What's next? Virtual commodities trading?

I believe those are called 'Derivatives.'

Second Life is an online game of a whole different sort. You see, the vast majority of the content in the game is player created. As a subscriber, you have the ability to upload textures and sounds. You can create objects in the game and put the textures on the objects. You can program in a proprietary scripting language using a provided API that gives you access to the game's particle system, accounting system, and the game world itself.

The backbone of this economy is the Linden Dollar (L$). Each subscriber gets a weekly stipend of it as part of the package, plus you can trade real money for L$ on the open market. Players create and consume content in the game. For example, some people spend all of their time creating avatar clothing textures (using Linden-provided texture template) and selling copies of them to other players. The ones that make the best clothes make the most bank. Other people (LOTS of other people) re-invent the slot machine or various casino games over and over again and rake the money gambled with the game's they've created. Some people create new games on their own (like one called Tringo that's very popular these days) and license them. Tringo can be played for free, but it takes a lot of land to host a game and organizations that collectively own huge tracts of land and use them as malls use Tringo and like games to attract shoppers.

In other words, the game is just nothing but the foundation upon which an economy can form. One formed there, and Second Life's creators deserve to be lauded for that.

For all their stability, dollar bills are intangible. They are linked to no set physical item of value. Even when the country was on the gold standard it did not have enough gold to back all the dollars in the economy.

As for bubbles, the stability of the worth of something (whether its U.S. $ or LindenDollars) depends on the sustainability of the economy (e.g., the extent that its not a Ponzi scheme) in terms of both the materials being traded and the participants. Even real-world tangible goods have no guarantee of stable value. For example, some would argue that real estate in the U.S. is currently a bubble and that the true value of what seems like a very tangible good has become inflated.

The point is that all economies, both virtual and real, are about intangibles defined by people's relationships to each other and to items of reputed value. A dollar is only worth what someone else will trade for it. A block of land or uber sword of death is only worth what someone else will pay for it. Even tangible objects (e.g., a brick of gold) only has value to the extent that others will trade gold for other desirable goods such as food. Value is in the eye of the beholders, both buyer and seller, and has no other value than that. At best, the values of different items may become fixed relative to each other (but not on any absolute scale) becuase of the ability to transform one item (e.g., labor) into another item (e.g., attained goods in a game or in real life).

Economies and the notion of value are a human invention. As such, the dynamics of societies guarantee that even the most tangible of goods can fluctuate in value.

This is not a scam.
Second Life is just like the web, but wrapped in a pretty 3D virtual world - it is primarily a place where you can create and host content for others to enjoy (and purchase).
Land is a metaphor for server space. The money you pay is for the server resources. There is a finite amount of them per server (65536 sq.m.)and if you want, you can even buy your own server. Some people own more than one! Even major RL corporations are starting to hit SL - if you're a student, or unemployed, you could get yourself a real job!
Artist? Programmer? Just plain bored? Join Second Life [secondlife.com] - I've been there for over two years and will never look back.
You can build just about anything out of simple geometric shapes and make it come alive with a powerful, yet simple scripting language that uses C/Java style syntax and an event-driven paradigm.
Check out the language reference and see for yourself! [secondlife.com]
Second Life even includes a full fledged physics engine called Havok [havok.com], which is rapidly becoming the industry standard.
It is truly a geek's dream come true, and no one on SLASHDOT of all places should dare criticize it - we have a whole section devoted to LEGO and SL is at the very least LEGO on steroids :)
Heaps of screenshots [sluniverse.com]

A couple problems with that, the biggest one being that bandwidth seems to be the biggest bottleneck for Second Life. Everything is streamed to the client as it moves through the world, from the terrain, to the objects, to the textures and scripts. Because everything is user-created, the world is changing so constantly, it has to stream to stay updated.

If you fly through the world at a decent speed, you'll miss a lot, because it hasn't had time to download and appear. Or you'll go somewhere, but you have to just sit and wait for a bit before all the textures download and the place becomes useful.

Second, there's the problem of giving the client too much control. Basically, you can't trust the client at all, because there's lots of people out there with nothing better to do than try and find ways to cheat/break/confuse your game. This is inherent across all online games, and the solution is to do as much server-side as you can.

Simply put, a derivative is as security whose value is derived from that of another, underlying security.

For instance, a stock option is a derivative whose underlier is an option.

In practise, complex derivatives have values that are functions (often very, very difficult or indeed unknowable functions) of various aspects of a range of underliers.

For instance, a credit default swap is a derivative whose underlier is a debt obligation, but its value usually varies only with the creditworthiness of the underlier, not with the other aspects.

Another way of looking at derivatives (depending on what you do with them) is to call them a contract which deals with your rights pertaining to another contract.

For instance, a commodities rollover is a contract that gives you the right to buy and sell two underlying commodity futures contracts. These underliers are themselves derivatives of an actual commodity such as gold. Rollovers are also used in finance (as opposed to commodities trading); in that case, the underliers may well be index-tracking products.

None of this has ANYTHING to do with virtual commodities trading, except that people engaged in virtual commodities trading usually trade futures, which are simple derivatives. They trade futures because it's damn hard to actually take delivery of 1,000,000 tons of orange juice.

Now, how the hell did the parent post get +5 informative?

The parent poster goes on to say a lot of very inaccurate things about derivatives -- for actual information anyone interested should check out a financial website (not Wikipedia!) such as http://www.investorwords.com/ [investorwords.com]

This has been a PSA. Don't do drugs! Stay in school! And FFS don't day trade if you are at the level of the parent poster!