Post thesum? Did i just mix latin and greek in public? I’m sorry, it’s early. Is there any of that burrito left, Allen?

Because the scam should go backwards in time as well as forwards, shouldn’t it?

I can easily financially engineer a scam that will only “go forwards in time”. Give me some bonds, puts&calls and stock (or cdos and swaps, etc.) and I’ll create a product guaranteed to take your money and transfer it to me. The components themselves are not scams. My “investment program” would be. But, it wouldn’t be a Ponzi scheme because you couldn’t prove my scheme was a scam ex ante, only ex post. Of course *I’d* know it was a scam all along. But so long as I choose my conspirators well, you can’t prove it.

This type of thinking should keep many a low-grade “hedge fund” investor awake at night.

My points have been that I strongly suspect, as Cael eloquently narrates, either gross incompetence or “engineered incompetence”.

As for the media on Second Life as an investment/money-making platform, just do a broad survey. I captured the Reuters SL video prominently displayed on the SL website the other day. 24 separate references and images suggesting or referring to the wealth of wealth opportunities therein. Rosedale himself, on multiple occasion, said things along the line of “sell stuff in SL and pay your rent”.

The choice of real-estate get rich quick programs is a poor choice of analogy. I’m a bit of a battled expert in this arena. Yes, indeed, most of those things are scams, and many are ultimately prosecuted as frauds and/or pyramid schemes. The Donald himself faces some pretty stiff allegations of a pyramid-al nature right now.

Oddly, I publicly called the entire NAR a criminal cartel and proceeded to demonstrate myriad antitrust and collusion violations. We’re talking the Glenn Gary Glenn Ross crowd here. And we’re talking a blog with about 300K-500K daily reads (a real estate bubble blog). But not a single threat or hate mail, just some heated comment rounds.

If nothing else, Second Lifers are just too thin skinned to be convincing as constituents of any real economy. Or, as the sharp razor of common sense would tell me, they sure seem to act a lot like amway/herbalife sorts.

Second Life, a years old game, is the fourth most visited on Yahoo Games today. All the others in the top 10 are alot newer, if not released this month.

There are ~20,000 people with “positive linden flow” (lowball)… one way to extrapolate total number of players would be to say there are an even 100K playing. 3.9 million are thinking about it.

I find Cael’s points 4 and 5 interesting. Does the proletariat have a place earning value in a virtual world? Second Life thirsts for industrialist value, and is evaluated as a platform for such. That’s a difficult road to follow and I doubt they’ll get there. But I think it’s safe to say the Proletariat = Consumers, and consumers ONLY. All of the points about emotion investment certainly apply there.

SL’s got the middle class SKILLED crafter economy down pat.

I love logical excercises, so please allow me to flex my education…

Andy Havens:

But those four things, taken together, do not necessarily equate to scam or fraud. Occam’s Razor. That’s all I’m sayin’

William of Occam:

Pluralitas non est ponenda sine neccesitate.
trans: Plurality should not be posited unless necessary

Translation is my own so please don’t blame the good Friar if you don’t like my choice of words. Also, please consider the following:

Aristotle:

The more perfect a nature, the fewer means it requires for its operation.

Brother William’s snappy Latin teaches us that positing complications where there is no evidence is a logical mistake. Aristotle’s earlier philosophy indicates that the simplest system is the one which works. This is also well-known to anyone having anything to do with systems engineering since multiple points of failure usually multiple failures and a real bugger of a time tracking them down.

How can we apply these axioms to the seemingly unrelated case of Linden Labs? Normally, i wouldn’t bother but Brother William has been invoked and he by extension further invokes the Philosopher so let us follow classic Aristotelian principles.

Let us first sum the relevant data.

1. Linden Labs have access to all the financial data that Randolph has and more.

2. Linden Labs insist on using a metric (the Resident) which is utterly discredited by the standards of their peers.

3. Linden Labs employ a PR company through which they persistently and unapologetically continue to market their product as a means of making money (i could produce relevant cites here but Raph’s space is a factor – if requested, i will expand on this in my own space).

