Glamorous, scantily clad women dance seductively from inside shop windows. Prostitutes search out their next customers as a couple has sex in full view of passers by. This is no seedy red light district. It's a computer generated 3D world and every 'person' you see is controlled by someone crouching over their keyboard.

All you need to register on Second Life is a computer. Members are assigned an online character, known as an avatar, which is their persona in Second Life. They can personalize their avatar by changing everything from hair colour to breast size. But looking good costs money. "You can buy a particular body type, buy your face, everything", states Luke Connell from World Stock Exchange. The average Second Life resident spends an estimated $2,000 per year on their avatar.

At any moment, around 20,000 people are logged into Second Life. Here - as in the real world - everything needs to be bought. It's this business potential that fascinates many. "40% of people who log on daily get involved in some kind of business transaction", states analyst Chris Collins. Second Life has its own currency, Lindens. And what makes Second Life so appealing for businesses is that they can exchange their Lindens back into US dollars.

Veronica Brown runs a virtual fashion house in Second Life where 'residents' can purchase clothes for their avatars. Her wedding dresses sell for an average of 550 Lindens, or $2. With the average Second Life marriage lasting three months, she's "doing exceedingly well". However, even Brown admits; "I spend way to much time in-world. 10-14 hours a day".

Like Barbie dolls, avatars come with no private parts so one of the most successful businesses in Second Life is 'Strokerz Toys'. This sells virtual penises and online sex toys. "I probably sell 200 items a day", boasts owner Stroker Serpentine. "There are no inhibitions in Second Life. You can pursue any sexual fantasy, create any scenario".

But laws governing behaviour in virtual worlds don't yet exist. At present, there's nothing to stop adults having virtual sex with child avatars. The first cases are emerging of people being 'virtually raped'. "When you've invested in a character and see it symbolically violated it can reverberate psychologically in very serious ways". But if virtual rape becomes a crime, how will sex offenders in Second Life be caught? Will the police have to create their own avatars to patrol the virtual streets?

As bandwidth increases, more and more people will discover the lure of virtual worlds. In ten years time will everyone be living two lives?