Commodity Trading, Coming to Second Life

Back in October, I wrote an entry about Ginko Financial Selling land to Quanta Torok. Ginko Financial was the bank in Second Life that collapses and had its deposits turned into bonds on the World Stock Exchange, only to see those bonds become worthless.

Quanta was planning to set up a bank in Second Life where the deposits where backed by gold bullion at The Bullion Vault in Zurich. I’ve been interested in watching commodity trading coming into Second Life. I had a great discussion about this with Quanta when he first bought the land and I’ve been waiting for the next developments.

Today, IntLibber Brautigan announced that BNT has signed a contract with Andalusia Reserve & Exchange to ‘develop his bank software and create a unique inworld precious metals exchange upon which investors can speculate on RL precious metals movements as well as hedge their investments’

Over on SL Reports, one person questioned the wisdom and legality of such investments. Wouldn’t this run into issues with the Patriot Act in the United States, and particularly with anti-money laundering provisions? Also, why buy and sell commodities in Second Life when it is easy enough to do in Real Life? Why not simply go to the Bullion Vault and buy gold directly there?

A reason to buy and sell commodities in Second Life as opposed to in traditional exchanges is that you could, if people set up the precious metals exchanges well, trade in much smaller blocks. I don’t know what the smallest trade you can do on the Bullion Exchange is, but I believe it may be a gram. Currently, a gram of gold costs around U.S.$ 26. In Linden dollars, that is close to L$ 7000. A lot of people may not feel experimenting in and learning from the commodity markets if the smallest unit of trade is that large. However, if the exchanges offer milligrams of gold around L$ 7, it could be a wonderful experience for people to buy a few milligrams of gold here and there. At this level, it might also stay below the radar on issues of money laundering.

As I’ve noted elsewhere, trading in milligrams of gold could also have benefits for transferring currency from one virtual world to another. Likewise, it would be great to buy a milligram of silver or a milliliter of crude oil.

More importantly, another person asks, “Is trading in RL commodities futures ‘crossing the line’?” Perhaps it is, and perhaps that is a good thing. We need to move away from this idea that Second Life is just a game with no real world financial implications. RL banks and other corporations are operating in Second Life and I believe we will see more and more of this. It will raise interesting legal issues as Linden Lab and various countries deal with the implications of a vibrant microcurrency. Undoubtedly, it will bring new regulations into Second Life, yet if this is approached wisely, it could be a great benefit for financial markets, both in and beyond Second Life. It could be a great benefit to the folks and Linden lab, and an even greater boon to those who attempt to establish legitimate financial markets in Second Life.

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