Back, as a private investor.

Well folks. I didn't know how far that LL would take the new banking policy, but the virtual stock exchanges are still here and I still enjoy the concept of virtual commerce in virtual realms. That said, I'm back to doing business with the exchanges once again, but I'm only risking my own cash this time and on a much more limited basis. I'm also taking a far more off-hands approach. Even though day-trading in such volatility is extremely lucrative, I'm actually holding for the long term and using a dividend reinvestment method. I still intend on operating on all exchanges. Just waiting to see if WSE will ever open it's doors again. If it doesn't, it could still be the one loose card that brings all the houses down in the virtual exchanges. I hope that doesn't happen. I like this micro-market experimentation and think if it properly polices itself it could even be profitable and beneficial in the future of the SL meta-verse, but I'm not yet sold that it's fully at that point yet.

That said, if you're putting money in here, I hope it's what you can afford to risk and that you risk wisely. The old important tips apply to game-world relations.

1. Know who you play with as well as you can.
2. Keep up on what's happening with the in-world businesses you court.
3. Remember it's an intensive hobby. You can't go months without checking in on it. The market's highly volatile and a month is like a year in Second Life.

Of management, exchanges, and risk.

I've been quietly pondering something the past few days. The risk of exchanges are directly tied to risk of management. Many exchanges have leaders who have a strong ideological sentiment. Sometimes these sentiments disagree and verbal barbs are traded. The problem is that over-asserting moral authority can be as devastating as letting crooks go. There's a right and a wrong way to do everything..

Do exchange heads have a right to assert their ideology? Doing so can potentially put their own exchange and assets at risk if third parties, that mainly being Linden Lab disagrees with the intent of the message and thus exposes their investors to additional potential risk.

A lot of recent argument has risen over the products SL Capex's real life company produces and the legal risks involved in that product. Some assert the Sports Arbitrage product is legal, others illegal. Though the product clearly does not list itself as a gambling instrument, its links to gambling can easily be seen. If it's not a matter decided in the courts because it has no legal grounds, does it become a moral issue? Do exchanges have a right to claim moral authority?

To me, the exchanges have been and always will be an instrument. The only real measure of "morality" is whether or not they operate a system of fair and equitable trading. To me, anything outside is external to the game; the content of real courts and greater powers. Besides, games of chance can be moral if not abused and simply a form of entertainment in some jurisdictions. The problem is the moral fabric of society is so weak that in most cases it must be illegal or severe consequences result because addictions are not overcome. Linden Labs has dictated that inside their world all gambling is illegal, but the applications in question have nothing to do with second life and in fact are sold for "information purposes" only according to the terms of service.

Do the heads of exchanges have the right to take such moral risks with their operations given they have such a great power and sway over the operation of the platform on which so many investor's investments ride?

To me the answer to all the above questions, are no.. not really. But I don't have much of a choice in the matter. Exchange heads will continue to attempt to assert "moral authority" due to competition. Exchange heads will likely to continue to sell their products despite what I may say perhaps.. or perhaps not.. to legal regret and potentially market wide regret. Personally, I don't see much coming of this discussion that will benefit market investors at all on any exchange. All I see is greater risks, even as more information is uncovered and more rhetoric is thrown about.

SL CAPEX stealing the show.

It's officially up over 20% from the past 30 days and no one else is even close to the incline. The real question, is this a long term gain? Are we seeing a capitol migration from other less savory markets or is this just a statistical burp? Time will tell. Without some solid foundations I can't begin to predict the future, but consistent dividends on many CAPEX issues may be what's the driving force in this market.

The Great Stage (the media). The War of Words. Don't be Duped.

This entire post is basically in response to this article and the basic fact that ACE and SLCAPEX are once again involved in a war for the hearts and minds of the public.

Unless you're on the inside and know something the rest of us do not, this is an examination of what you need to know about the exchanges. Lets review the facts.

1. Both exchange operators have support line access to Linden authorities. If they suspected anything that could be proven either exchange could/would have been shut down by now.

2. It's very rare for any accusations thrown at any particular exchange to have any evidence, besides a hacked up blog or sl log, to throw against the other.

3. The exchanges are enhancements to the game Second Life, they are market simulations that operate based upon businesses operating within the virtual environment and operated by third parties of which few know anything about (unless investigated) and could fail at any day.. including second life itself.

