Linden Lab en route to Hell, at last

The road to hell, it is said, is paved with good intentions. The same might be true of other destinations held akin to hell by individuals and organizations, though it is a matter of debate if these destinations would be considered such by anyone but the traveller. Take Linden Lab and governance for instance. One could argue the point that for the bunch of laid back coders and start-up entrepreneurs that constitute LL’s core, the notion of governance is by its very nature indeed hell. If it is, LL has taken a big step down that road, the biggest to date, and — of course — out of good intentions.

Hell ? Governance ? Girl, what are you gabbing about ?

Well, you will not have missed the fact that, with its New Policy Regarding In-World “Banks”, effective from January 22nd, Linden Lab has decreed what amounts to a total ban of in-world banking activities. This has been hailed, or at least acknowledged as inevitable, by observers as diverse as Benjamin Duranske, Prokofy Neva, Nobody Fugazi, Tateru Nino and Dusan Writer; dissenters have been few and in between, easily dismissed as either obvious lobbyists (for instance Arbitrage Wise, « CEO » of JT Financial) or as missing the point (see Lillie Yifu’s angry retort to Robert Bloomfield’s plea for a continuation of SL Y-K-W banking activities as a sandbox for RL studies). Not surprisingly, the decision sat far less well with depositors, who, on hearing the news, panically flocked to the ATMs to withdraw their deposits en masse before the impending closure of their « bank » (see Prokofy Neva’s superb on the spot reportage ; also the articles on Your2ndPlace and Massively), as well as being accompanied by cries of « despotism » on the comments everywhere. The whole thing simply reeks of RL déjà-vu.

Now I’m not going to discuss the pros and cons of the banking ban, nor of its implementation (try aforementioned Arbitrage Wise on Your2ndPlace, or Aldon Hynes on SLNN, a man also on record for saying it needed Colgate to bring smiling to SL Y-K-W avatars, for criticism of that). There is little my gut feeling and homebrew reasoning can contribute to what brighter minds have written. Neither am I going to ponder the question what the balance between scammers and little boys playing bank might have been ; being neither a lawyer, nor a theologian, I find the degree of inherent malice pretty irrelevant to my opinion of the impact of people’s actions.

What I do find interesting is why Linden Lab felt necessary to step in — and what this means for the future of Second Life as a society, a topic I hold dear since the spectacular failure of my first and only recurrence to in-world policing.

Gwyneth Llevelyn has summarized the three current theories about LL’s motivations. In a nutshell, these are : 1.) LL’s hand was forced by impeding, but undisclosed legal problems, 2.) LL intends to boost the LindeX by choking off all financial activities but their own, 3.) LL does what it says it does, viz . step in to protect residents. You could call these respectively corporate bottom line policy (as put in evidence by the gambling ban, or the age verification scheme), conspiracy of greed, and surprising. Ashcroft Burnham has nicely pointed how unlikely case one is :

It would be very surprising if Linden Lab truthfully cited legal requirement as the reason for the gambling ban, but, although it is in fact compelled by law to prohibit unlicenced banking, it pretended that the reason that it was so prohibiting was to protect its residents from fraud. It would also be odd if Linden Lab, believing itself to be legally obliged to prohibit all banking operations, nonetheless gave the banks a grace period before it closed them down: it did not do that with gambling, either.

As to case two, I’d venture to say you can probably safely dismiss the notion of LL banning banking to assert the LindeX’s supremacy, or install a monopoly, simply because the ban does not encompass financial bodies duly regulated in their RL country of origin. Not that I’m aware of any RL banks actively doing business in-world, but what matters is that the playing field is still open for them, and compared to the Lindens running the LindeX, these are the real thing. Had LL wished to monopolize the financial sector Metaplace style, would they not have banned all banking activities outright ? They could have, safe to say without consulting a lawyer, because the world it is to happen in is their sole property. Stating LL can’t ban RL banks from SL Y-K-W sounds to me a bit like saying businesses can’t ban freelance hotdog vendors from operating in their cafeteria.