4. Only a vanishingly small percentage of participants in Second Life will ever earn any significant (let us assume “significant” to mean “self-sustaining in terms of time, electricity, depreciation and benefits”) amount of money from Second Life.

5. The later a participant began his or her “career” in Second Life, the lower the chances are that they will ever become on of the vanishingly small percentage earning a significant sum of money from their activities within it.

Those five factors should be sufficient for our purposes.

Now, the purpose of this excercise is to determine whether or not the likelihood of malpractise is greater than that of ignorant marketing.

In order to answer this question, we balance those five factors and sharpen the question (to the Razor’s Edge perhaps). Reducing it to its base, the question becomes:

Qa: Which is the more likely? Are Linden Labs aware of datum #4 and datum #5 or not? Given datum #1, it seems almost impossible that they should not be. It is not impossible that they should not, however should they not the conclusion of gross financial incompetence is unavoidable.

So at this point, data indicates that Linden Labs are either grossly incompetent or guilty of mis-selling.

Datum #2 and datum #3 do not alter the conclusions drawn from #1, #4 and #5. That option is not amendable at this stage according to classical logic.

However… One of our conclusions from Qa explains #1 and #2, the other does not. This is one of Brother William’s unnecessary complications and nothing should be logically inferred from it. It is meaningless unless the corresponding conclusion is true. But since without an investigation of some sort (which given the prevalence of gambling and paedophilia within the product, i expect very soon) we cannot state with certainty whether Linden Labs are criminals or idiots but that they are certainly one of the two, it is certainly interesting.

Randolph: Howdy! My comment wasn’t as long as your post, I guess. And I tried to make my points using actual English, rather than obfuscatory terms that (as far as I know) are up for debate even among the rarefied circles of economists that you… uh… circle with. Didn’t mean to accuse you of crimes, any more than (I guess) you accused Linden of crimes. But if you are accusing them of knowingly defrauding customers, isn’t that a kind of defamation? I get no schadenfreude, nor did I threaten anything, nor have I or would I ever take any kind of action similar to that which you describe. Doing so is execrable in the extreme. I believe we can argue, and even do it with some vim and occasional humor and, perhaps, even show some color from time to time, without resorting to anything approaching the behavior you mention. I don’t believe my words here or on TN or on your blog should have led to your lumping me with that kind of nimrod. I am not anonymous, have never been, and while I disagree with you, am not a SL cultist, and you won’t find that anywhere in my mad ramblings. But neither do I find your analysis of their product particularly cogent.

I said a couple times myself that I didn’t understand the complex economics that you went into, so feel free to beat me up on something I admitted to. If you want to explain your arguments in terms that an average player of the game might understand, that might be helpful.

It seems to me you’re doing two things at once, and it makes me confused as to which I’m supposed to take seriously, since they happen at the same time:

1. Prove that SL is a fraud of some kind
2. Prove that it’s going to fail as an economy or economic venture

All the charts and economic terms, etc., seemed geared at #2. You didn’t address one of my main concerns with your argument, which is that if SL is designed as a fraud, it doesn’t *matter* if it is or isn’t failing as an economic venture. In any kind of fraud (as I understand the term at its most basic definitional level), the idea is to convince people to pay money into a system with the promise of a return on the investment… where the promise is knowingly false. Thus, fraud. A system that simply fails to return a good yield, but where the promise is either unknowingly false or true but then subject to changed circumstances… those are just bad investments. Right? If a company says, “Do X, Y will happen, and you’ll get a return of Z,” and they know that “Y” is a lie… that’s fraud. If they honestly believe in “Y,” and can show that it’s a good faith declaration… it’s an investment. Ponzi, pyramid, HYIP… those are all systems whereby a company knowingly makes claims about a product, system or service to investors when they (the company) know, for sure, that the claims are bogus. Fraud.

Like I said… you’re using all this RL economics “stuff” (again, that I don’t grasp… please make fun of me some more for not having an advanced economics degree) to prove that a system you don’t think is a valid economy, or is a fraud. Which is it?

