What is the Linden Dollar?

The term Linden dollar refers to a simulated digital currency used in the online entertainment program Second Life, developed by Linden Labs. Users of the program, known as residents, can pay real money, in U.S. dollars, to acquire Linden dollars. Linden dollars (L$) can be used to buy, sell, rent or trade virtual land, digital goods, and online services. Linden dollars can also be exchanged for U.S. dollars based on a floating rate. But Linden Labs stop short of allowing this currency to be a full-fledged fiat currency or even cryptocurrency.

Key Takeaways

  • Linden Dollars are the currency used within Second Life.
  • These dollars can be exchanged with U.S. dollars outside the platform, or for virtual goods and services within the platform,
  • Linden Labs regulates the transfer and can exert full power over the value of a user's Linden dollars, even revoking them for no reason.

Understanding the Linden Dollar payment system

Second Life was developed by Linden Lab and was launched in June of 2003. Residents of the program interact with others through avatars. Residents can travel around the virtual world, socialize and participate in various activities.

In addition, residents can create and trade virtual property and/or services with other residents. The purpose behind Second Life is to allow users to become immersed in a virtual world through a user-created, community-driven experience.

Linden dollars (L$) can be used to buy, sell, rent or trade land, goods and services. Goods include cars, clothing, jewelry, and buildings. Services include entertainment, camping and wage labor. Linden dollars fluctuate in value against the U.S. dollar. Linden dollars can be bought using U.S. dollars and certain other currencies on the exchange service provided by Linden Lab. While L$ is a floating exchange rate, the rate has remained relatively steady, trading between 240 and 270 per 1 U.S. dollar over the past decade. The platform was designed for the dynamics of interaction to be quite similar to real-world experience, however, Linden Labs wasn't truly interested in perfect mimicry.

Not only did the company want to reduce their own liability, but they sought to limit the exposure of their customers to fraud. For all the company's good intentions, residents still have found ways to scam others within the Second Life platform. Linden Labs has, on occasion, promoted and attempted to manage the L$ as if it were a legitimate independent fiat currency, it is clear that this is not the case.

The company's own terms of service state that players have no financial or legal claim to their L$ which are a consumable entertainment product which can be revoked or deleted at any time without reason. No fiat currency will even make such demands of those who transact with that currency, because it would represent undo risk of holding that currency.

Instead, the L$ is more accurately described as a digital payment processing system or micropayment token system.