I have consistently operated under these assumptions with my fund. You should to if you want to know what's safe for your virtual wallet.

The solution to a market where risk is maximized and returns are potentially robust but also spread thin, is obviously diversification. I encourage you to ignore the press unless there's a bit more to it than snippets of blogs unless you have someone's trust. Ignore the reckless claims of giants with only the attractiveness of their trading platform's interest at stake. Investigate the companies you invest in, make sure they're real and not just digits on a board. Be wary of the ones making frivolous claims, it's often a sign of desperation and may in fact be the clearest way to decipher the risk of any individual institution.

That said, Market Dragon signing off, happy holidays all.

The Drama from italy continues.

I've no longer access to their website, login no longer functions.. but this is the google translated text of their new main page:

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Consequently, the occurrence of unexpected situations and not plannable, we absolutely unintended and therefore independent of our intentions BISL temporarily suspending its activities. The over-mentioned reasons relate in particular the priority by our staff to solve the problems posed to us by Linden Lab's own initiative and arbitrarily proceeded to withdraw large amounts of Linden dollars by our avatar claiming justification at all matching truth, specifically purchases NEVER occurred lindens through online auction sites. This has been added to the suspension of some of our avatar from Second Life therefore now unusable because, we believe, reports of a third party. Pending resolve the incident Bisl will resistuzione manual part of the sum from us in committing deposit within a reasonable time, in case the problems with LL were extremely long, to move closer to 100% of the total hoping that Linden Lab allows us, if, to use our people at least to sell the land we owned. All this with the will to demonstrate once again our good faith even with the awareness not to be forced also, and above all according to what is expressed in, and used "notecard" present in our ATM at the acceptance of our services, Notecard here for completeness of information included in his "General": GENERAL • Bank of Italy SL allows users of Second Life to open current accounts with a daily interest that can earn on their savings rather than leave them to stop lying in their account. Bank of Italy SL takes the total deposit and reinveste or to various entities and persons in order to obtain the needed to pay interest daily. We always keep a reserve exist in "linden dollars" to allow customers to withdraw from their accounts most often instantly, sometimes after a few minutes per hour. We must clearly underscore that, as a result of interest payments per day, the Bank of Italy SL has the absolute need to capitalize on the "money" deposited. By virtue of the above, therefore, we can not guarantee that payments will be made in quickly, it being our absolute commitment to pursuing this goal. This type of activity is obviously subject to obvious risk. Those accounts are not insured in any way by any government, as in the case of many current accounts in real life, as we can not guarantee not to ever go into a bank route. Certainly Bank of Italy SL does not want this and we will strive to ensure an always solid and reliable, but is fair and honest to be aware of the risks described above. We apologize for any inconvenience hoping in more quickly as possible to resume our activities. Bisl Staff

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Unedited. Looks like my decision to contact Linden Labs regarding the vulnerability lead to some more research on the part of the Lab into how this institution operated with unexpected results. I don't know who's telling the truth, so I'm not going to step into the conflict as a banner carrier for the Lab or for Banca D Italia. What I will say is that extremely high returns on interest have to come from somewhere and usually it's not entirely legitimate.

LL moves to save LNL? LL waking up finally? VSTEX growth rate dangerous? WSE wising up?

I had to write about this, because if it's true.. and I stress the if, then it's the best news ever to hit Second Life financial sectors. Lindsay Druart, CEO of LNL, has claimed that all of the funds lost in the banking heist incident has been recovered through Linden Labs (LL).. that the bank has in fact been compensated for the massive hack/fraud attempt.

If this is true it would be the first time I've ever heard of Linden Labs stepping in to help any player involving third party software recover funds due to an abuse or an exploit, particularly on this scale. It makes me wonder why when so many of the other banks have gone down in the past due to similar issues, they had not stepped in. It also is such good news that my speculative nature makes me have to second guess my trust of the claimant, again. I wish there was a direct method of verifying the claim as if so I'm sure a substantiated proof of this would radically impact the Second Life markets in a positive manner. In the past, investors large or small had absolutely no recourse when something went horribly wrong.

That said, I've not noticed significant market activity, that couldn't be associated with insiders on any issue on CAPEX or any other exchange this week. It's actually been rather slow. That said, I'm anticipating business as usual as the holidays approach baring new product ideas or new news. On the other hand VSTEX has seen a flurry of new offers that makes me wonder if the community standards protocols are going to be effective in preventing fraud on that exchange.

