What Kind Of Virtual Economy Is It When Millions Of Dollars Just Disappear?

from the ask-Cartman dept

Tue, Oct 17th 2006 1:25am — Mike Masnick

For years, we've been hearing reports about the growth of in-game virtual economies, often claiming things like it's equal to the economy of Namibia. Of course, many of those claims break down when you look closely at them, as the numbers are actually much smaller than claimed, or the transactions are questionably counted. There are also other problems with trying to count in-game economies -- partly because they're very much at the whim of the makers of various games. So, for example, when World of Warcraft makers Blizzard simply remove 11 million gold pieces from circulation, after shutting down accounts that made gold through fraud and cheats, how is that counted in the grand economic scheme? Just like questions revolving around whether or not real world laws apply within games, it's not so easy to just say that the economies of these games can be equated with real world economies as well.

Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.

Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.

While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.

–The Techdirt Team

28 Comments

If you liked this post, you may also be interested in...

Reader Comments

Subscribe: RSS

View by: Time | Thread

xpalau, 17 Oct 2006 @ 2:27am

Not quite...
Real world value of the game does not change when virtual money is removed from a game. What happens is deflation. There is less virtual money on the market and therefore the exchange rate of virtual to real money just changes accordingly.
[ link to this | view in thread ]
zcat, 17 Oct 2006 @ 3:01am

I guess it's just like the out-of-game economy, where just one player alone can 'magically summon into creation' aproximately one hundred million 'gold pieces' per year.

http://www.heritage.org/Research/AsiaandthePacific/wm1046.cfm

And of course these fake gold pieces are confiscated and destroyed at the whim of the Federal Reserve, as quickly as they can identify them.
[ link to this | view in thread ]
Zwxphtt, 17 Oct 2006 @ 4:04am

Fed Reserve
at the whim of the Federal Reserve

..It's not Federal and there is definitely no reserve.
By the way, what is the current currency of the United States based on..oh that's right its virtual..
think about it
[ link to this | view in thread ]
The Infamous Joe, 17 Oct 2006 @ 4:16am

I'm a dork.
At the risk of opening my mouth and proving I'm a fool...

I'm not sure that the gold situation is even comparable to the real world... for example: If a player run out and kills a computer controlled enemy-- he or she will probably find some amount of gold or other type of currency (silver, copper, etc) which, before that computer enemy was killed, did not exist in the game economy.

Along the same lines, if a player sells an item to a vandor (computer run buyer/seller) then the currency he or she recivies was just created from thin virtual air...

It would be like going to a pawn shop and selling your CD player or Super NES-- and the pawn shop paying you in legal tender that it created that day. Times 7 million (or however many people play WoW)

Maybe I missed the point of the entire article... the closet thing to a "real" economy in WoW, as far I can tell, is the Auction House-- which behaves eerily like real life.
[ link to this | view in thread ]
Danny Staple, 17 Oct 2006 @ 5:21am

What about second life?
The game Second Life has an economy where there are not (AFAIK) faceless NPC vendors, but where vendors are all players just like us.

There are not "wandering monsters" each with a pot of gold and sellable items. However, each player does receive a regular income of L$10 - which may/may not be money from thin air.

I have not done a serious analysis, but there are a number of places that exchange L$ for real currency including USD and GBP.

Also, in regards to WoW - they have a subscription model do they not? So some of the wandering monster money/vendor money could be funded from the subscription amount - as "agents" if you like of Blizzard.
[ link to this | view in thread ]
shableep, 17 Oct 2006 @ 5:37am

Gambling?
If it becomes equatable to real money, than playing WoW is like gambling.

Basically, every month you put down your wager. It depends on your performance and risk taking how many gold pieces you get (or chips). Gold pieces get manifested out of air just like casino chips.

In the end it depends on how many gold pieces (chips) you have to cash-out with. And the house always wins.
[ link to this | view in thread ]
Bradley, 17 Oct 2006 @ 5:52am

Type of Game
You really have to look at the kind of online game for this argument to matter.

Second life is positioning itself to be a "real" economy.

Whereas WoW is not. WoW can remove whatever they want because you are not supposed to be converting it into real dollars.