You say: “flipping virtual real estate… *could* be productive if the economy… is liquid, open, and striving to become a perfectly competitive marketplace… But then, this all started because I attempted to deliver more liquidity to Second Life, only to find out that they didn’t mean “that kind of liquidity”. No, we only want liquidity that flows out of your pockets and into ours.”

Right. You wanted to flip virtual real estate. One, specific type of economic activity. Didn’t work. So… SL isn’t an economy. Except it has to be, in order for you to use all them thar charts that we regular folk don’t understand. Except it isn’t an economy, because it’s zero sum. But it is an economy, because people can use it to commit fraud.

Look… I’m not saying that many of your points don’t have merit. Whether you want to call what happens in SL “an economy” or “economic” or “somewhat kinda economic” is moot, as far as I’m concerned. It’s like people arguing about whether writing on a blog is “content” or whether comments on a YouTube video count as “participation.” It’s part of the system, and it’s tied into other economic stuff, so there you go.

What I am saying is that — to me — what Linden is doing is so clearly, in the main, removed from what Ponzi/pyramid/HYIP scammers do, that you have to ram 10lbs of sausage into a 2lb sack to make your arguments fit. SL has been around now for what… five years? And profitable for… what? Ten minutes? And lots of their money comes from VC-style investors, not mom-and-pop scam-target folk. And, as I pointed out above, the volume of their user-base vs. the volume of folks making any money at all is just sadly small for the whole argument.

I agree that:

1. The Lindens over-hype the “economic features” of SL
2. Making a brazillion bucks in SL is “results not typical”
3. Some people are probably getting hosed who hope to be “not typical”
4. SL may, in fact, over time crash and burn because its model sucks

But those four things, taken together, do not necessarily equate to scam or fraud. Occam’s Razor. That’s all I’m sayin’.

Jimminy Biscuits. We’re at this again…

Zero: To set the stage, I am NOT an SL cheerleader. Frankly, I think its chances of long-term success are limited by its ability to let people have decent hair without spending money or learning to do really complex things with 3D modeling software. That being said…

One: I love how at the same time, Randolfe makes the claim that SL doesn’t have an economy, and then uses detailed (and, to me, incredibly confusing) real-world economic reasoning to prove that the economy is in trouble. It’s not an economy. It’s a game/entertainment-platform with some economic features. As such, using the same tools to analyze in-game economic goings-on as are used to predict RL economics is, I think, odd at best.

Two: Calling SL a “High Yield Investment Program” instead of a “Ponzi” or “Pyramid Scheme” is like saying, “I didn’t call your sister a whore… I called her a hooker.” It’s basically the same flippin’ thing, in a slightly different coat.

Three: As I’ve said before, the one thing you need to look for in ANY accusation of a Ponzi or Pyramid or (New Defamation! Now with 3000% more graphs!) HYIP is that there is no underlying product or service that offers any value. The heart of the scam is that all the money goes to supporting the scam. In SL, most of the money goes to… I don’t know… Let’s make a crazy guess here… servers? Linden salaries? And, for the few people at the top of this so-called fraudulent world of dark intrigue… the primming of more virtual stuff perhaps? There is some “there” there. Call it a VW, a game, a pass-time, a hobby, masturbation… whatever you want. But in almost all the fraudulent schemes that keep getting compared to SL, there isn’t anything approaching a product, unless it’s a booklet on how to continue the scheme.

