Warning: small novelette ahead (Score 2, Informative)

The problem is that they are "investing money" into lindens and hoping the exchange rate changes. Linden Labs as specifically "pegged" the linden to the dollar. I track it and it usually has been consist to about 1000L for abojut $4/US. Lindens are strictly controlled, it is not easy to just make large amounts of linens, ( I know I have tried :) ). Most of this is planned, they hired an economist to help control the economy. Linden labs makes $.30 US on each buy and about 3.5% on each sale. Sales of lindens tend to act as stocks, meaning you put in a sell order and wait for some to bid on the lindens. buys are typically much faster though.

There is one example of linden dumping to control linden prices, quote: "In the second half of September we sold L$20,117,994 to prevent rapid appreciation of the L$. " . http://blog.secondlife.com/2006/10/03/linden-dolla r-economy-update-2/ it is on there blogs.

From the website (https://secure-web4.secondlife.com/currency/descr ibe-transaction-fees.php): Fees for Buying L$ You will be charged a fixed fee of $0.30 per transaction regardless of the amount of L$ you purchase.

Fees for Selling L$ Sellers of currency pay a fee of 3.5% per transaction. Proceeds will be credited to your US$ account balance.

Yes there are limits to trading, unless you apply for higher limits:
https://secure-web4.secondlife.com/currency/descri be-limits.php

So if you read the article, he was trying to do currency trading on a pegged currency, not the greatest idea. He got the same amount going in as going out minus the trasnaction fees, gee go figure.

And if you want to look at the economic statistics: http://secondlife.com/whatis/economy_stats.php Which also lists the sources and sinks, most of the money made by linden labs is from transaction fees, tier fees (fees for owning land or islands), and membership fees.

Linen exchange market data: http://secondlife.com/whatis/economy-market.php More useful economic statistics: http://secondlife.com/whatis/economy-graphs.php

Another interesting thing is that lindens are not produced, except by "allowances" given to residents and non-residents weekly. In WOW (world of warcraft) the server producers more gold when creatures are killed. Hence the lindens in Sl are an artifical scarcity, which is what all real world currencies are.

Not everything is sunshine and roses though:

There are some problems with the economy though:

1. land prices have gone out the roof. It is nearly impossible to buy land without spending around $100US worth of lindens. land prices for purchase vary between 17L and more per M. How and what you can build on the land depends on the conventant or contract for the land and how much land you own. For the covenants, think home owners association. Plus for private islands you may not actually own the land, and if the island owner does not pay up his tier fees then the island itself may go into remiss.

   Yes, you can get equivilent work much cheaper in SL by paying in lindens. Although the prices needed for contracted services have been going up steadily. I have had several friends in SL quit doing contracting because it does not pay enough for the effort even corporate sponsorship. I do know of some contracting companies that make enough to survive on though.

   Problems with stability during the updates, this can be especially painful as shops cannot sell when SL is down, and sometimes products break during updates or on rare occassions inventory disappears during updates.

   Land values going down or becoming unusable due to someone building something really ugly or a casino, clubs, or a mall being built in the sim (major lag issues usually due to poor scripts and resource management).

   The "banks" in SL are entirely owned by people inside the game, they have no guarentees of any kind. There have been rumours of a bank or two withdrawing money and not having enough to pay all creditors, but then again look at EVE online where financial fraud is acutally ingrained in the game itself. The biggest fraud in EVE online was akin to 120,000 US ,several billion isk. Go ahead ask me if I have anything in the "banks" in SL, they operate mainly due to people wanting more and more. The banks have about 30% interest a year. There are a dozen or more banks in SL.

   In SL, a lot of residents sell products that maybe copyright violations. Expect a lot of lawsuit slapdowns in the near future.

   Very few of the residents in SL actually make enough to live on. For december of 2006, only 140 people made enough to live on in on for a first world economy, assuming you can live on $2,000 US a month minus transaction fees. See the section estimated business owners for: http://secondlife.com/whatis/economy_stats.php

Now, you can ask why I am interested in this? Well I do own a "business" in SL.
http://www.slexchange.com/modules.php?name=Marketp lace&MerchantID=19403
http://www.slboutique.com/index.php?p=buy&user_ava tar_id=9711&nh=1

I tend to make mostly small pocket cash, small being the operative word. :/ sort of with the old wine-growers joke: "How do you make a small fortune in SL?", start with a big one.

Honestly the current reporting makes SL either the new gold rush or a pyramid scheme. Why didn't the writer/economist goto www.sceondlife.com, he would have found most of the information offhand rather easily, I just saw in hte article that he purchased funds did not invest in a business, and just hoped the money itself would apprecaite even though its "pegged". the only real way tro make money in SL is for other residents to give you money in exchange for your services or products.