Money Trouble in Second Life
There’s a long line of avatars waiting to use the automatic-teller machines for Ginko Financial, a virtual bank in the online game Second Life. For more than a week, account holders have been demanding their money back in what some folks are calling a bank run.

Set off by high interest rates and a recent ban on in-game gambling, the bank run could ultimately have a major effect on the game’s economy. The theft of approximately $12,000 from the Second Life World Stock Exchange doesn’t help matters either.
Second Life, which was created by Linden Labs of San Francisco, is an online world where players can buy and sell all kinds of goods and services. The game’s economy is based on fictional currency, called Linden dollars. But those dollars do have real-world value: players can buy or sell Linden dollars at a rate of about L$270 to $1 on the Lindex market. Second Life’s website even boasts that “thousands of residents are making part or all of their real life income from their Second Life businesses.”
Now the entire Second Life economy–which could affect more than 8.5 million players–is in trouble.
Although financial institutions in Second Life are careful to define themselves as games, some Second Life banks offer more than 100 percent annual interest–a tempting rate when combined with the possibility of turning Lindens into U.S. dollars via the Lindex. Right along with the promise of turning virtual currency into real-life riches are problems with how some Second Life financial institutions are run, says Robert Bloomfield, an economist at Cornell University who makes a serious hobby of studying Second Life’s economy.
“The average person who goes to a [real-world] bank isn’t aware that there’s a large regulatory body keeping track of the reserves the bank has,” he says. But banks in Second Life, which Bloomfield compares with the Wild West, are mysterious and unregulated. Ginko Financial’s CEO, Andre Sanchez, of Sao Paolo, Brazil, has refused to release records of Ginko’s investments or financial history, and he has not revealed a clear plan for returning people’s money.
“Most of these problems have been building for a while,” says Benjamin Duranske, an intellectual-property lawyer who has been watching the Second Life banking industry. Although he and Bloomfield agree that the ban on gambling probably set off the run, Duranske says that problems were inevitable considering Ginko’s high interest rates. Even with the run going on, the bank still promises depositors daily interest of 0.10 percent, which is approximately 44 percent interest per year. Duranske says that some 20 to 30 Second Life banks offer comparably improbable rates.
“It’s not as if these people have discovered something that hedge-fund and mutual-fund managers don’t know,” he says.
In an interview with Duranske, Sanchez, who says he is in his twenties, explained that he started a bank in Second Life after reading the biography of a famous banker. “In the beginning, even if I were to fail, it would be fairly easy to just pay people from personal income,” Sanchez told Duranske. The problem, Duranske says, is that the idea doesn’t scale. According to Ginko’s website, current deposits total more than $750,000 in U.S. currency–an amount that Sanchez probably can’t cover using his personal income.
Matthew Beller, who works for the U.S. Securities and Exchange Commission and, as a hobby, writes about Second Life, says that the current growth in Second Life is “an unsustainable boom.” Because the Linden dollar has no commodity backing, he says, the Second Life economy is in danger of crashing when provoked by any sufficient shock. Although the recent shocks may not necessarily cause a run on the Linden dollar itself, Beller says, the danger remains, should additional shocks occur.
As long as Second Life financial markets remain unregulated and mysterious, Bloomfield says, it will be very risky for people to invest in them. There have been recent efforts to increase transparency, however. A Second Life Exchange Commission is now forming, and it’s working to establish standards for in-world businesses. In addition, the heads of two of Second Life’s major stock exchanges, the International Stock Exchange and the Second Life Capital Exchange (formerly AVIX), recently agreed to allow Bloomfield to analyze their data and release the types of reports that are routine for real-world exchanges.
In spite of the turmoil in Second Life’s financial sector, Bloomfield says, he thinks the game’s economy will survive as long as there is continued growth in the demand for virtual goods and services, as well as for real services, such as programming in-game systems. “That, to me, is far more important in determining the future of Second Life’s economy than little hiccups in the world,” he says.
Keep Reading
Most Popular
DeepMind’s cofounder: Generative AI is just a phase. What’s next is interactive AI.
“This is a profound moment in the history of technology,” says Mustafa Suleyman.
What to know about this autumn’s covid vaccines
New variants will pose a challenge, but early signs suggest the shots will still boost antibody responses.
Human-plus-AI solutions mitigate security threats
With the right human oversight, emerging technologies like artificial intelligence can help keep business and customer data secure
Next slide, please: A brief history of the corporate presentation
From million-dollar slide shows to Steve Jobs’s introduction of the iPhone, a bit of show business never hurt plain old business.
Stay connected
Get the latest updates from
MIT Technology Review
Discover special offers, top stories, upcoming events, and more.