Four: If we use the number of residents Randolfe accepts — 200,000 — and look at the SL stats for the economy, we see that less than 3,000 people are making more than $100/month on the platform. Now, if you’re a Doomcaster… this clearly spells out the evil inherent in the system. See! So few people are making money at the system… it must be a scam. Or… not. How about this alternative hypothesis: so few people actually give a fat rat’s ass about making money. It’s a game/platform with some economic features. Why does Linden tout them? Because *all companies* tout their unique features in their marketing. Jeez… what are they supposed to do? Say, “Never mind the fact that you can make some money in SL. Try to play it like a sucky WoW-clone instead, which would be a lousy experience that we never designed it for.” Here’s my take on the numbers: If only 1%-ish are using the economic feature at any kind of level where you could buy groceries… it can’t be a Ponzi/pyramid/HYIP. At least, if it is, it really really really sucks as one. Because you need some decent base of people making decent dough to prove that it can be done to the noobs. It’s right there on the SL economy page. And if you look at the oft deflated number of residents provided by Linden — now up to 4 million — and compare it to number of residents pulling in anything like a real income — let’s call it US$500 or more… you’ll find that only 934 residents are earning that much. Which works out to around .02%. Not 2-percent. Two one-hundredths of one percent. So… Linden is evil for publishing grossly exaggerated gross user-base numbers… and they’re evil for telling people about the possibility that you can make money… and they’re evil for posting the economic stats… that show that the odds of you making more than you could working in a McDonald’s are around 1-in-4,000. Wow. That’s AMAZING advertising for a get-rich-never scheme.

Five: Randolph continues to just be wrong on so many basic levels about the SL economy, that I wonder why we continue to pay attention, except that he puts so much effort into being wrong that it’s fun to watch the steam come off the graphs. Here’s my faves from this round:

“Unlike economies in the real world, the Second Life economy is strictly zero-sum. Therefore, every real $1 USD extracted from the game comes from someone who put a $1 USD in, whether directly from new users buying L$, or indirectly through internal “sinks…” Well, besides the fact that RL economies are (in the final aggregate) zero-sum, too (see the Laws of Thermodynamics), it is possible to “extract” money from SL on a micro-level without putting money in. I can join the game for free, perform a service or create an object or a script or texture, charge for them, leave the game, cash out the $LD for $US, and never have paid Linden dime-one. Now, Randolph will (I assume) clarify that what he means is that the $LD that I was paid came from someone who got them from someone who got them from someone who got them from Linden. Ah. Well, yes. In that sense, sure. I would like, then, an example in RL of a business — not an entire economy, please, or the entire freaking planet — in which value on the macro-scale is not zero-sum, by the definition given. All transactions within a business are zero-sum until they leave the business. I buy a stock. Until I sell it, I get no return. I buy a flank steak. I pay the butcher what he charges. When I leave the store, it’s a zero-sum game. I bought meat, I have less money. I fail to see how this is a problem. There is no creation of value external to the system in which it is created; that seems, to me, definitional. No… I can’t use my prim hair in my bathtub in RL. Neither can I eat my stock certificates or sail a cat. Lots of zero-sum games in RL.

“It is often argued that the Second Life virtual economy does not qualify as a HYIP type of structure because the nature of internal commercial activity largely involves productive endeavors. By productive endeavors they are generally referring to virtual item design and creation. At a detailed level, these are largely graphics design, 3-D computer modeling, computer art, and script programming activities… I maintain this is false. While lower-level players may earn some returns, by and large their investments into the game (both capital and labor) are trapped and not monetizable at fair market redemption rates.” Unless, of course, you qualify the time investment as “game” or “fun” in which case getting it for free or making even $100/month is cheap. Or if you compare it to playing WoW, which has no educational, long-term benefit when compared with the provision of a social, free and robust platform for the creation and distribution of 3D models, textures, scripts and the means to market, share, discuss, teach and generally “do” stuff. Again… if you go into this with the mind-set that “Linden is evil and trying to convince everyone to play SL to make a $1 million and be Anshe,” then, yeah. These activities ain’t right. If, however, you change the framing and say, “Instead of spending 40 hours a week playing a game that is, essentially, hacking elves to bits, and instead of charging hundreds of dollars for a comparable 3D modeling and scripting program, Linden is providing a free platform for people to engage in social VW learning, art, education, entertainment and economics.” Same stuff, different angle. You call it, “not monetizable at fair market redemption rates.” I call it, “free tutorial.”

“It is unclear how much of a percentage of the virtual economy is driven by these “productive endeavors” versus the online gambling, sex and real-estate markets. The first two are clearly not productive endeavors and likely constitute a significant portion of the internal L$ economy.”

