I talked at length with Philip Rosedale, founder and CEO of Linden Lab, about anonymity and identity in the virtual world, and what the company would do if China or some other authoritarian nation demanded to know the identity of one of its users.

We talked in Second Life, of course, using the voice beta software. The interview was supposed to be for an upcoming article about sex in Second Life, but we ended up wandering all over the place.

"Let me make a broad statement about Second Life," Rosedale said. He described the company's mission, shared with Mitch Kapor, Benchmark Capital, and other investors: "We all very strongly believe that transparency and collaboration and communication make people better, bring people closer together, and make people less likely to harm each other."

He added, "The ability to increase communication between people and so improve the world is what motivates us as. It's why we all come to work."

Linden Lab's primary purpose is to drive penetration of Second Life, rather than maximizing profit. "Our mission is to get this technology to everyone in the world as fast as we can, and we'll make sacrifices in marginal revenue to maximize that goal. We don't want to limit anyone's access to Second Life."

We talked a bit about "presence," a word that Rosedale uses slightly differently than the way it's used on most of the Internet. On most of the Internet, "presence" is usually used in conjunction with instant messaging; it describes whether a user is at his desk, logged into his computer, and available for immediate conversation.

Rosedale uses the word "presence" to describe a sensation that's difficult to communicate to anyone who hasn't used virtual worlds more than a few hours. It describes the illusion that you, and the avatars you see around you in the virtual world, are really together in a virtual place. It makes communication and activity in a virtual world more rich and realistic than over the flat Internet.

Rosedale talked about how avatar appearance communicates the character of the real person behind the avatar. In real life, people have to conform to more rigid expectations about dress and appearance than they do in Second Life. "There's an ability to hide behind a neutral identity," he said. People buy the clothes they wear for reasons having as much to do with economy and convenience as expressions of their own identity. They shop at the Gap because they don't have much money and the store is conveniently located.

But in Second Life, people can make their avatars however they want to appear.

"I'm learning more about you than if I was meeting you in the InformationWeek offices," he told me. He did a quick analysis of my personality based on my avatar's appearance, saying the Victorian suit I was wearing, combined with snakeskin biker boots, mean that I'm a tough guy and a leader. I think there was a bit of sleight-of-hand in that -- a majority of men would say they see themselves as tough leaders.

Identity And Anonymity

We talked about identity and anonymity in Second Life. From the beginning, the service was built to allow users -- known as "residents" in Second Life jargon -- to hide information about their real lives and only go by their in-world nicknames when in Second Life. This opportunity to create a new identity is at the very foundation of the world. Revealing another resident's real-life identity without their permission is one of the few sins described in Second Life's terms of service; it can get you banned from the virtual world.

And yet, the world isn't really anonymous, Rosedale said. Over time, you forge friendships, and have a reputation -- an identity -- attached to your Second Life avatar and its name. You won't want to walk away from that identity.

The kind of identity Second Life offers is sometimes called "pseudonymity".

Second Life pseudonymity is not universal. I'll quote myself here -- a passage from the upcoming article on sex in Second Life:

"The company has to behave legally, in every way possible," Rosedale said. Also, residents have to obey the law in the content they create and control, and in their behavior. Linden Lab will cooperate with local authorities in their investigations, he said.

Does that extend to authoritarian regimes, I wondered. Second Life is an international service, with more than half of its users outside the United States. Would Linden Lab cooperate with an official directive from, for example, China, ordering the company to turn over information on residents who'd used Second Life for dissident action?

It's a decision Linden Lab will inevitably face if it achieves the kind of global penetration that it hopes to get.

Faced with the same decision, Yahoo decided to cooperate with China. U.S. lawmakers took Google, Yahoo, Cisco Systems, and Microsoft to task last year for complicity in aiding Chinese repression.

I asked what Linden Lab would do in that situation, and Rosedale thought about the question for a long time.

"Honestly, I don't have an answer to that," he said. "I think it's incredibly important that we preserve people's freedom as much as we possibly can. I, like many other believers and participants on the Internet, believe the world is a lot better off without national borders between people."

He added: "I think that on principle, we believe that people in Second Life should be safe and free to express themselves as they choose," particularly in political speech. "We would have to balance growing Second Life to have the broadest access to people around the world, against preserving those freedoms in a way that maximized the value of the whole community."

He continued: "We will act to maximize benefit to everyone in Second Life, before we will maximize, say, revenues for our company."

He noted that Second Life, unlike companies like Yahoo, does not use local companies as intermediaries when doing business overseas. As a result, it wouldn't be subject to the kind of pressure placed on companies like Yahoo, where local governments were able to apply pressure on the service by applying pressure on the local subsidiary.

"I think the fact that there are 50,000 landowners in Second Life, and not 50, is an enormous win for the future of this platform. The loss of an entire country at this point would be inconsequential in terms of revenues," he said.

Doing Business With A Pseudonym

Second Life's system of pseudonyms is useful for business relationships, Rosedale said. For example, the World Stock Exchange is an in-world securities exchange designed to finance in-world businesses. Many of the businesspeople are known only by their avatar names, and some of the transactions are up to tens of thousands of U.S. dollars, Rosedale said.

I said you have to be out of your mind to do significant cash transactions using Linden Dollars, trading with people whose real-life identity you don't know.

Linden Dollars are great for small transactions, up to US$100 or so. The Linden economy is a great invention, it's possibly the only example of a big economy based on micropayments.

"That's why we have Linden Dollars," he said. You could pay people in real currency now, but paying in Linden Dollars is more efficient. "You have to analyze the efficiency of systems, the system with greater efficiency will always win," he said.

But you want to do big transactions in real life, with access to real-life contract law and courts should things go bad.

This is not to say that people can't do big business in Second Life -- they can, should, and already do. But when it comes time to make a deal, if the deal is for big money, that deal should be made using real-life legal instruments.

But Rosedale said he'd like to see mechanisms growing up in-world for enforcing and arbitrating agreements. For example, people could put up in-world assets as escrow with a trusted third-party prior to making a big deal. Server space -- known in Second Life jargon as "land" -- was the example he used for an asset that would be held in escrow. (But, still, how do you trust the escrow company?)