Whereas if second life does something like this, it would effect both the integrity of the system and the real total value of the players.
[ link to this | view in thread ]
MissingFrame, 17 Oct 2006 @ 5:53am

No different than NYSE
Just call it virtual Enron.
[ link to this | view in thread ]
Policy_Wonk, 17 Oct 2006 @ 6:14am

Entropia Universe has a 'real virtual' economy. The PED (game currency) is pegged directly to the dollar (10 - 1) and you can cash out at any time. As far as I can tell, that is a real economy, with real estate selling for thousands of US$. ( http://en.wikipedia.org/wiki/Entropia_Universe ) And I think the analogy to the Fed destroying currency is correct. This could potentialy destroy an economy, but most likely the market will bounce back (exchange rates and inflation will adjust accordingly.
[ link to this | view in thread ]
Joe, 17 Oct 2006 @ 6:19am

I've never commented before
...but I read these news feeds everyday and this article was awful enough to make me want to comment on it.

Of course it's not easy to say these economies relate to real ones, it's a video game, so the idea of this article is trivial, but the basis on which you express your opinion somehow proves you to be wrong; the same thing would happen to a "virtual economy" that would happen to a real economy when currency was found to be counterfeit. The currency is destroyed and any inflation caused by a surplus of currency is adjusted. I can't believe I wasted time writing this but I mean, c'mon
[ link to this | view in thread ]
dave, 17 Oct 2006 @ 6:25am

This is exactly how the money changers operate.

You need to know the history of our money system before you claim to know how it's functionally different from any other scam on the internet or beyond: http://www.themoneymasters.com/
[ link to this | view in thread ]
Anonymous Coward, 17 Oct 2006 @ 6:27am

Re: I'm a dork.
This is exactly how the money changers operate. You need to know the history of our money system before you claim to know how it's functionally different from any other scam on the internet or beyond: http://www.themoneymasters.com/
[ link to this | view in thread ]
Anonymous Coward, 17 Oct 2006 @ 6:33am

HOW INTERNATIONAL BANKERS GAINED CONTROL OF AMERICA http://video.google.com/videoplay?docid=1339460790371560078&q=money+masters
[ link to this | view in thread ]
claire rand, 17 Oct 2006 @ 6:53am

tax?
how exactly does the tax man view this sort of thing?

e.g. i 'earn' (however) l$x.. and later i spend some of it (all within the game)... presumably i gain some sort of advantage from my purchase, even if just entertainment (a service).

yet the tax people haven't had a 'cut' (call it protection money) so how is this viewed?

a few attempts at creating barter economies locally have been set up.. along the lines of babysit for me and i'll wash your windows etc. no cash changes hands, no bodies income is affected. but services that should be paid for and thus taxed have been excahnaged.

if memory serves someone offered to wash the tax offices windows as payment..

i'll view this sort of thing as a 'real economy' when the tax people are present.
[ link to this | view in thread ]
claire rand, 17 Oct 2006 @ 6:58am

community currency
ahh found something like it http://www.buildfreedom.com/snapshot.htm
[ link to this | view in thread ]
Chronno S. Trigger, 17 Oct 2006 @ 8:00am

The reason its not taxed
The reason is that no one or at least not enough people are making any kind of profit off of this. If they were it is required to put as a source of income on your tax report. But you have to make a certain amount before they care.
As with gambling if you make enough its supposed to be taxed.
[ link to this | view in thread ]
Anonymous Coward, 17 Oct 2006 @ 8:31am

rtard
[ link to this | view in thread ]
MMO Economist, 17 Oct 2006 @ 9:26am

It is all balance
I like to consider myself i sort of expert on MMO's. I wont get into credentials for sake of time, but when it comes to money, it doesnt matter how much money is created/destroyed as long as both values stay close to equal. Yes, in WoW, you can go around creating money all the time by killing mobs and selling loot, however you are losing money at (hopefully) the same rate by repairing your equipment ( WoW players know this is expensive) buying items from NPC Vendors, and paying for training. The goal for any developer is to make sure these inputs and outputs are equal. Now, before you ask "What about player's trading" , let me go ahead and say that it isnt a concern to developers from an economical standpoint because here money isn't created or destroyed, it is just moved around, therefore no risk of inflation/depression. As long as input / output of the money is equal , there isnt much of a risk of severe economical problems. And in the case of the 11 million gold removed by blizzard, it was not generated fairly, or with the intent of using it fairly, so blizzard , in turn, had to perform a similar unfair act to adjust, it shouldnt affect the economy as this gold normally just sits in acccounts until someone buys it and spews it all over the place causing mass inflation.
[ link to this | view in thread ]
Anonymous Coward, 17 Oct 2006 @ 9:58am

Re: It is all balance
No wealth creation from trading? Well, makes sense i suppose.

That gives me an idea though. Someone in WoW needs to create a bank. Deposit money, get an interest rate yield. And with that deposited money, loan out a percentage of it, with an interest rate.

