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Real Virtuality

Thursday, March 22, 2007

As they construct a truly three-dimensional cyberspace, people are starting to make real money.

AvatarOn January 29th Sweden stunned the world, announcing that it plans to open an embassy in the virtual world called Second Life. It is the first country to do so.

Inspired by online computer games, Second Life is an online environment that stays the same, from day to day, unless users make changes. Users have tools to build their own homes, clothes, cars, and far-out gadgetry such as teleporters. Each user controls an on-screen double known as an “avatar.” Second life is full of user-created culture, subculture, and counterculture. Groups formed there, such as the furries (don’t ask), often stretch the boundaries of free speech of the real world. The company that created Second Life, Linden Lab, provides only a piece of softwarethe rest is up to the user.

Linden Lab’s goal is to create a user-defined world of general use in which people can interact, play, do business, and communicate. Although it has notable competitors such as World of Warcraft, EverQuest, and the Entropia Universe, Second Life is particularly popular because it does not have a scripted action or story. Entrepreneurs and creators can freely create their own worlds and fill with content. They retain the intellectual property rights to whatever they create in the virtual landscape: they can sell it, lease it, rent it, or donate it.

The world has reached 14 million inhabitants in seven years, with an economy of its own and a currency referred to as Linden dollarsLindens for short. Residents receive a grant of Lindens when they open an account, and a weekly stipend thereafter. Additional Lindens are acquired by selling items or performing services within the environment.

Second Life’s economy is closely connected to the “real” one. The Linden usually trades at roughly 300 to the U.S. dollar. Banks and exchange offices are booming in Second Life, and the world has a real turnover of more than one million dollars a day in transactionsacquisitions of virtual land, housing, clothes, music, furniture, and animations and gestures for avatars.

Milton Friedman said in the 20th century that if you want to see capitalism in action, you should go to Hong Kong. To paraphrase him for the 21st century: if you want to see capitalism in action, log on to Second Life. In this tax-free economy there is a market for everything, from poetry to gardening to sexy underclothes for avatars. The honeymoon may prove short-lived: taxing the economic activity in virtual worlds is already a priority for European tax agencies.

To paraphrase Milton Friedman for the 21st century: if you want to see capitalism in action, log on to Second Life.

Corporations, too, are finding their way to the virtual worlds. 20th Century Fox held a premiere for "X-men: The Last Stand" in Second Life. IBM has created a permanent presence in Second Life and Toyota recently offered a virtual replica of its Scion xB model.

Business interests are also arising within Second Life itself. The cover of BusinessWeek April 2006 featured Anshe Chung, a very successful businesswoman in what might be called “unreal estate.” Anshe Chung does not exist: she is the “in-game” persona of German-Chinese Ailin Graef. Graef has built an online business that develops and brokers virtual land, items and currency in Second Life. Since February 2006 the company ANSHECHUNG Studios, Ltd. has been legally registered in China. The company has equity valued at $250,000 (U.S.), all tied up in the ether.

Democratic presidential candidate John Edwards was the first to establish a campaign headquarters in Second Life. Other Democrats, including Hillary Clinton and Barack Obama, have since jumped in—while Republicans have been conspicuously absent. Nonetheless, it seems inevitable that the U.S. presidential race, the most wide-open election in more than 50 years, will ultimately be fought out in the virtual world as well as the real one. Second Life is also creating political movements of its own, like the Second Life Liberation Army. That “terrorist” group may be more tongue in cheek than serious, but it is a reflection of the intense philosophical and political debates that Second Life is creating.

Researchers in informatics, sociology, economics, media sciences, and linguistics have flocked to the new environment, driven largely by the sense that it is the beginning of a much larger trend.

The man that started the shift from considering the virtual world something more than child’s play was the economist Edward Castronova at the University of Indiana. In his book Synthetic Worlds, he began to apply economic logic to the interactions among players, examining their effects on a social and financial level.

Castronova studied the trade in digital goods in the virtual world EverQuest, which had a clear interface with the real world through eBay. He saw the extent to which people were paying real money to buy items for their game characters, blurring the distinction between the game economy and the real one. He used the methodology that his colleagues would apply to an economic survey of Ghana or Canada. He found that EverQuest’s currency, the Platinum Piece, was actually quite solid. At a rate of 1 PP per 0.0107 U.S. Dollars, it was at times more valuable than the Japanese Yen.

The predictions of the 1960s, inspired by the works of the Frankfurt School, that the media society would be a “vast wasteland,” turning people into passive, hypnotized interlopers has proven false.  The creativity, sociability, and interactivity of the virtual worlds offer another story. Early hype about virtual reality cannot obscure the fact that politics, business, and culture are rapidly developing robust virtual components.

Image credit: Image by Flickr user Pathfinder Linden

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