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« What's in a name? | Main | Playing the Treasury game »

Virtual, like dollars

By Dave Birch posted Dec 3 2010 at 12:49 PM

[Dave Birch] I keep coming back to the topic of virtual worlds, because I'm convinced that they contain some pointers about the future of our "real" economy, even thought the real/virtual boundary is getting rather blurred. Why are US Dollars called "real" when they are backed by nothing, whereas World of Warcraft gold pieces are called "virtual" because they are backed by nothing?

The world of virtual commerce is already alive, and it is utterly wrong to dismiss it as being about toys or an irrelevant niche. In fact it is serious business.

...one of Entropia's wealthier players has sold off his interests in a "resort asteroid" for an eye-popping $635,000.
The seller is Jon Jacobs, also known as the character 'Neverdie'. He originally purchased the asteroid in 2005 for the then-record price of $100,000. For those keeping score, that's a gain of over $500,000 in just five years. In nerdier terms, that's an ROI of 535%. Match that, Citibank.

[From Gamer makes a cool half-million by selling virtual property - Video Games Blog Plugged In - Yahoo! Games]

While the occasional story like this gets the headlines, there is a general increase in the trade in virtual goods - that's people, as Richard Bartle once said, buying things that don't exist from people who don't own them - that is measurable.

..buying and selling virtual goods in videogames and virtual worlds is becoming mainstream. The virtual goods market in the U.S. is estimated to reach $1.6 billion this year, up from $1 billion in 2009, according to research firm Inside Networks.

[From The World's Most Expensive Island--Online - Plugged In - Yahoo! Games]

I suspect that one of the reasons why the world of virtual goods, virtual commerce and virtual money is see as being outside the mainstream is that in the US and Europe is has not yet reached the mainstream sensibility as it has in Asia, where a much higher fraction of the population take part.

And the U.S. is just a part of the worldwide market, which some experts put as high as $10 billion; countries like China and Korea are major players.

[From The World's Most Expensive Island--Online - Plugged In - Yahoo! Games]

When I say mainstream, I mean mainstream. I've observed before that virtual commerce seems to correlate with the penetration of high-speed broadband. I'm not talking about the UK here: I just checked and my Virgin Media 50Mb/s broadband service is currently running at our government's target is that by 2012 we will have an internet that is 500 times slower than in Korea. Talking of which,

The Koreans have 12 professional StarCraft teams with top players making fat six-figure salaries. Even the average pro gamer makes more than the average Korean. Not only do Korean pro gamers rake in the dough, but also national attention. 120,000 people gathered live in a stadium to watch a 2005 StarCraft championship--over 40,000 more than attended the Super Bowl that year.

[From 5 Insane True Facts About StarCraft: The Professional Sport | Cracked.com]

This kind of business is bound to attract crime, which is in a way a hallmark of acceptability. But it also means that sooner or later, the volume of virtual money in circulation will mean a "central bank" and a monetary policy. I came across a great story that combined both of these the other day. A guy had created too much currency and this had led to inflation that devalued the

Lee, who used to be mainly responsible for the Korean Audition's server management, took advantage of his rights to make large profits from the illegal virtual currency trade. The in-game currency that Lee sold with his partner was valued at about 2.5 billion Korean Won in total. Though only paid 1 million Korean Won a month formerly, Lee still lived in a rich neighborhood and possessed an imported luxurious car. His illegal act caused the virtual currency's devaluation for a time.

[From An Audition Employee Arrested for Illegally Trading Virtual Currency - MMORPG News - New MMO News, Free MMOs, Tidbit, Top 10, Topics, Previews - News.mmosite.com]

These virtual world economies are spreading. This is a good thing. My kids have never had an economics lesson since I can't afford to send them to private school, but they know everything about bid-offer spreads, diminishing marginal utility, supply and demand curves, inflation and arbitrage. How come? Because they belong to guilds in World of Warcraft.

Despite a staunch position against non-company-sanctioned real-money trading (RMT), or the exchange of “real” money for virtual goods and services, Blizzard Entertainment has recently introduced new features of World of Warcraft that have opened the door to the sale of the company’s own virtual goods.

[From Cosmetic Real Money Trading in World of Warcraft | Virtual Economy Research Network]

What does this all mean? Does it mean that there are already virtual economics that ought to be measured just a real world economies? I think it probably does, although it does also make us rethink what some of the issues are.

The premise of the article (Alice has a dollar) is simple enough. If Alice has a dollar and she gives it to Bob, most virtual worlds would report that as a dollar's worth of economic activity. But in the real world we'd try and decide why that dollar changed hands. Because the movement of money in and of itself isn't economic activity unless it reflects some valuable exchange of goods and/or services.

[From Bizinformer: The Value of Virtual Economies]

What? I don't think this is true at all. Whatever I spend my money on, whether it's a cinema ticket or a Big Mac or a poetry recital, it makes no difference to GDP. So far as I can tell, there is no basis whatever for saying that some forms of spending are not economic activity. So virtual economies are still, to my mind, economies. But why do people like them do much?

In other words, the online role playing economy is fair in a manner that the vast majority of people would define fair, but the real world is not.

[From Half Sigma: World of Warcraft and libertarianism]

This is because of choice, I think. If you find yourself in a virtual economy that is unfair -- perhaps some players have great inherited wealth that they have not earned or some players have connections that give them privileged access to certain goods or some players are able to manipulate markets to their own advantage -- that you can leave it and go to another one. It's not so easy to find another real world to play in.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

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