The Vanishing Line between Virtual and Real-World Economies

The recent increase in popularity of MMOs (massively multi-player on-line games) has given rise to a new social platform, and within it, the same concepts of pride, competition and vanity.  Just like in the real world, players want recognition for being and having the best, and many are willing to pay real-world currency for it.  Whether it’s buying gold coins to give their World of Warcraft character an advantage, or purchasing a vila for their Farmville farmer to show off, an increasing number of gamers are spending real money on in-game only items.  A recent survey done by playspan suggests that “one out of three gamers has used ‘real world’ money to purchase virtual content”, and most gamers felt that their spending habits would only increase in the future. 

Anyone who has played a MMORPG (massively multi-player on-line game) has seen the countless silent players hastily harvesting resources with seeming little interest in “playing “ the game.  These “gold farmers”, usually from countries with emerging economies like China or Thailand, are playing the game solely to collect gold and sell it to players from wealthier countries.  Most MMORPG’s have a strict policy forbidding the selling of virtual assets for real money, but the black market for in-game currencies is thriving, and exchange rates exists between USD and most forms of virtual money.  The World Bank Group’s InfoDev program did a study on these Virtual Economies and found that in 2009 this industry was worth roughly $3 billion USD, and that it supports the equivalent of 100,000 full-time jobs, significantly affecting the economy of developing nations where the majority of these gold farming operations reside.

Speculative fiction writer Neal Stephenson’s latest novel “Reamde” involves the creation of a new MMORPG that incorporates gold farming as part of its gameplay and business model, and the unique opportunities and problems created by this system.  In the novel, a group of Chinese hackers create a virus which locks people’s files, and the only way to get the password to unlock them is to deliver virtual gold to a troll inside of the game, essentially laundering this money through the bowels of a virtual economy. 

Allowing or facilitating the selling of virtual goods from MMOs would raise many legal and ethical questions.  One of the most obvious being whether this would place these games under gambling legislation, since it offers financial rewards to successful players.  Another issue is taxation.  Once virtual assets can easily and legitimately be exchanged for real money, could we be taxed on our assets which exist solely in-game?  This sounds less silly when you realize that virtual real-estate can sell for as much as $100,000 USD.  It is also estimated that roughly half of the virtual specie that is sold through third party sites is stolen from people’s accounts through phishing scams or other forms of hacking.  Increasing the ease with which virtual assets can be sold may lead to an increase in these types of crimes.  There is also an issue of how responsible the administrators of these games are for the stability of their virtual economies, since they can control and manipulate the money supply so easily.  Is their potentially insider trading concerns?

To avoid these issues, most games have taken a hard stance against the sale of in-game assets, some even employing large task forces to aggressively seek out users who violate their policies and ban them from the game.  Recently, however, several of these games have begun to experiment with providing legitimate means of purchasing virtual currency indirectly, hoping to decrease the sale from third parties and the problems created by this practice.  Blizzard has recently begun selling exclusive virtual items for World of Warcraft which can be sold to other players in the game for virtual gold, essentially enabling players to trade real money for virtual gold without the dangers inherent in making illegal transactions with third party sellers, and without effecting the supply of gold that is in the game.  Eve On-Line has taken this one step further and allowed users to trade subscription time to their game from within their game, which will always have a set value to players as long as the game continues to remain popular.  Whether these tactics will be able to compete with the cheap exchange rate, set by gold farming organizations, remains to be seen. 

Recently, Blizzard has also announced that its new title, Diablo III, will have an interface for users to legitimately sell virtual items for real-world money.  The implications of this decision may reach much farther than it seems at face value.  It may prove to not only revolutionize the on-line gaming industry, but also help shape a future in which the line between the real and the virtual is increasingly obscured.