Linden Lab® Becomes Virtual (Real?) Bank

[Sorry everybody, but this was (perhaps not obviously!) my April Fool’s joke! — Gwyn]

Linden Lab\'s Virtual Bank

Some of you might have heard my rants about the bad service provided by the ever-so-popular PayPal, to the extent that I start to believe some of these hate sites. After going through cancellation of my account, losing some money in a few transactions (actually, buying L$ on the LindeX), my frustration with how PayPal works has reached the bottom limit. Sure, it’s useful; sure, it’s used by 150 million users around the world in over a hundred countries; but isn’t there anything better?

I’ve tried several “payment gateways” (I’m still waiting for Google’s own system to be available in my country; seems that right now, only US, Canadian, and UK citizens can use it to provide services, although you can pay from any country) over the past few years, but still, I’m not happy.

I’ve even looked a bit on how hard (and expensive) such a “payment gateway” would need to be. Allegedly, in the US, you can start your own bank with just US$15,000 and half a ton of bureaucracy. It might be even simpler in other countries. Payment gateways are also not technically “banks” (they don’t pay interest on money deposited there), but they are also heavily regulated. And finally, they also require a good user base to be useful — after all, nobody will “trust” a payment gateway that has just a handful of users.

What would, then, be the “perfect” payment system?

  • It needs to have a strong user base — several millions.
  • It needs to be regulated.
  • It has to be easy to register for it (ie. creating an account should be simple), and have optional validation for extra trust.
  • Sending money to other users should be as easy as possible.
  • It should be easy to “upload” and “download” money in several currencies, using multiple systems (Visa, direct debit, bank transfers, etc.).
  • And ideally it should use a “neutral” currency for worldwide usage, so that transactions can agree on a “virtual currency” and handle fluctuations of the many currencies locally. But users sending money to each other should simply use a fixed “virtual currency” to facilitate the exchange.
  • Interfacing with websites should be easy.
  • There should be a level of “pseudonymity” associated with your account — similar to eBay.
  • The transactions should be outside the reach of governments 😉

 

Now, as many of you know, I have never read Snow Crash. On the other hand, I have read many other books from Neal Stephenson, and one of them, Cryptonomicon, written on the same year as Linden Lab was created, surprisingly describes in quite some detail how such a system could be created. Neal still bases the “virtual currency” on gold, which is an outdated concept, but his ideas are at least — interesting.

So interesting, in fact, that the company who turned one of Neal’s books into reality is now turning Necronomicon into reality as well!

Indeed, Linden Lab’s recent strange policies made us suspect that something was afoot in LindenWorld™. The first thing was introducing the LindeX. The second was the ban on banking. The third was Raph Koster’s Metaplace that only gets income from “selling” virtual currency (everything else is for free). And finally, a stronger protection of their trademarks. Clever analysts should start adding two plus two and figure out what Linden Lab was going to do.

As OpenSim-based grids are not far from becoming a reality — they already exist, but aren’t still stable enough or feature-rich enough to provide a mass exodus from Second Life; also, they are not (yet) interconnected, so you’ll be at the mercy of a tiny start-up or a group of open source developers — Linden Lab needs a new source of revenue besides renting server space. We know that they will probably start collecting “interconnection fees” (like the ISPs and telecoms do) so that all those OpenSim-compatible grids can communicate with LL’s own grid and asset servers. But will that be enough?

Probably not. As you can all see, eBay’s founder (who bought PayPal) was one of the funders of Linden Lab. Jeff Bezos from Amazon.com is also there. These guys are kings of handling payment systems.

And Linden Lab has “created” the most available, most used, most transacted micro-currency in history: the Linden dollar.

Put all of these together, and the result is obvious: Linden Lab applied for a license as a payment service… and it was granted! After all, they had all the items of the above list already, except for the license!

This now means that soon you will start to see websites allowing payments in L$, not unlike what the Electric Sheep Company tried to do with their OnRez Shop (selling real life goods using L$). But Linden Lab can go much further. They can beat PayPal and all other payment systems at their own game. You will be able to send L$ for payment for any good or service around the world — all you need is to register for an avatar. The APIs are all in place, and they’re so easy to use — as the spread of “virtual bankers” in SL showed.

Think of the consequences of Snow Crash meeting Cryptonomicon. Second Life, not only the virtual world, but the “safe haven” where transactions can occur (legitimately, since a licensed Linden Lab will be regulated, probably even in more than one country, just like PayPal) in a completely virtual space, using a completely virtual currency, where everybody is as pseudonymous as they wish (we can validate ourselves — but it remains an option), and payments are as simple as right-clicking on an avatar. I think that PayPal and their competitors will have no chance of surviving…

About Gwyneth Llewelyn

I'm just a virtual girl in a virtual world...

  • economic mip

    Interesting. All I will say is interesting.

  • You are joking, right? OK.
    Well, there’s a bit of a joke in every joke… Let’s take a little bit about that.
    1. The most successful micro-payment system(s) in the world history are:
    a.) e-gold.com started by Douglas Jackson back in 1996 (3 years before… you know what I mean) based on the gold standard because he loved the Cryptonomicon book (and even presented me a copy once).
    b.) webmoney.ru – started in 1998. Well, let’s say I contributed a lot… being a CEO of it for quite some time. Right now 80+% in Eastern Europe use it on day to day basis.

    What you are asking in your joke is the set of rules necessary FOR THIEVES. They would LOVE the system you are describing. Especially the anonymity part and the ability to charge people right from the Nigeria (do you get e-mail with Nigerian scams every other day?). Your estimates about the necessary user base, assumptions about regulatory framework and some suggestions are not based on real economics, sorry to say that.

    Otherwise what you are anticipating is almost exactly what our company is doing, so, if you are a merchant or entrepreneur – please contact me, I would be glad to discuss your payment needs with you and help in implementation of our solutions (some documentation is not on the web-site yet).
    Regards.

  • Oh! I Forgot to say! I loved this part of the joke MOST:

    “It needs to be regulated.”

    “The transactions should be outside the reach of governments.”

    Yeah! That was funny. 🙂

  • Gwyn darlin, that LL link leads me to nuthing but a 404… whattup widdat?

  • Simon Pulford

    I wonder how stable the L$ will be since its price is calculated based on the USD; backing up the L$ against XAU or EUR is not a bad idea after all.

  • Chez Nabob

    FYI, “it was granted link” goes to a 404 file not found error.

  • Gwyneth Llewelyn officially wins at April Fool’s Day. XD

  • Obviosly, dear Hamlet and Chez, that link gives you a “Page not found” error, because… it never existed 🙂

    Thanks for the lovely comments anyway!

    The fun bit, of course, is that this might have been possible 😉