When I headed an exchange as AVIX's operations officer, I found that 90% of all proposals were either bad, or fraudulent in nature. Even the ones that passed the screening, of them, 1 went bad.. and there were about 8 other corps that made it through the screening. The bad one was CYB, which is no longer listed on CAPEX. I've been accused in the past of granting bias for the CEO of CYB because their avatar was a dragon lady, which is ridiculous.. given I'm married and that'd be the same premise as granting favors to someone else who is also the same rl ethnicity, especially when the person behind the PC happens to be a male it makes the premise even more rediculous. I knew quite a bit about that CEO, but the parties who make the accusations have no idea of the levels of precaution I took to attempt to protect the investors of the old AVIX exchange. My interrogations tended to be rigorous. I required a method of RL identification. Even Lindsay Druart herself was verified by me at one point, although I questioned her twin exchange listings on WSE and CAPEX. I verified her by tracing her internet account back to its listing source using WHOIS.net functionalities and checking her domain's ownership on several of her internet sites. Some of it can be faked, but it really depends on the ISP and how they do their listings. I no longer trust GoDaddy, anyone can get an account there it seems regardless of proof of identity. I kept my methods secret at the time because I didn't want a potential fraudster to have the opportunity to prepare themselves for interrogation and the best remote background search I could sustain. I never got more adventurous than remote verification because I've always been concerned that anything more may actually be a breach in Linden Labs privacy policy/terms of service and that would end my short career in second life finance.

With that tangent done, back to my point, any exchange witnessing explosive growth will more than likely experience higher than comparative rates of fraud for more cautious exchanges. This has proven true in the WSE/CAPEX comparison. WSE has delisted many companies that have failed or proven fraudulent enterprises.. you just wouldn't be able to tell it because delisting usually means a complete wipe of all history of that corporation's existence. Their monthly rate of delisting has also been higher over the course of history. I'm expecting their rates to fall though. The criteria used on WSE seems to be tightening and I'm hoping that will result in improved performance, especially in the area of fraud deterrence.

Banca D Italia has not paid interest on my account since 11/20/2007, the date I isolated their programming issue. I'm very concerned someone got to them first as, why else would the interest accumulation halt? Thus far withdrawing and depositing has not been effected, but this activity is strange and so far messaging to them via their website and IMs has gone without a response. The day I reported the issue, the owner of the bank said they should be able to isolate any strange transactions and the programming problems with the atm were fixed as far as I could tell. I'm hoping they've not mistakenly pegged their savior's account as an aggressor in their search to isolate any questionable transactions, that'd be a real pity if such ingratitude were mistakenly displayed. I'd hate to have to stop using their bank, the fund's money must work.

Modest sized exchange merger being attempted.

A proposal has been made by CAPEX and BBX to take over ISE. This would be one of very few mergers of stock exchanges set in Second Life. The exchanges often branch, rarely converge. To get all the juicy details on the merger please look here to read the details of the tender offer. The issues on both exchanges are strong, but the number of issues is not as great compared to other exchanges, say the WSE and may lend a stronger competitive advantage to the merged entity. Reports are coming out that CAPEX is already bypassing the WSE on daily activity despite its numerous outstanding stock issues. For more details on that story check out this article in SL Reports written by friend and colleague Xavier Mohr.

Reasons for the change in traffic flow are attributed to a range of causes from investor confidence being low in the WSE due to the Ginko Bond Scandal to its numerous failed companies which have been renditioned to the mysterious symbol (RMV). Shaun Altman has cornered the market on Ginko Preferred Bond info, so you should probably read his blog here if you want details on that. Needless to say, it's a mess.

SL Mythbusters: The negative withdraw test. Sloppy coding at fault? White hat at work.