I didnt think that through too much though. The mega wealth-creation effect there comes a bit from the loaned money being redeposited at the bank or a short period of time, allowing further lending, but it'd still make some money, if the loan payments could be enforced..
[ link to this | view in thread ]
The infamous Joe, 17 Oct 2006 @ 10:07am

Ah, now I see...
I think I get it now, the author of this article was comparing apples and oranges to trick me into posting a comment..

I live somewhat in a hole, so this Entropia Universe thing is relatively new to me... however, I do play Wow, and it seems to me that the two aren't comparable. (In this matter)

In WoW, if you decide to cancel your subscription, it doesn't matter if you have 2 copper or 720 gold, all that happens is that you can no longer play. The Entropia Universe, judging only from what I can glean from the comments above, if you make lots of in-game money, and decide to stop playing (Or whatever you do in a virtual world) you actually make REAL money depending on how much in game money you've horded.

So, the two aren't even really comparable when it comes to taxes, and yes, if you "earn" enough cash in EU, you SHOULD be taxed... after you cash out... because before that it's not exactly "liquid". Or maybe you can choose on being taxed in game or when you quit... Of course, what do I know?

The real question*, to me, is: Who wants to live a normal life on the computer? Why not.. uh.. just go outside-- or to work? (As opposed to me, who probably wouldn't last long running around with a sword, slaying things.)

*I lied, this is not a real question. Please don't answer this: It's just a joke, and not a very funny one at that.
[ link to this | view in thread ]
jon baker, 17 Oct 2006 @ 10:17am

sites
with sites like ige.com and mmoexchange.com where you can buy and sell currency on the fly why would it not just be considered another job?
[ link to this | view in thread ]
Anonymous Coward, 17 Oct 2006 @ 10:18am

Can't speak for all countries, but in the US, the IRS expects you to pay taxes on all income. If you choose not to, you are breaking the law. Its called tax evasion. Even though they may not be looking for it now, I can guarantee if they found out you made a million dollars in real life from playing Second Life and didn't report the money on your taxes, you would go to jail. It would go under that "Unreported Income" file.
[ link to this | view in thread ]
jon baker, 17 Oct 2006 @ 10:18am

sites
the above was to refute the comment about gambling, working every day is gambling by his definition so it did not make sense to me. I would rather play a game all day and get paid than work in the drive thru
[ link to this | view in thread ]
dave, 17 Oct 2006 @ 10:21am

Money Supply
It's really quite simple - the value of M0 has declined by the amount that Blizzard has taken out. Just as a central bank could take the paper money and burn it. Like the first comment said, deflation.

http://en.wikipedia.org/wiki/Money_supply
[ link to this | view in thread ]
MMO Economist, 17 Oct 2006 @ 10:32am

Re: Money Supply
No, it will not cause deflation in this case. the money that was removed was either vreated by illicit methods (duping, hacking, etc.) Or farmed by underpaid chinese slaves. This money was never really out in the market, so as long as it is removed before the average player gets their hands on it, it will not affect the economy. Not doing anything would allows these farmers to sell it to players for real world money, but no effort on their part in the game, thereby putting money on the free market, with no effort input. Trust me , Blizz knows what they're doing, and they are doing the right thing.
[ link to this | view in thread ]
Never played WoW, 17 Oct 2006 @ 10:49am

Wow Money Real Money
I propose that WoW money could be exchanged for real money:

Imagine this: a one-month subscription cost (I don't know what it is, so let's say $15) could be equivalent to $15K or $15M in WoW money.

That means that if a player buys/kills/finds enough money in the world (meaning, they play a lot), they rack up enough money after a few weeks or months to allow for "one month free". They would take their $15K to the in-game stores and trade it, instead of weapons or needed items, for game-time.

That kind of "reward system" would keep WoW gamers playing, it wouldn't cost the company all TOO much in "lost revinue" (if the cost of "free" game-time was steep enough), and it would help the WoW economy so these mysterious "million-dollar disappearings" don't need to happen.

Or, they could just create a central bank inside of WoW, with the chance for gamers to group together and try to rob the place; full with "getting caught means you go straight to jail". :-p
[ link to this | view in thread ]
WoW Junkie, 17 Oct 2006 @ 2:41pm

Counterfeit
Consider the money that Blizzard removes from the game equivilant to the treasury department/secret service removing counterfeit currency from real money circulation.

The gold is obtained by cheating and illegal copying. Removing it is just like seizing assets from drug runners and counterfeiters.
[ link to this | view in thread ]
Anonymous Coward, 17 Oct 2006 @ 4:44pm

i wonder if anyone has thought of making a stock exchange and have different game economies enteract.
[ link to this | view in thread ]