





Play Money to Real Money




"This won't affect us long term. It's just a short-term difficulty," said Mr. Smith, 40 years old, who also has significant land and real-estate interests in Second Life. He said he retired from the real-life mortgage business to devote his time exclusively to his Second Life enterprises.

"There is not a whole lot that is fake about this," says Robert Bloomfield, a professor at Cornell University's Johnson School of Management. Mr. Bloomfield's own Second Life avatar, named Beyers Sellers, hosts a pretend television show in the online game about virtual economics.

Plans for Shutdown

Linden announced plans for yesterday's shutdown two weeks ago, and since then Second Life players have been streaming into the fantasy banks to withdraw their deposits, which are convertible into U.S. dollars at a floating rate. Yesterday, one U.S. dollar was worth an average of 269 Linden dollars, its typical exchange rate.

On Monday, avatars strode past empty seating areas and potted plants in the spacious, modern lobby of JT Financial, a mostly deserted virtual bank located in Second Life's CapEx mall. "Due to an extreme surplus [of withdrawals] since the announcement of the Linden Labs new policy regarding inworld banks, we have temporarily disabled the withdraw feature on ATMs until further notice," read a big sign.

Linden officials won't confirm the number of players affected by the shutdown, how much in deposits is likely to be lost, or whether any real action will be taken against operators of the virtual banks now facing a run from depositors. The losses clearly are tiny compared with the more than $100 billion in recent write-offs by actual banks and securities firms.

'Libertarian Dreams'


Second Life has attracted many actual companies, including Adidas AG, Coca-Cola Co. and the Ben & Jerry's unit of Unilever, which see virtual environments as a promising haven for marketing and advertising. Real banks have steered clear of the make-believe world so far, partly out of concerns that interacting with avatars could cause them to run afoul of federal "know your customer" rules, which are meant to prevent money laundering.


The collapse led to an outcry from depositors at Second Life banks. Linden responded on Jan. 8 by announcing the broader shutdown, claiming it would "protect our residents and the integrity of our economy."




Some players think the shutdown might not prevent future losses, because a shady real-life bank operating outside the U.S. still can set up a virtual branch in Second Life. Other players see the crackdown as diluting the game's free spirit.

Returning Real Money

Joshua Zarwel, a 29-year-old graduate student at New York University, has spent the past few weeks returning real money to depositors in his virtual bank, called SL Bank. Launched in 2006, SL Bank had been paying an annual interest rate of 24% to 30%, compared with less than 5% for savings accounts at most actual U.S. banks.

Mr. Zarwel's avatar, named Teufel Hauptmann, used the deposits -- averaging $25 per user -- to buy and sell Linden dollars on the Second Life currency exchange, known as the LindeX. He says he parlayed his currency arbitrage into about $15,000 in actual profit. "It started as a hobby and grew into something more," he says.

Write to Robin Sidel at