SL: Virtual Market or Ponzi Scheme?

Tags: | |
POSTED: January 26, 2007

I read an interesting article this afternoon about the recent round of hype around the SL economy at Capitalism 2.0, a blog written by Randolph Harrison.

The article was entitled Capitalism 2.0: SecondLife: Revolutionary Virtual Market or Ponzi Scheme? and it argues that the market in Second Life is fixed, in ways that render it more akin to a pyramid scheme than an economy.

Edward Castronova has responded saying that this analysis itself is deeply flawed. I am not so sure that it is. I can remember how shocked I was to discover, during the recent copybot panic that there were many adults who claimed to have abandoned their day jobs in order to “work” full-time in SL. I think that Randolph Harrison is correct to point out how fragile (and possibly untenable) their position is.

Moreover, if we accept Harrison’s claims as genuine, he has put large amounts of US dollars into SL, and then tried to withdraw them, in order to test the currency exchange mechanisms. He discovered that the exchange rates are, in effect, rigged to make it impossible to withdraw anything more than small change at the advertised rates.

This in turn implies that the belief that one can start at the bottom and work one’s way up is not true. As you try to work your way up the rules change. If this is, in fact, true then Castronova’s argument that the SL economy is like a hyperactive village falls.

On the other hand I do agree with Castronova that, in the end, it doesn’t matter because something like this is coming your way soon. Whether or not it will be SL is a moot point, though.


Update: Monday, January 29th

Randolfe Harrison’s post attracted a large amount of comments, many of which he responded to. He has now posted an offer which will take the argument forward several stages. He is asking for volunteers in the form of small busines in SL. He will choose one and do a complete financial analysis of it, to try to determine if it really does “have quantifiable value”.