If you’ve been exposed to any of the recent media hype surrounding Second Life you may have come to the conclusion that Linden Lab’s virtual world is some kind of unstoppable force. Second Life membership has accelerated to nearly half-million new signups per month, Linden founder Philip Rosedale seems to be everywhere at once (although it may just be his Avatar), and SL-celebrity Anshe Chung has practically become a household name (at least for readers of Business Week). With so much momentum and positive press what could possibly go wrong?
Oh, I don’t know, maybe something like a Federal investigation into online gambling in virtual casinos.
Of all of the vices that can be found in the Metaverse some translate better than others. Virtual drugs don’t work particularly well — unless you count Second Life as a drug. Virtual prostitution, as creepy as it seems, apparently works for a few people who can get past the possibility that their virtual date might actually be a construction worker in Peoria. Virtual gambling, on the other hand, is a prefect match for Second Life. Online gambling is already a well established industry, and for many, the added social element of a virtual reality world is apparently a big improvement over watching 2-D cards being dealt onto a flat green poker table.
The problem, of course, is that online gambling is currently illegal in the United States. While it’s true that many Second Life inhabitants live outside of the US, the servers that run Second Life are located in the US. Furthermore, Linden Lab is a US corporation.
In the last couple of weeks gambling in Second Life has come to the attention of the FBI, and agents have begun looking into virtual casinos to determine whether any laws have been broken. Linden claims to have invited the agency to look around, and the company is awaiting guidance from the US Attorney’s office.
It would seem to be common sense that if gambling on the Internet is illegal in the US, then gambling in Second Life would also be illegal. Surprisingly, though, there are quite a few Second Life supporters who have speculated that no laws are being broken. Setting aside for the moment the question of whether or not online gambling *should* be legal in the US, many have rationalized that gambling in Second Life is not illegal because gamblers are not betting real money. Furthermore, they argue that, the virtual casinos are only “simulated” gambling.
Linden’s attorney, Ginsu Linden (not his/her real name) has publicly stated “we are not in the business of playing coy with laws that apply to us”. Unfortunately, Ginsu’s argument that gambling in Second Life does not constitute real gambling (and even if it does, well, we aren’t running the gambling establishments, we’re merely providing a platform for a simulated 3D world) seems sort of coy.
But there’s more. Ginsu argues that Linden’s currency — the very foundation of the Second Life’s much hyped economy — has no intrinsic value.
Linden Dollars are not money, they are neither funds nor credit for funds. Linden Dollars represent a limited license right to use a feature of the simulated environment. Linden Lab does not offer any right of redemption for any sum of money, or any other guarantee of monetary value, for Linden Dollars.
Which is sort of interesting when you consider that Linden runs the Linden Exchange, an operations which actively exchange funds between Linden currency and US currency to the tune of hundreds of thousands of US dollars per day.
A recent commentary by law professor Anita Ramasastry seems to call into question nearly every point that Linden has used to rationalize the legality of gambling in Second Life.
After reading through all of the various defenses on behalf of gambling in Second Life it has become apparent that some “residents” have fallen so far down the virtual rabbit hole they may never return to the real world. Here’s a clue: Virtual prostitution is “simulated” sex. Virtual casinos are real gambling where real players lose real money that they can no longer spend in the real world.
So what happens with the virtual G-Men kick down the virtual casino doors and shout “THIS IS A RAID”? The gamblers will quickly teleport home and the casino operator will delete his building, of course. The Second Life vice squad faces some unique challenges that don’t exist in the real world. Unlike the web, there’s no easily accessible cache of Second Life builds that authorities can refer back to in order to determine where the casinos actually were. On the other hand, if the feds are actively investigating possible illegal gambling they’re likely building their case at this very moment, recording Second Life chats and photographing evidence of gambling activity in the virtual world for future reference.
Meanwhile, Linden is making moves to attempt to minimize its potential liability. In addition to inviting the Feds to provide them with guidance, the company has recently changed its in-world advertising policy to prohibit advertising related to “simulated” casino activity (which must mean that advertisements for real casino activity are OK). It’s almost as if Linden isn’t absolutely convinced that these “simulated” casinos are legal.
Elsewhere, Linden’s casino-operating customers are getting creative by taking steps that are not likely to impress the Feds. At least one casino owner has taken the feeble step of moving his establishment to an “offshore” island. Visitors are greeted by a casino staff member and asked to identify their country of origin. The casino turns away anyone identifying themselves as being from the US. The problem is that offshore from US soil, and offshore from the Second Life mainland are two entirely different things. There may be no better illustration of just how out of touch with the real world some Second Life residents have become.
So what should Linden Lab be doing? Well, for one they need to acknowledge that they actually have some degree of control over their creation. Their claim that they can’t locate or monitor user activity is simply unbelievable. In the past couple of weeks the Electric Sheep Company has launched an in-world search engine that crawls the virtual landscape of Second Life looking for objects that are marked for sale. The results are indexed in a new search engine that anyone can use. If a third party can crawl Second Life in such a comprehensive manner then Linden can certainly figure out who’s running a casino. They could start by using their own in-world search engine the same way any Second Life gambler would.
Beyond that, Linden might consider following the lead of firms like Cryptologic. Cryptologic is a leading producer of online gaming software. The company recently moved its US operation to Dublin (as in Ireland, not Second Life). Since online gamblers seem to be drawn to the interactivity of Second Life, Linden might as well create an offshore corporation that produces a scaled-down version of their virtual world for use by legitimate online casinos. This has to be a huge potential market and it’s only a matter of time before someone does something like this. It might as well be Linden.
An approach like this would be the best of both world. Linden could actually embrace the gambling aspect of their business without putting their main world at risk. The overall user experience of Second Life would likely improve as the casinos which typically add to lag and slow down overall performance of neighborhoods would be eliminated. Second Life residents who wish to gamble can sign up for a Linden-powered virtual casino (providing they live outside of the US).
One way or another it seems likely that unregulated gambling in Second Life can’t go on forever. The question that Second Life residents should be asking right about now is “what sort of impact will this have on our world?”. If Linden manages to comply in a manner that satisfies the Feds, they can probably minimize damage to their business — at the expense of losing business that would otherwise have come from casino related activities. On the other hand, if they continue to insist that casinos are only gambling “simulations” it’s possible that any action taken by the US government could be disruptive to their entire business.
Whatever path Linden takes will indicate whether anyone in charge at the company still has a firm grasp of the real world.