Funny Money: Virtual Currency

By CIOinsight  |  Posted 02-06-2006
As if people didn't have enough real expenses in life, now they're paying for things that don't exist.

Second Life is one of several 3-D virtual worlds gaining popularity on the Internet. Since its debut in 2003, Second Life has attracted more than 125,000 users who collectively devote 60,000 hours a day to designing the online society, developing virtual real estate and making virtual products such as clothes, cars and furniture.

But Second Life is more of a business than a game. There's no predefined plot, and no way to win. Players receive a small monthly allowance of "Linden Dollars" just for signing up, but can also earn more through their "in-world" occupations. And Second Life residents retain all rights to their creations, unlike other online worlds. In fact, a game that was created in Second Life, called Tringo, recently made the leap to the real world and is now available on Nintendo's GameBoy.

Linden Dollars are tied to the U.S. dollar at roughly $1 to L$260. Linden Lab, the San Francisco-based company that designed Second Life, hosts an actual exchange (called LindeX) that converts Linden Dollars into U.S. dollars. The site processes roughly $230,000 U.S. in virtual user-to-user transactions each day—and some residents make enough money to pay all their real-world bills.

All of which raises some interesting questions, says Paul Saffo, director of the Institute for the Future. "Last time I checked, the government doesn't recognize Linden Dollars," he says. But it's only a matter of time, he thinks, before it does. "In about ten years you'll see the government start collecting taxes from digital economic activity. It will smell money it can't touch."