This is where I just check out. How are “gambling and sex” not “productive endeavors?” First of all, I have no idea where R. gets his info on this section (he doesn’t say). But mainly I just object to the tone and point, both. Regardless of what I or Randolph or anybody else does or does not want to do in SL or any other game/VW space… who the bloody hell is he, or I, or anybody to declare that any legal entertainment is “clearly not productive?” Sex and gambling are not productive? Compared to… what? Slaying orcs? Blogging? Sudoku? Fly fishing? A PhD in 18th century Canadian history? For the love of pete, for most people who play SL, it’s an amusement. And gambling is amusing. As is sex-play. Which means that people will pay for both. They have for thousands of years. To discount the features of a platform that provide for methods of these activities is ludicrous. If you don’t like them, that’s fine. If you want to argue that the sex and gambling trades are dangerous to the long term viability of SL because of possible government regulation, OK. But just calling them “not productive” is… goofy.

In closing… I really don’t know if the numbers and graphs R. uses points to a decline in overall use or economic health or ill-health for SL in the future. Can’t tell. I really just don’t understand that level of economic discussion. But at the level of “common sense,” he’s lost me.

Any non-convert to SL is a griefer, apparently.

It is, as Randolf mentions, a cult.

That toothpaste guy’s post was hilarious! He wrote up the typical experience very well of griefers who dress themselves in an ugly naked avatar look and fly into people’s spaces and grief them. It’s the typical stuff from the typical noir narf-narfers of that age and demographic. His post will only make 20 of his friends secretly try SL and try to find the scripted furry phallus.

Labeling him and writing his critique off as unimportant or significant of an unwanted demographic ignores the fact that there are millions of other people that would ask some of the same questions. It’s a bit closed minded in my opinion. People use virtual worlds for their own entertainment in their own ways and no single way is “superior” to any other way if the game mechanics allow the entertainment to be had. Oh and soon the 20 year old you categorize as “mature”. To each his own when the game allows it, I say.

Has anyone ever designed a game where there WAS NO currency

A Tale in the Desert intentionally has no currency, and the world size and warp-rules make barter a little bit difficult. I designed it this way on the notion that if a player finds a single thing he is best at, and is able to progress fastest by doing just that one thing and trading for everything else, he’ll burn out faster. If there’s a (time) cost to trade, he’ll still trade for things that he really doesn’t like doing, but the list of things that he does will expand.

People do self-regulate more than I had anticipated, and so over Tale 2 and Tale 3 I’ve added things that make trade easier: More methods of travel (chariot stops), easier methods of communicating (regional chat), with others in the pipeline.

FWIW, ATITD does have a facility where players can invent their own currency by printing Scrip using a Mint. Scrip is a piece of paper with a denomination and name on it. The system only assures that the names on Scrip are unique to the Mint they were printed on. (IOW, another player will not be able to counterfeit your Scrip.)

Getting other players to value your Scrip is left as a challenge to the would-be banker. (Some have succeeded, BTW.)

“…and the other proponents are busily hyping that it is ‘intended to provide monetary return’.”

And to a plain old everyday guy like me who is both a proponent and has ridiculed companies attempting to use SL as anything other than an R&D platform (i.e. a money sink but with a non-monetary return: understanding a different kind of user interaction), I consider this sort of inaccuracy another lie. Unfortunate that both sides can’t be more careful in their choice of words.

@Raph

Curious question I had last night, and this relates to your point:

Has anyone ever designed a game where there WAS NO currency, what I mean here is litterally a game where players attach value based on VW economic efforts (of course this would require limiting resources to create value)

Great take on the article btw

Ya but, as Randolf goes through so much trouble to point out, LL and the other proponents are busily hyping that it is ‘intended to provide monetary return’. Take out all the BS and he and a lot of other folks would stop complaining.

I am sorry that in this age where ads for natural male enhancements and diet supplements are perfectly acceptable, and that corporate spin seems far less a sin, to a plain old everyday guy like me, a lie is a lie is a lie.

The posts aren’t the threat. The original lies are.