Which leaves case three. Unlike Ashcroft, who on concluding this called the measure « mundane and un-news/rantworthy », I think LL acting this way is actually pretty spectacular : it is the first time LL do install a grid wide policy on strictly intra-residential issues without being legally compelled to do so or having a (financial) stake in it.

As such it is a 180 degree turn away from their previous professions of policy on not regulating intra-resident issues and conflicts. The more so since they also throw their VP of Business Affairs’ staunch denial of SL Y-K-W having an economy overboard along the way. This is not just Philip Rosedale mentioning the « economy » of SL Y-K-W in an interview, this is LL officially acknowledging its existence and the need for its regulation — even if it is only to declare themselves unable to do so but by delegating the responsibility to RL regulators. Which, as both Garret Balaklava and Aldon Hynes have rightly pointed out, is as much an act of governance as instituting a banking codex, or installing in-world financial sector regulators. It just happens to be the one incurring the least cost in terms of permanent administrative effort. But as a step down the road to Linden hell — governance — it is a big one.

LL are in a dilemma. They have created a world so diverse, attractive and powerful that is has gained all the trappings of a society. Societies, however, need some kind of governance, which LL has been historically loath to provide. Maybe so because, as a for-profit company, the only kind of governing body you can be while keeping total control of your business assets is a despotic one. Obviously, as LL has refused to assume this role whenever they could, despotical rule runs counter to what they, CEO first, envision as the nature of Second Life. But sidestepping the question by instituting a policy of near absolute laissez-faire, as they have, proves to be a less and less viable proposition. You might hope that, if you never act as if you were a governing body, people won’t notice that you are. But the price you pay is dearth of governance, which means anarchy, verging on chaos. Too strong a word ? Then try abuse reporting for griefing (as I did) — or anything else that needs Linden intervention, and cannot be conveniently deferred to private sim owners. Never mind the mainland, which is under complete Linden control, or rather, in practice, lack of it. As Second Life You-Know-Where society has grown, LL’s non policy has turned from an annoyance into a major failing. The banking ban might very well be the first sign of LL acknowledging that.

Ordinal Malaprop’s pictorial comment

Mr Philip Linden visits the Financial Centres of the Grid, yesterday

might prove to be closer to the truth in historical hindsight than the tongue-in-cheek application suggests. LL’s decision might indeed be a significant step in overturning the rules of an old era, and a first sign of things to come in a new one.

They might have taken the step down that road very reluctantly, but we should still applaud they did, whatever our stance on their reasons may be. And we should start thinking about where we want this to go before they take the next . The days of anarchy are ending. What follows next will be up to us.

20 thoughts on “Linden Lab en route to Hell, at last

  1. Very well rounded post, and a good read. I expect I’ll refer people to it either through the blog or elsewhere – it does offer something for people to consider.

    For myself, as I wrote on my main site ( ) – this is a path of least resistance to protect the fiction of fictional currency. It will only take one lawsuit to pierce that veil, and delaying that one lawsuit is in the interest of everyone involved.

    But the tax men around the world cometh. And if they tax it, it must be real. So… if it is real, then there come questions of regulation at an international level… and it becomes a mess.

    However, I do concede that this could be an accidental move by Linden Lab for the wrong reasons – but with proper results. 🙂

  2. Wow, amazing in depth summary of the banking events. Here is how I look it it however:

    LL ‘banned’ childplay (words such as loli are banned from search) because it is illegal
    LL banned gambling because (in some countries) its illegal
    LL banned the banking ‘scams’ because they are illegal

    In all cases it was virtual worlds VS real life law – just the pressure of the first two have been confirmed/more obvious, and there have been less ‘innocent’ casualties. I wonder whether the third option is really that easy dismissable when you read this article:

  3. @Nobody : ta for the kind words. I’d never claim to be certain this will go the right way, but I find it pretty obvious LL has been doing one more step on a road they keep swearing they will never take — and that in itself is noteworthy.

    @Digado : without being a lawyer, I think LL could easily claim (as long as the fiction of the L$ not being a currency is maintained, that is) that the banking is a game activity like any other, and that losses are no more prosecutable than losing a fight in Counterstrike. Their act rather enforces the notion of the L$ being a real currency, which in fact might open them to more trouble than before — and that, too, is interesting in itself.

