Money

This page is intended as an open discussion board for ideas regarding an in-world financial system - Ezekiel.

OpenSim, Applications and Money
The OpenSimulator project does not consider providing any kind of functioning monetary system within its scope. Doing so is entirely up to the service provider, as that provider has to be the source of the trust associated with monetary transactions.

The OpenSimulator platform will provide whatever protocol hooks necessary to implement a monetary system, and reference implementations for demonstration purposes, but not actual implementations of functioning monetary systems. It is essential to understand this when discussing what OpenSimulator can do with respect to monetary systems.

Are you running a "business"?
The answer is simple: If you accept "real world" money or "something of value" IN ANY WAY for doing something then you are operating a business!

The fact that everything is "virtual" and it is all run from a computer in your bedroom makes no difference.

A simple standalone grid which you pay for yourself and run out of your home is likely a "hobby" not a business (but there are exceptions), even if you have hundreds of visitors every day.

Your grid may or may not be a business (depending on local law) if it is run ONLY by donations.

But if you rent "virtual land", charge for uploads, or sell "cute hats" in world then you ARE running a business and a whole new set of rules and laws apply! The details differ everywhere, but that distinction is universal.

In addition there are all kinds of licenses, safety laws, taxes, and often other requirements that apply to ALL businesses.

You need to research this before you start. This is not as hard as it sounds, the local Chamber of Commerce and your local city/town government offices will have all kinds of information.

Consumer Protections
There are all kinds of laws in every jurisdiction concerning protection of "Consumers" from all kinds of legal hazards and scams. The basic idea is to protect the legendary "widows and orphans" from evil criminals who are intent on stealing their meagre pensions.

NONE (NONE!) of the "Consumer Protection" laws apply the instant you accept money (or "value") in a "business" transaction! You are no longer a "Consumer".

Your "Home-owners" insurance no longer applies, your auto insurance is voided, and in they eyes of many you are now merely a "RICH evil capitalist" (all for selling a US$1 virtual hat online!)

I exaggerate only for emphasis - and not very much!

Protect Yourself
It should not be a surprise that you are not the first to have this problem :-) and there are ways to "minimise" the risks and hazards. All the same NEVER forget that it is a different world!

If you are planning on something that deals in real life transactions IN ANY WAY, then look into setting up a business entity (Corporation, LLC, or whatever) to run it.

See http://www.keytlaw.com/ for "Information & Articles about Arizona and United States Law"

Mr. Keyt is an Arizona/US lawyer, but the issues he raises are universal. I highly recommend studying his website and especially his section on Internet Law.

As Mr. Keyt says in one of his articles, the day the process server knocks on your door is one day too late!

'''ONE disgruntled user who lost real life money (or "value") to a crook on your sim can cost you everything you own and everything you would ever own! '''

Motivation
In order to be successful, any new world simulator needs to allow for financial transactions. While many residents enjoy the creative and social aspects of virtual life, others are there to provide them with the necessary means - and usually intend to be compensated. Metaverses without a business component (allowing residents to make money) depend largely on the creativity of the makers and tend to fall into disuse as soon as competitive simulators with better graphics and better entertainment come along (e.g. Active Worlds).

Play Money vs. Serious Money
There are two types of financial systems and currencies: one is purely an in-world affair (play money) and supports roleplay, the other is convertible into hard currencies (serious money). While it is commonly agreed that implementing a serious in-world currency system (with all the security implications) is out of scope at least for the current phase of the OpenSimulator development project, there are still some functional decisions to be made.

There are several possible ways of handling money in a grid:
 * no money support
 * in-world play money for roleplay
 * in-world currency supported, protected and converted by the grid owner (like SL)
 * off-world payment implementation, no in-world currency
 * in-world play money plus off-world payment capabilities (might be confusing)

OpenSimulator should allow for an implementation of any of those alternatives.

Off-World Implementation
These are crucial in-world functions for off-world financial transactions:
 * put a price tag on a prim, specifying amount and currency
 * notification event (LSL) that resident X agrees to buy item / pay amount Y.

These functions are not crucial, since they may be implemented off-world:
 * an in-world currency (use an internet payment provider or an e-currency instead)
 * avatar account (use an internet payment provider or an e-currency instead)
 * receive payment (can be handled off-world through osLoadURL - for most providers)
 * give money (can be handled off-world through osHTTPRequest - for some providers)
 * notify avatar of payment (can be done through IM or e-Mail)

Wallet Plugin
It occurs to me that perhaps it isn't the job of the grid to keep track of every avatars financial transactions. Perhaps this should be left to banks and other financial organizations. I'm thinking that perhaps OpenSimulator should pull the money out of the grid and develop an independent bank server. Avatars could choose which "wallet" or "bank" to use for a transaction.

A Different Idea
A Currency that Pays a Dividend The OpenSimulator project should have a currency that pays a dividend. If users earn a dividend just by using the game currency this will be a great incentive not only to participate in the game but also to use the currency in real life. Thus this increases the possibility that a market of things of value will develop in the game and maybe the currency will be used for real life transactions as well. A currency that pays a dividend will prevail over any other form of virtual currency by means of the strategic advantage of directly benefiting the user. Convertibility to real currencies will depend solely on free market ability of the currency to provide goods and services and not some convertibility obligation undertaken by the company that hosts the server.

