since the US is off the gold standard. So what's real about it?
Conversely, if Linden, or for that matter, anyone else wanted to, they could start printing their own Linden notes. It's perfectly legal. (Counterfeiting laws apply to making things that could be confused with bills issued by the government.) I seem to recall a town in New England doing exactly that, basically raising money for the town from the exchange rate. In fact, it might be a fun idea for Linden to do this, though it would be difficult to prevent others from counterfeiting their notes, or to make it profitable.
You are absolute correct, anyone may create their own local currency - however, the value of the currency must be rigidly fixed to the U.S. dollar (Lindens aren't), they must have a minimum value of one dollar USD (Lindens can be exchanged at a rate of between about 265 to the dollar, up to 320 to the dollar, so they don't qualify on this either), and they must have an appearance dissimilar to a US dollar (Lindens fail on this test as well, since they have no appearance at all!). Therefore, under the law, a Linden cannot be a currency in any sense.
The only thing real about dollars is that the government agrees to accept them to pay off debts and taxes. Everything else is by mutual consent. Likewise, Linden Labs agrees to take Lindens in exchange for licenses, or to trade them for dollars.
The assignment of value is based on fair market value. The dollar is only the unit of measurement. You could take payment in Euros, if you wanted, but you'd have to compute equivalent dollar values. You can look up exchange rates, for either Euros or Lindens, from appropriate references.
Last I checked, it was just as easy to sell Lindens as to buy them. If someone leaves the game, it's not terribly different from someone abandoning a bank account that gets escheated to the government. Remember, there's nothing backing the US dollar other than the good faith and credit of the US government.
There is a rather large difference between a sovereign government backing a currency, and a corporation doing the same. Since a Linden has meaning only within the context of an online environment, it does not pass the test of being accepted by a community as a currency - since you cannot make use of a Linden except within the confines of a single online service.
No. They're founded on the concept that the legal definitions are very complex, and there's enough about the Linden to make it plausible that the IRS would choose to treat them the same as any foreign currency. Remember that US dollars are also arbitrarily created, tabulated, and destroyed by the US government (both bills and virtual). The only non-arbitrary part about it is that the FRB has the good faith goal of keeping the economy stable, and that controls their decisions.
If Linden Labs were to act in a way that prevent the Lindens from having a stable value - say by reinstating and revoking stipends at random intervals, raising and lowering the exchange rate on their site randomly, flooding the SL market with free versions of popular objects, then that supports the argument that they're not currency. The fact that Linden manages them as currency supports the argument that they might be under the law. I think all the people taking this side recognize that it's an unresolved issue of law, and that's what makes it both difficult and risky.
These two paragraphs are harder to refute - but while your post is founded on rational and reasoning discussion, the posts of others have been based on the "truthiness", or the appearance of truth rather than truth, ignorant of the fact that no government in the world has yet agreed or stated that a virtual object may have instrinsic value.
If one simply looks at the seeming similarities between Lindens and money, much of the behavior surrounding them is the same. However, the fact remains that in common experience - the common experience that is the foundation of all law everywhere - a simulation and the real thing are separate, elsewise we would not even have the word "simulation" in our language.
The Linden does not, in fact have a stable value. The rate of exchange is relatively stable over all, but there is no one-to-one correspondence between Lindens and any real currency in the world. Also, Linden Labs has, in fact, flooded the SL Market with free versions of popular objects in the past - some of the clothing now in the default library were at one time commercial products (see the archives for the strident complaints of the tradesmen so victimized) and they will probably do so in the future. There have also been accidents which have unlocked virtual items so that anyone could make copies of them, and this has happened more than once.
The underlying principle that a thing must have a singular and unique existence in order to be considered real is voided by these actions and accidents, and is the thing which all the arguments claiming that Lindens have intrinsic value ignore. In order for a Linden to have intrinsic value, that which you trade for them must also have an instrinsic value, and this is impossible in a cybernetic environment. All you have paid for is the right to play with the thing while online in Second Life, not the thing itself - you're not even allowed to move the virtual thing from one service to another, let alone have it sent to your house to grace your bookshelf, desk or mantle.
And of course, Linden Labs does manipulate the Linden supply arbitrarily to control and stimulate their economic simulation. They have said so in so many words over the years, often stating that keeping the economic simulation properly tuned is one of their main activities.
The final determining factor as to whether Lindens are currency is whether you can buy anything with them, and the answer is a flat "no", because they can't be used to purchase anything. You can exchange them for service or gameplay within Second Life, but that is not the same as buying something that our laws would recognize as a physical possession.
I'll grant that it is possible to make real world purchases from within SL - one maker of video cards was selling them in-game - this is only possible because the Lindens are periodically converted from game points into real money. The video card company has no interest in the Lindens themselves, because their business runs on dollars, not game points, since, once again, game points are not a currency, any more than X's and O's hand drawn on a tic-tac-toe board are currency.
I must congratulate you on your post - yours is one of the few lucid voices in this discussion, and you base your arguments solidly one upon another without engaging in the magical thinking that befuddles so many.
Socrates gave us the parable of the cave, wherein the cave's residents saw only shadows from the outside world and believed them to be reality, until one brave soul left the cave and saw the world for what it was. When he returned to the cave to tell his fellows of the true nature of the world, he was simply not believed - their truth consisted only of those things within their narrow frame of reference. So it is with people who are so mentally bound to the illusion provided by Second Life that they cannot think of things in any terms except as the simulation presents the things. The problem with this is that they have forgotten that Second Life is not reality - the human beings who participate are real, and the exercise of thought, debate and creativity are real, but nothing else in Second Life is real.
And therein lies the critical separation between a Linden and a dollar. For Lindens to be as taxable as dollars, they must first be declared to be as real as dollars are - this hurdle is not likely to be overcome any time soon, if ever. The question of virtual economies as being taxable ones has been in debate for over a decade, and we are no closer to an answer now than we were when the debate started, and because the very word "reality" is open to debate, it's safe to assume that there is not now, nor will there ever be, a so-called invasion of Second Life's economy by the IRS - the question will still be in debate a decade from now.
And taxation will occur, as it does now, when the game points are converted into actual cash.