  4. Pingback: Linden Labs declares Banking Illegal | Digado

  5. In holland, recently a teen was arrested for the theft of virtual goods:

    As I posted on my blog, I haven’t been following it as thoroughly but it sounds to me LL fears these kind of lawsuits could become troublesome in the future. Reading the article I posted I can only agree there is a high potential of this becoming ugly somewhere later this ear. If it ever did everyone would have said “Why didn’t they act on this sooner” and now they have.

  6. I think LL’s ability to claim anything is “just a game” in a litigation proceeding vanished long ago. They have clearly stated intentions to pursue a platform that could emerge as a 3D Web, which obviously would be used for serious intent. They also embrace the transfer of their local currency into the US$ (and to achieve their goals, it’s worth fighting for), which means that there is a clear and obvious path to RL financial value for this stuff.

    Ponzi schemes are ponzi schemes whether done through letters, phone, email, or a virtual world.

    Much of this stuff has long failed the duck test (if it looks like a duck, sounds like a duck, walks like a duck, etc… it’s probably a duck). People were creating and marketing securities in SL Y-K-W with these stock exchanges, and sooner or later a judge was going to say that securities laws applied to that activity. The laws are not put in place to protect the stock sellers or exchanges, but rather to protect the small time investor with the least amount of money to lose and the least amount of knowledge to protect them from fraudsters.

    this banking ban was a long time coming.

  7. Being quoted is nice. Being misquoted less so, as I discovered finding myself named on the MindBlizzard blog as asking if SL Y-K-W bank losses aren’t essentially just play losses, with no real value. Take note, Rheta : one ventures into the blogosphere at ones own risk and peril 🙂

  8. @Forseti : I wholeheartedly agree with you about the necessity for the ban — I just didn’t want to enter the matter, as it somewhat distracts from the point I was trying to make. I like the « duck test », and in that vein would like to contribute the old adage « too good to be true » to the topic of common sense and SL Y-K-W banking 🙂

  9. @Rheta: Sorry, I misread your last statement and changed the quote, you were expression a possible defence of Linden Labs to argue why they wouldn’t be afraid of lawsuits – point remains the same though!

  10. @walblog : of course your point — and it’s a well made one — remains the same however you quote me, I’m not vain enough to believe my ramblings make a difference 🙂 But I still very much like them to be rendered correctly (I’m silly like that). So ta a lot for mending the quote : feel pecked on the cheek.

  11. I was going to add something profound on whether law begins and ends with the ToS and its combination with how policy is tailored based on user feedback over time and whether this might be the model, possible in combination with an avatar bill of rights, for how virtual worlds will be able to support having separate legal jurisdictions and….aww….but then I read the pecked on the cheek comment and thought I’d just say I love you Rheta! Haha. Keep it up.

  12. I find myself in an odd position on many of what I see as the underlying issues of the great banking debacle. First off, we need to have some agreement about what the Linden$ is. LL’s policy seems contradictory. Their Terms of Service say:

    Second Life You-Know-Where “currency” is a limited license right available for purchase or free distribution at Linden Lab’s discretion, and is not redeemable for monetary value from Linden Lab.

    Yet they expect people borrowing and lending this limited license right to be governed by banking regulators. I don’t believe most banking regulators are concerned with ‘limited license rights’. They are concerned with currencies.

    The problem stems from a larger issue, which someone described as the ‘God Paradox’ at a recent metanomics discussion on the banking ban. As a platform provider, LL seeks to make the experience as positive as possible to all residents. To do that, they may have to ban certain activities. Yet, at the same time, they try to protect themselves from liability by using the ‘service provider’ argument.

    From their terms of service:

    Linden Lab is a service provider, which means, among other things, that Linden Lab does not control various aspects of the Service.

    The more aspects of the Service, such as gambling, banking, age play, etc., that they try to control, the more they open themselves up to liability as being more than just a service provider.

    So, what should LL do? They ought to maintain a stronger stance as a service provider and not issue dictates about what is or isn’t acceptable on their platform.

