An Analytical Look at the Currency of Second Life®

With the buzz regarding making money in the virtual world of Second Life®, one is inclined to wonder how much the Second Life in game currency, the linden^TM dollar, is actually worth. In theory lindens have no intrinsic value. In reality a few Second Life users are able to live off their Second Life earnings and many others are able to generate a second income from their activities in Second Life and the subsequent exchange of linden dollars to cash.

There are many ways a Second Life user can create income. A user can work online, deal with virtual real estate, run a shop and sell goods, or perhaps most commonly and controversially, "camp", or "sit" in a place for a specified amount of time to earn lindens. Earnings are then used by Second Life residents to purchase in game items and services such as new skins, clothing, land, or even furniture for their in-game residence. Or, as mentioned before, many Second Life users "cash out". As a resident of Second Life, I became curious as to the actual worth of a linden dollar and decided to take an analytical look at the value of the linden.

Calculations
In order to accurately calculate the value of the linden, one must take into account the exchange rate and the fees associated in the process of exchanging linden dollars to cash and "cashing out". For the sake of simplicity, I used the current exchange rate of Linden Labs® own currency exchange system known as the LindeX^TM. I have also limited the scope of this analysis to the conversion of lindens to US dollars. I also use PayPal as the method to cash out any earnings.

As of this writing, the exchange rate for selling lindens on the LindeX is approximately 275 linden dollars to $1.00. A Second Life user also incurs a transaction fee of 3.5% for selling lindens on the LindeX which is charged after the sale and exchange of lindens to US dollars. Finally, Linden Labs also charges a $1.00 fee to cash out any earnings to a PayPal account.

With this information, I created an equation to represent the dollar value of a linden. The equation is shown below:

Dollar Value of Linden = [0.965(lindens sold/exchange rate) - 1.00] / (lindens sold)