Virtual Investments

In an Article entitled “Is there real money in virtual real estate?” by By Christopher Solomon, on RealEstate.MSN.com, people are buying into a virtual world called “Second Life” and investing in virtual real estate. It costs real money to buy into “Second Life” and you can convert “Second Life” currency into real US Dollars. You can set up shop in “Second Life” and make money. These US Dollars are then taxable and the IRS is looking at taxing the “Second Life” currency for those who don’t convert it.

This begs a question? Who would be stupid enough to invest in something that isn’t real? But then, that’s really not stupid. People all the time invest in things that aren’t real; derivatives, for example. But, for every winner, there is a loser; the money has to come from somewhere. As long as there are people who are willing to invest in “Second Life” there will be the opportunity to make money.

How many people are on “Second Life?” “Second Life” reports 7.6 million residents. Compare that to the $1.1 million that logged on in the last month.

How much money is invested in “Second Life?” That’s difficult to answer, but take for example the L$60 million or $225,000 that exchanged hands yesterday.

What makes people invest in a virtual land? Is it the perceived instability in the real world? How does this contribute to economy problems? Could a collapse in the virtual world trigger a collapse in the real world, or visa versa? What if everyone decided to cash in?

Editor’s Note: This is NOT an endorsement of “Second Life.”

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