Analyst dismisses Second Life as a 'pyramid scheme'

The economic system in Second Life has become a 'Ponzi scheme', according to a financial analyst

An article claiming that the economic system in Second Life is a "pyramid selling scheme" has created a furore of debate about the way business is conducted in the virtual community. 

The article was written by financial analyst Randolph Harrison and published in the Capitalism 2.0 blog. 

Harrison claims in the article that the economic system in Second Life has become a " Ponzi scheme" that promises monetary gains for everyone, but ultimately benefits only a select few. 

The analyst said that cons and cheats in monetary deals are rampant, that virtual banks routinely spring up and disappear over night, and that Second Life 'residents' are quick to take each others' money and run.

Harrison claimed that the markets in the game, in which people exchange virtual 'Linden Dollars' for real-life money, is "virtually rigged" to yield the least amount of money to players looking to cash in their virtual currency.

"Second Life is not a dramatic taste of our future in which markets are virtual, currency is free from government control, taxes are non-existent, and normal people can become real millionaires simply by clicking their mouse a few times," he said.

"Second Life is a classic pyramid scheme. Or, more of an Amway-like pyramid: partially legitimate, partially Ponzi."

Harrison acknowledged that the system works fine for recreational users who visit the online world strictly for entertainment.

But the claim that Second Life is an emerging economy ripe for the picking by everyday people turned entrepreneurs is, by and large, a scam, according to the analyst.

Supporters and residents of Second Life were quick to criticise Harrison's article. Blogger Tateru Nino suggested that the assertion was like comparing "Buicks to boysenberries". 

"There are truths in there certainly, but very deceptively phrased ones, and chunks of the material are apparently no longer current or accurate," said Nino.

Nino claimed that Harrison's observations on the exchange market were not based on Second Life creator Linden Lab's own Lindex exchange system, but on smaller private exchange markets operated by users.