I heard part of the reason some banks were hit was sloppy coding. I went around and began to test atms to see if they were vulnerable to negative withdraws. This is just one of the rumors about how I've heard banks have been hacked.. so I though it'd be fun to test with 1 linden amounts. Here's the results:

1. BCX openly mocks you for not being sane when you try to withdraw -1.
2. ACE does not allow it. Ignores you.
3. SLIB does not allow it. Ignores you.
4. ISE removes the negative and simply takes the absolute value of the amount from your account.
5. DSE states you are using the wrong amount.
6. VSTEX reports that you have insufficient funds.
7. JTF/CAPEX ignores your request
8. BNTF Ignores your request.
9. EDGE ignores your request.
10. Banca Di Italia: Secured as of 1:33 PM est.
11. SL Bank ignores negative withraw requests.
12. WSE/One Bank only allows the use of keypad entry for withdraws and does not allow the use of negative integers.

I intend to con tinue my testing to other institutions, these are the results to date.

A vulnerability has been confirmed, the name of the bank has not been released to protect the bank as it works to repair its atms.

Currently sitting in Kremer waiting on the Governance team.. yay. Even after all these warnings the past few days, some banks still leave themselves exposed.

Update: 1:09 PM est, 10:09 AM slt: The vulnerable bank has been notified of its exposure. The representative told me they would work on resolution immediately and that the transactions can be tracked and are reversible if any have occured that are fraudulent.

Linden Lab just removed the exposed ATM, so I can release the name of the bank now. Banca D Italia's programming was exposed to this exploit. Theoretically, I just saved all of Freedom Italy.

When Banca D Italia loads their new atm, I will retest it once again to ensure the loophole has been closed and update this blog.

The loophole was repaired, now added to list of secured banks.

What is the Linden?

A good friend of mine came to me today and showed me this link to Metanomics a financial reporting news site for Second Life. The link is basically to a video about exchanges and banks in Second Life and their roles in the Second Life economy. This lead to a discussion about, "What is the Linden? Is this market real or a game?" It's a question that comes up often, I'm going to give my thoughts here in the blog, so I can simply refer folks to it when they ask this question instead of repeating myself.

The Linden is a game currency. It is not a real currency. It is a currency that is valid only within the context of Second Life. If you tried to sell your Linden to your local Grocer, they would laugh at you most likely. The only time that Linden, a product of second life, becomes real currency is when you trade it through Linden Lab or another player agent. Without this conversion, the linden you hold in your account is worthless. Whenever you put your USD into Linden, you are more or less buying assets within the game, nothing more, nothing less. Anything else is an over-glorified pipe dream.

That said, when you invest within Second Life, instead of believing you are investing in a real agency, corporation, or business you should keep the proper mindset. You are investing in a game. You are investing in a person within the game who you are trusting is honest enough to do their job and to hopefully return to you an in game profit. If you are lucky, this in game profit may be utilized to your own gain or even for conversion eventually into real USD. The difference between this and gambling, is that the people you invest in may seriously be out to attempt to improve the virtual community in which you play by adding functionality, adding new venues or real estate, improving aesthetics, implementing new ideas, creating new things to do within the game. Second Life is a platform that can support many game possibilities, from first person shooters, to strategy, to basic board games.. it can all be done if you have the skills to do so. Some of the businesses here will be out to do these things, some will be scams. You have to be careful. You have to do your research..

And for God's sake, if you are deluding yourself into thinking this market is an extension of real world securities markets and behaviors, please stop it. That's purely ego.

Appended 11/18/2007, 4:38 pm:
The more I thought about it, the more that Linden seemed like Company Scrip. I don't expect to many folks to be aware of what Company Scrip is unless you come from an area that was on the extremes of society for a while or where actual legal tender was scarce. If you look at the definition, it seems much more appropriate to the Linden. If you really want to become an expert on the subject matter you may want to check out this and other discussions courtesy of Wikipedia.

Glug Glug Glug. Sinking ship? Or sank and just bubbling?

Okay. As if the news were not bad enough, another delisting from the WSE lists today, ACE (do not know how long this link will last). Two more freezes also while waiting response from management. I heard from someone a long time ago that THI/TGB were sinking ships. Given Chau Mu is on my friend's list and rarely shows up these days I'm not surprised by the news in tandem with the whispers of my market friends. In this case I don't think the WSE is as responsible, from what I know THI was thriving at one point and if the CEO is simply temporarily away for events in reality, it may still be thriving. Some, however have speculated THI was merely a Ponzi and I long ago pointed out, during the first great exchange wars, that the information for the CEO was not valid for anyone I was able to verify in the state of TX. I guess now this is just a waiting game. Good luck WSE administration and lets hope Chao is still around.