Finance Thesis and Second Life

 

Choosing a  bachelor thesis is probably one of the biggest challenges for every student. Some professionals I’ve talked with tend to be very critical, stressing the importance of the topic, as a clear sign for the carrier orientation of the student. Other emphasize the high possibility to work on something completely different, once graduated, thus basically implying the topic itself is not really that important.

In this article I am going to express some thoughts I’ve been juggling with lately and present research results, concentrated on the interface between finance and Second Life (SL).

As a business student and an eLearning coach, having gazed into the most popular virtual world, I suppose it is not a big surprise I thought of combining my knowledge in finance with my vague SL practices. The combination could be projected into an innovative, future oriented thesis, which would not only be perspective but also very motivating.

 

I got pretty excited reading about the whole SL economy, amounting to a record of $160 Mio in the first quarter of 2010.  Furthermore, there is a fluctuating currency – the Linden Dollar – exchangeable for US Dollars at the LindeX market and a World Stock Exchange Market under construction. This basis provides a lot of opportunities for financial transactions, which would further stimulate the in-world economy and present chances for USD profits.

On this ground a strong demand for banking services doesn’t sound futuristic. Interestingly, in Second Life there have already been bank bankruptcies, amounting to Millions of USD losses. The most prominent example is the Ginco Financial’s, which offered around 40% interest p.a. to their depositors and at the end lost $750 000 of their money. It has been argued, that the bank was in fact a ponzi scheme, paying back old investors with the money from new ones. Although, Linden Lab – the creators of Second Life – try their best not to get involved into the in-world activities of the SL citizens, apparently the situation went “too bad“. The result represented a second prominent regulation in the border-less virtual world, after the gambling ban stimulated by a FBI investigation. The new rules oblige all in-world banks to be registered as real-world ones. Although the solution seems to have worked out fine, huge discrepancies between bank guidelines in different countries may be exploited by the residents of Second Life. In general it is becoming evident that the virtual world financial activities will impact the real world stronger and stronger in the future.

Finally, there have been also accusations against Linden Lab, exposing problems as counterparty risk and manipulation of exchange rates, proposing that the whole in-world economy itself is a huge financial pyramid.

As conclusion, I think there are a lot of opportunities to learn about real world financial operations in Second Life and also many to organize a business there. There are however, also a lot of critical issues, which should be considered and further researched. At the end of the day, there must be good reasons, why big banks are not making business in SL.

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7 thoughts on “Finance Thesis and Second Life

  1. wow, thanks ivan for sharing this information. i knew a little about Second Life’s internal finance world but you’ve provided much more and interesting links to follow up, especially for the (substantial) group of HWR students interested in finance. this reminds me of a telephone chat a while back with a colleague (an economist) who plans to create a complete mini-economy in a virtual world – with its own currency etc. to allow students to simulate relevant processes. in a way, as you show, we already have that (except not in a controlled environment, but growing organically). fascinating!

  2. Vanbank — A similar topic could be the growth of virtual currencies on the hypergrid. OpenSim-based grids have a choice — no money at all, PayPal payments, a grid-only currency, a multi-grid currency, or some combination of these.

    The two most popular multi-grid currencies today are the G$ and the OMC. With both, you can teleport from one grid to another (yes, with your avatar, and your appearance, and without re-logging in) and buy stuff on another grid and then bring it home and rezz it (or take it to a third grid and rezz it there).

    I believe eventually one of these currencies (or maybe some new currency that hasn’t appeared yet) will turn into the default currency of the 3D web, like PayPal has become the default payment method of the Internet.

    There’s also a (small) chance that the Lindens will take their L$ currency and allow other grids to use it. Why not? It’s more money for the Lindens, at little additional cost, except for setting up a couple of additional security controls.

    — Maria Korolov
    Editor, Hypergrid Business

  3. vanbak

    Marcus – I’m glad you like it. When is the colleague of yours planning to start his experiment? Do you think he may be interest in getting help from a student wanting to write a bachelor thesis based on his research? (:

    Maria – Thank You for Your comment. I read your comprehensive article: http://bit.ly/aa8GLC about a similar topic and it really gave me a lot of ideas and useful information, I could eventually use for my thesis.

    – Van

  4. This is such a great resource that you are providing and you give it away for free. I enjoy seeing websites that understand the value of providing a prime resource for free. I truly loved reading your post. Thanks!

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