Implementing a currency that produces a dividend would require suitable financial institutions, capital markets, and a mechanism to liquidate a part of current value of financial instruments. Through liquidating a sustainable part of current value of financial instruments the company that hosts the server would earn the game money funds which when converted to real currency would pay for its operational costs plus the funds needed to pay a dividend. It would be in the best interest of the company that hosts the server to ensure that the financial structure operates efficiently for the benefit of the users so that the game currency has maximum value of convertibility to real life currencies.

The financial structure required could be as follows:

1. Central Bank

The Central Bank would oversee the monetary volume, the amount to be liquidated and the keeping of individual money accounts of users free of charge but free of interest as well.

- All users would be shareholders to the Central Bank, owning no more and no less than one share each

- The monetary volume would be a fixed amount of currency for each share, say 100.000 units, which would be the nominal value of the Central Bank share.

- All financial transactions of users, Investment Banks and Capital Markets would be processed through the Central Bank's server software and console

- The Central Bank will determine how much of Investment Bank's current stock value must be held in liquid reserves

- The Central Bank will determine how much of those liquid reserves will be contributed to the Special Account in order to be distributed to the users as divident and to the company that hosts the server

- The Central Bank will have the power to dispense payments through the Special Account to the company that hosts the server, to shareholders and to in-game political institutions such as elected moderators

- Ideally the Central Bank management would be ellected by users, even better by Invesment Bank managers

- Any increase or decrease in monetary volume would be achieved solely by depositing or withdrawing funds to/from each user's account

2. Investment Banks

The Investment Banks would be the main user operated financial institution.

- They would be the only financial instrument users would be able to directly buy shares of.

- They would be the only vehicle available for investment in Capital Markets.

- They would be able to structure and trade financial instruments through the Central Bank console

- They would be able to lend money for projects

- Any user or group of users would able to open an Investment Bank through a console provided by the Central Bank if they provide capital equal to say 10 Central Bank Shares worth

- An individual who wants to trade the financial markets with his own money, should come up with enough capital to open an Investment Bank

- Investment Banks would freely be able to raise capital by issuing shares

- Their shares would be floated and traded in a separate market than Capital Markets through the Central Bank console

- They would be under obligation to keep a part of their investment portfolio in cash so the Central Bank can deduct a contribution to the Special Account

- The holdings in their investment portfolio would be open for every interested investor to audit

3. Capital markets

These would be the Exchanges where financial instruments are traded

- The Central Bank would provide the console for the Exchanges and handle the payments

- Anything of value could be traded on the Exchanges

- The financial instruments would be structured freely by the Investment Banks

- Individual loans would be structured as financial instruments and traded freely

- The coding of financial instruments would be open for everyone to audit

- An Exchange would be a user-managed institution, the user-managers would be able to charge a commision on transactions as compensation for managing the exchange

- The Exchanges would all be interconected, so the most efficient ones get the most business

Supporting Environment

The financial structure's legitimacy and effectiveness would benefit the most by a functional political proccess within the game and the development of legal and political institutions that would oversee its implementation. In this way the company that hosts the server would have relegated most of the work too the user community. In a maybe utopian scenario the company itself could be owned by the users. A lot of reated economic activity could evolve alongside the main structure such as auditing companies, programmers etc

Kickstarting a Project

Once the software is implemented as above this could evolve as essentially a game where the collective purpose of the users would be to develop and increase the value of the game currency and spread its use. A group of people willing to kickstart such a project would need to set up a server and a rudimentary mechanism to buy and sell shares to the Central Bank and thus opening user accounts. Integration with a payment system such as Paypal would help. A new user would be able to either:

- use real money to buy enough in-game currency from other users or the central bank as a provider of last resort to purchase his share to the Central Bank and so be entitled to a divident

- or start free and offer services or anything of value in-game so as to accumulate enough in-game currency to buy his share in the Central Bank and then be entitled to a divident

When a new user opens an account and purchases his share to the Central Bank, new in-game money is created up to the value of one Central Bank share. If he buys his share, the money is deposited in his account. If he does not buy a share and starts free the money is deposited to the Special Account for the benefit of all users. In this way the monetary volume is increased as new users come in and all all users benefit from attracting new users. A de facto mechanism for the convertibility of the in-game currency would thus be achieved and setting up a server for the game could prove profitable. Ideally various groups would be able to start different projects but all grids should be interconnected and maybe their currencies floated on a common exchange

Simplest In-Grid Money
A unique avatar creates objects that may not be copied, may not be modified, but may be transferred. The object permission, and asset storage code of OpenSimulator must be very robust and dependable. The names of the objects are something like "1-gazoon," "2-gazoons," "5-gazoons," "10-gazoons," "20-gazoons," etc. Players agree to treat these objects as money and trade them. Making change will be a pain at times. The reason that the unique avatar gives "gazoon" objects to other avatars is left as an exercise for the reader.

Web Transactions
We could also simply use external websites to sell objects in real world money (dollars, euros etc.). With the current advances in the in-world web browser, it shouldn't be too difficult and shouldn't take up too much time. Theres also the advantage of a decrease in fraud and there would no longer be a concern for the rise and dropping of L$ prices. Of course, the website would be the responsibility of the grid-owner. In terms of "fake currency", we would use the current implemented system (the L$ functions) and use it as fake/roleplaying money on a simulator level (meaning that it would be functional in only some sims and the sim owner would have control over the name of the currency and how it is distributed).

Reference Implementations
See Feature Matrix for various currency options.