Run on Second Life banks. Cashing stopped due to closure of virtual banks
2, 12. 2008
The operation of the virtual banks and virtual ATM on Second Life, the internet-based virtual world managed by the U.S. Linden Lab, has been stopped. The banks handle the virtual currency, the Linden dollar, that can be circulated on Second Life. It is possible, however, to change the virtual dollar to the real U.S. dollar. A serious problems has arisen, therefore, as it is considered that a loss in the virtual money is tantamount to a loss of real money.
Avatars rush to banks
Some of the virtual banks put out notice at their entrances to explain to investors
Linden Lab took a measure to stop all the ATM and other banking operations to handle the "Linden dollar" on Second Life on Jan. 22, 2008.
Before taking such an action on Jan. 8, 2008, the company explained on its official blog that the measure would be taken because of complaints received by the company that it did not honour contracts in which the virtual banks had promised high interest rates of 20 to 40% per annum on the Linden dollar. Because of this, the business operation of the virtual banks, managed by firms which have no certificate as financial institutions from any government in the real world, was banned.
Following the Jan. 8 announcement, the avatars of the virtual world users, who had accounts at the banks in the Linden dollar rushed to the banks. As the ATM operation was stopped, there are believed to be many users who lost large amounts of Linden dollars. The U.S. daily Los Angeles Times introduced in its report dated Jan. 22 about a woman who lost Linden dollars equivalent to 400 dollars in real money, while the Wall Street Journal introduced a man who could not withdraw five dollars from the ATM.
There is a good reason behind taking such an action on Second Life.
In August 2007, the largest virtual bank on Second Life, Ginko Financial, went virtual bankrupt. Despite the fact that the bank was boasting interest rates of about 40% per annum, its liabilities expanded to about 200 million Linden dollars, or an estimated 750,000 dollars, and it became unable to repay deposits. The virtual money of the depositors disappeared as neither laws nor court of law does not exist in the virtual world.
Affected by gambling and "adult" business
A strong view concerning reasons behind the matter is that many of the virtual banks were managing the funds at high interest rates, expecting big profits from gambling and "adult" business on Second Life. This view arises from the fact that Linden Lab banned gambling in 2007 on ground that such activity might violate the gambling laws of the countries of the world. The company also took such severe steps as deleting of accounts to stop virtual "sexual activities" of minors on ground that such activities would violate laws regulating child pornography. The banks were affected as they could no longer expect gambling and "adult" business to be lucrative.
The Wall Street Journal reported on the Jan. 23 issue that the banning of gambling by Linden Lab on the ground of violating the gambling laws of countries dealt a direct blow to Ginko Financial. As a result, there was a run on the bank and it owed debt to the investors.
On the other hand, however, suspicious views were expressed on the blog about the "severe actions" of Linden Lab, which in the past relied on the self-discipline of the users. Such opinions were posed on the blog concerning the "banning of banking activities" as:
What are things that can not be done in the real life but can be done in Second Life? What will be banned next?
In Japan, a 16 year-old boy, second grade at a private high school, in Fukui was arrested on Jan. 24, 2008 by the center for dealing with high-technology criminal activities of the National Police Agency on suspicion of illegally accessing on-line game server to steal virtual currency worth about 36 million yen. According to the police announcement, the boy is suspected to changing the virtual money to electronic money and actually using the money for purchasing.
It is not mistaken to say that the virtual currency has become deeply involved in reality.