    That does not mean, however, that governance is a bad thing. Instead, they should encourage democratic self governance to evolve, just as banks and stock exchanges have emerged and evolved.

    It is worth noting that this is not a new issue. Some very similar events happened in the text based virtual world, LambdaMOO back around 1994 when there was a virtual rape in cyberspace which resulted in residents in LambdaMOO struggling with what forms of governance are acceptable there.

    Governance isn’t a bad thing. Good policies can be developed that help everyone. What isn’t a good thing is arbitrary and capricious unilateral actions by a service provider.

  13. @Aldon : the fact that Linden Lab are drifting away from their own hands off attitude, as enshrined by the ToS, with every decision to ban activities in-world, is exactly what I was trying to point at by saying they are taking steps down the road to governance. I agree entirely that governance as such is not a bad thing ; which is why I think the recognition that SL Y-K-W needs some is a good thing per se, whatever criticism there might be about the measures as such.

    What I think we need to be aware of, however, is that governance will by nature be despotic as long as Linden Lab want to keep full control of the universe they created — and I do very much doubt that they will relinquish control of their own free will. Viz. the indefinite adjournement on open sourcing the server code (as confirmed by Robin Linden, for 2008 at least), something which Prokofy Neva has speculated about as being the reason for the departure of Cory Ondrejka. Even the most well meaning despots of history have not stepped down without pressure of some kind (liability and customer disgruntlement being the two obvious components in our case). Revolution, anyone 😉 ?

    I also agree that there are older cases very similar, SL Y-K-W probably being more prominent in the pundits’ minds due to broader adoption and greater public exposure. I did in fact latch on to the LambaMOO example back when I blogged Interstitial, though the emotional reality of virtual worlds was more what I was concerned with than the political / societal aspects.

  14. I’ve been kind of avoiding the Banking issue in SL Y-K-W, but I do think there is another possibility, much less beneficient than ‘governance’…. and still falls under the category of corporate bottom line.

    Bad Press; increasing complaints from residents, various scams, floods of AR’s to deal with, and the possibility of having SL Y-K-W cast in the media as a rip-off artists paradise (despite there being legitimate institutions).

    coupled with the recent pseudo child pron press, grid/service failures, and the wonderful backhanded commercials being run by IBM, LL really can’t afford bad press, so they generate some good press by ousting potential scams, and at the same time reducing any legal liability. in the process they remove the technnical thorn in their side of complaints about such organizations from residents, and maintain the appearance of their non-interferance policy in regards to “resident transactions”

    but why give a future deadline (tomorrow) rather than shut it down immediately? again, the press. if LL had declared it outright, many of these organizations would have closed up shop immediately and left with what they could, or spread the funds over various avatars and alts making traking it difficult at best to track, and all the blame being placed on LL for ‘encouraging’ it. by placing a deadline they shift blame for non-payment onto the organizations handling it since ‘they had time and were given notice and options to proceed”.

    mind you this is just my pet theory, no better than any of the others, but if I’m on the mark here you may just see something from LL about land barons that rent island properties then dump residents w/o compensation which has been a growing problem.

  15. @Void : oh, that might very well be the motivation for their step into governance — I did not speculate on that — , but a step into governance it still would be in effect : according to your (very credible) theory, LL would have had no direct economic advantage and would not have been under direct legal pressure either. Just thinking about possible repercussions is a pretty long shot for straight corporate bottom-line, but a rather short one for a governing body. And what is governance, after all, from the viewpoint of the governing, else than bottom line thinking in their interaction with the governed ?

  16. I think I’ll have to concede, LL is certainly walking down the path of good intentions these days (although why, is still questionable). But with the further entry into governance a-la ad-farm extortionist bans, there’s just no way to argue a legally backed reasoning (corporate bottom line is still viable, but it’s a poor standalone unless the bottom line is directly and severely affected). It seems plausible that this is the disagreement that with Phillip over ‘direction’ that led to Cory’s leaving. (Cory always struck me as a social anarchist, it’s what I liked about him.) . At any rate, you heard it here first, LL steps into the rest of the jaded ‘adult’ world, by becoming an actual governing body, rather than defering responsibility to it’s residents for their own actions.

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