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The Very Real Value of Gaming's Virtual Economies

What do Bernie Madoff's epic Ponzi scheme, the big bank-driven global recession, and massive multiplayer online games all have in common?
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On Sunday, June 7, a space exploration module was damaged beyond repair, upsetting thousands and immediately drawing international attention. But this was no NASA gadget—it was a Revenant Carrier, a virtual spaceship that’s part of EVE, an online interstellar space exploration game launched in 2003 that draws over 500,000 players and boasts an economy of $36 million U.S. dollars a year.

Massive, multiplayer online games, among them World of Warcraft and Second Life, in addition to EVE, are developing their own independent economies with the help of their online communities, pushing beyond the boundaries of virtual video games into the world of hard monetary value. By replicating real-life economic phenomena like resource scarcity, monetary injections, and taxation, these games lead players to value things that aren’t, strictly speaking, real.

EVE runs on a system of “sinks” and “faucets.” Sinks “cause money to flow out of EVE, such as players paying taxes and buying goods and services from [computer-controlled characters],” writes Eyjolfur Gudmundsson, one of several economists EVE employs in its Iceland-based office to help keep the game balanced; faucets bring money into the game in the form of bounty prizes, bonuses, and insurance payments. The result is a careful equilibrium; the amount of in-game money rises and falls slowly in response to player activity rather than wildly fluctuating, which could disrupt the game experience.

Demand for Warcraft’s virtual goods has given rise to sweatshop-like gold farms in developing countries like China, where laborers spend days in the game churning out virtual value for scant wages.

EVE’s currency is the ISK, or Interstellar Kredit (the acronym is shared with the Krona of Iceland, where the game is produced). The competition over a limited amount of in-game money has forced players to turn to a different medium of exchange: real-life money. Players trade dollars for in-game currency as well as gear, like ships, swords, and character upgrades. One dollar U.S. currently buys around ISK 47 million at a site like ISK Bank; a high-end Titan ship could run $2,500. As a rare, powerful item, the Revenant Carrier, like the one destroyed back in June, is worth around $8,000 on the open market.

The existence of these marketplaces means that expert players can sell their spare equipment for cash. Like building a house or making a pair of shoes, time spent “working” in the game can translate into real income, a practice known as “gold farming.”

Gold farming is common in many of today’s largest online games, though it started in the late 1990s with players selling goods and currencies for the early online role-playing games Ultima and Lineage through PayPal and eBay. World of Warcraft, one of the largest online games with a population of 7.7 million, has become infamous for gold farming. Demand for Warcraft’s virtual goods has given rise to sweatshop-like gold farms in developing countries like China, where laborers spend days in the game churning out virtual value for scant wages. Their in-game earnings are sold at a profit to Western players. In a few Chinese prisons, inmates were even forced to play Warcraft rather than do manual labor, making money for their bosses.

Eight dollars and 50 cents U.S. will buy you 5,000 Warcraft gold, $40 a set of high-level armor, and $500 a fantastical creature for your character to ride. Though these things are just lines of code, they have acquired the same luxury aura as a real-life Rolex or BMW.

In a 2009 paper, Vili Lehdonvirta, a fellow at the Oxford Internet Institute, separated “information goods,” like MP3s, from virtual goods, like a Warcraft sword or the Revenant Carrier. The latter are rivalrous: “One person’s making use of a virtual good excludes others from simultaneously doing so,” he writes—just like an Armani suit, only able to be worn by one person at a time. An MP3 file, on the other hand, can be given to another person and used at the same time. Virtual goods also have “persistency and interconnectedness.” They continue to exist even when the computer is turned off and extend beyond a single personal computer or system, impacting a network of users, in this case, the game community.

Virtual goods thus attain the status of real ones. Users “may begin to apply mental models associated with commodity consumption instead of ... media consumption,” Lehdonvirta writes. EVE’s Revenant Carrier, for example, is a scarce commodity with a single owner that inspires jealousy in the EVE community—one possible cause for its vengeful destruction. And because players view the ship as a commodity within the game, in acquires value outside of it as well.

However, demand for high-end items and a willingness to take shortcuts can kill the game for those who don’t want to cheat the system. Animal Crossing is a quiet, contemplative game in which players inhabit a village filled with animal characters, build houses, and decorate their virtual rooms, sharing their accomplishments online. The calm was shattered in late July when a bug in the game was discovered that allowed players to replicate bells, the in-game currency, as well as rare items.

Bells became hyperinflated as hundreds of millions entered the market through the bug, a situation similar to Hungary printing billions of Korona after World War II, which led to a doubling of prices (and a halving of the value of the currency) every 15 hours. In the game, rare golden tools and golden furniture became commonplace. Players even began to sell their friendly computer-controlled villagers for tens of millions of bells through fan websites.

In a widely shared Quora post, player Juli Clover beseeched fans to ignore the temptation to duplicate. “Immediate gratification is far less satisfying than a well-earned reward,” she wrote. But her idealism combats human nature in a state of capitalism. The same impulses behind Bernie Madoff’s epic Ponzi scheme and the big bank-driven global recession powered Animal Crossing’s own collapse.

Though there may not be as many regulators in the digital space as there are in the U.S. financial market, it still hurts when someone tries to short-circuit the system. Should each player suddenly receive his own Revenant Carrier, Lehdonvirta concludes, the game would be ruined: “If everyone has high performance, no one has high performance.”

In other words, follow the rules, and everyone can win.