World Stock Exchange hacked, run on deposits, bank closes

It must be purgatory working at Linden Labs. Citizens of Second Life seem hell bent on replicating every problem of the real world.

Setting aside the sex pests and the terrorists, no sooner had the authorities at Linden Labs banned gambling than its uber governors have had to deal with a meltdown in the Second Life financial system.

It emerged last week that Second Life's World Stock Exchange had been hacked and some L$3.2m stolen (or about $12,000 of real money). This then caused a run on banks inside Second Life as nervous avatars queued to remove their hard earned Linden dollars.

The story has been covered in the past day or two by BusinessWeek and MIT's Technology Review, which then grew into a broader discussion about financial governance in the virtual world. Even before these announcements, Matthew Beller was questioning the economic foundations of the virtual economy.

Reuters reported yesterday that one of Second Life's banks - Gingko Financial - had closed its doors. Previously Gingko had been defended by Linden Labs CEO, Philip Rosedale despite the apparently unsustainably high interest rates it offered to depositors (maybe they do things differently in cyberspace).

According to the transcript of an interview with Rosedale (or rather his avatar, 'Philip Linden'), Rosedale pretty much said: We try not to make more rules than we need. We haven't made any on banks.

Refreshing candour, but not very reassuring for his virtual citizens.