The SLENZ Update – No 80 , May 11, 2009

Need a virtual loan?

Creating a ‘real buck’ – virtually-speaking

dollarbills

Picture: Freefoto.com

The Linden dollar  has  had its ups and downs and Linden Lab’s is probably making a fortune out  of  of its forex dealings, but there is still no dedicated “real world” banking/forex facility in  Second Life, or any other virtual world.

That, however,  is now changing  with the creator of  the Swedish-based virtual world, Entropia Universe, MindArk, being  granted a license from the Swedish government to open Mind Bank, which will exchange Swedish kronor for Project Entropia Dollars (PEDs).

The currency will be used by Entropia’s 1 million users to buy and sell goods on the planet Calypso, according to a report in Businesweek by Olga Kharif.

The PED is among a growing number of alternative currencies changing hands in virtual worlds, social networks, and other web sites which are clamoring to make it easier for users to spend money and carry out other transactions while online as the on-line virtual market becomes a multi-billion dollar opportunity for virtual currency creators, she said.

China’s virtual goods economy, the largest in the world, is worth US$800 million and growing 30 percent a year, according to Shaun Rein, managing director at China Market Research Group.

SL ‘Economy on a tear’

In Second Life, one of the biggest US-based virtual economies, transaction volume is expected to rise 39 percent, to $500 million this year, according to the world’s creator, Linden Research. “

Our virtual economy has been on a tear,” Tom Hale, Linden’s chief product officer, told Businessweek.  “It’s grown much better than the real economy. It’s a wonderful, wonderful business.”

“We’ll try to make the link between real and virtual world as close as possible,” Andersson,  of Entropia’s MindArk, said. Users currently buy and sell land, minerals, and tools by depositing US dollars or Swedish kronor directly into the game. Once Mind Bank opens, users will be able to link real-world checking and savings accounts to the virtual world. Eventually they’ll be able to take out PED loans.

Services such as eBay’s (EBAY) PayPal and credit and debit cards currently provide a way for people to pay for virtual goods or site-specific virtual currencies but  many  users balk at the high fees levied by financial services on the sub-$1 transactions commonplace in the virtual-goods world. “

As users of Second Life  have found to their cost, however, the mere setting up of virtual banks is not without tears. The onetime unregulated, unofficial banking system in Second Life is believed to have cost users hundreds of thousands of dollars if not millions. Their real money  turned  virtual  and disappeared almost overnight when the banks which had been offering outlandish interest rates, collapsed.

As Businessweek notes,  as virtual trading’s use spreads, so could accompanying problems, such as fraud.

Sites have to ensure that users can’t “manufacture” virtual currency without paying for it with real money or earning it in game play.

The sites themselves may need to be regulated by the government to prevent fraud, according to Mark Methentis, a lawyer and author of gaming-law blog, Law of the Game. “We need transparency, as with other investments, [including restrictions on insider trading],”  he said.

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