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A virtual economy (or sometimes synthetic economy) is an emergent
economy An economy is an area of the production, distribution and trade, as well as consumption of goods and services. In general, it is defined as a social domain that emphasize the practices, discourses, and material expressions associated with the ...
existing in a
virtual world A virtual world (also called a virtual space) is a computer-simulated environment which may be populated by many users who can create a personal avatar, and simultaneously and independently explore the virtual world, participate in its activities ...
, usually exchanging
virtual goods Virtual goods are non-physical objects and money purchased for use in online communities or online games. Digital goods, on the other hand, may be a broader category including digital books, music, and movies. Virtual goods are intangible by defini ...
in the context of an
online game An online game is a video game that is either partially or primarily played through the Internet or any other computer network available. Online games are ubiquitous on modern gaming platforms, including PC game, PCs, Console game, consoles and ...
, particularly in massively multiplayer online games (MMOs). People enter these virtual economies for recreation and entertainment rather than necessity, which means that virtual economies lack the aspects of a real economy that are not considered to be "fun" (for instance, avatars in a virtual economy often do not need to buy food in order to survive, and usually do not have any biological needs at all). However, some people do interact with virtual economies for "real" economic benefit. Despite primarily dealing with in-game currencies, this term also encompasses the selling of virtual currency for real money, in what is sometimes called "open centralised marketplaces".


Overview

Virtual economies are observed in
MUD A MUD (; originally multi-user dungeon, with later variants multi-user dimension and multi-user domain) is a Multiplayer video game, multiplayer Time-keeping systems in games#Real-time, real-time virtual world, usually Text-based game, text-bas ...
s and
massively multiplayer online role-playing games A massively multiplayer online role-playing game (MMORPG) is a video game that combines aspects of a role-playing video game and a massively multiplayer online game. As in role-playing games (RPGs), the player assumes the role of a character (of ...
(MMORPGs). The largest virtual economies are found in MMORPGs. Virtual economies also exist in life simulation games which may have taken the most radical steps toward linking a virtual economy with the real world. This can be seen, for example, in
Second Life ''Second Life'' is an online multimedia platform that allows people to create an avatar for themselves and then interact with other users and user created content within a multi player online virtual world. Developed and owned by the San Fra ...
's recognition of
intellectual property Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more than others. The best-known types are patents, cop ...
rights for assets created "in-world" by subscribers, and its ''
laissez-faire ''Laissez-faire'' ( ; from french: laissez faire , ) is an economic system in which transactions between private groups of people are free from any form of economic interventionism (such as subsidies) deriving from special interest groups. ...
'' policy on the buying and selling of Linden Dollars (the world's official currency) for real money on third party websites. Virtual economies can also exist in browser-based Internet games where "real" money can be spent and user-created shops opened, or as a kind of emergent gameplay. Virtual property is a label that can refer to any resource that is controlled by the powers-that-be, including virtual objects,
avatars Avatar (, ; ), is a concept within Hinduism that in Sanskrit literally means "descent". It signifies the material appearance or incarnation of a powerful deity, goddess or spirit on Earth. The relative verb to "alight, to make one's appearance ...
, or user accounts. The following characteristics may be found in virtual resources in mimicry of tangible property. Note however that it is possible for virtual resources to lack one or more of these characteristics, and they should be interpreted with reasonable flexibility. # Rivalry: Possession of a resource is limited to one person or a small number of persons within the virtual world's game mechanics. # Persistence: Virtual resources persist across user sessions. In some cases, the resource exists for public view even when its owner is not logged into the virtual world. # Interconnectivity: Resources may affect or be affected by other people and other objects. The value of a resource varies according to a person's ability to use it for creating or experiencing some effect. # Secondary markets: Virtual resources may be created, traded, bought, and sold. Real-world assets (typically money) may be at stake. # Value added by users: Users may enhance the value of virtual resources by customizing and improving upon the resource. The existence of these conditions create an economic system with properties similar to those seen in contemporary economies. Therefore, economic theory can often be used to study these virtual worlds. Within the virtual worlds they inhabit, synthetic economies allow in-game items to be priced according to
supply and demand In microeconomics, supply and demand is an economic model of price determination in a Market (economics), market. It postulates that, Ceteris paribus, holding all else equal, in a perfect competition, competitive market, the unit price for a ...
rather than by the developer's estimate of the item's utility. These emergent economies are considered by most players to be an asset of the game, giving an extra dimension of reality to play. In classical synthetic economies, these goods were charged only for in-game currencies. These currencies are often sold for real world profit.


Marketplace

The release of Blizzard Entertainment's
World of Warcraft ''World of Warcraft'' (''WoW'') is a massively multiplayer online role-playing game (MMORPG) released in 2004 by Blizzard Entertainment. Set in the ''Warcraft'' fantasy universe, ''World of Warcraft'' takes place within the world of Azeroth ...
in 2004 and its subsequent huge success across the globe has forced both MMORPGs and their secondary markets into mainstream consciousness, and many new market places have opened up during this time. A search for WoW Gold on
Google Google LLC () is an American multinational technology company focusing on search engine technology, online advertising, cloud computing, computer software, quantum computing, e-commerce, artificial intelligence, and consumer electronics. ...
will show a multitude of sites (more than 90 sponsored results ) from which Gold can be purchased. Real money commerce in a virtual market has grown to become a multibillion-dollar industry. In 2001, EverQuest players Brock Pierce and Alan Debonneville founded ''Internet Gaming Entertainment Ltd (
IGE Immunoglobulin E (IgE) is a type of antibody (or immunoglobulin (Ig) " isotype") that has been found only in mammals. IgE is synthesised by plasma cells. Monomers of IgE consist of two heavy chains (ε chain) and two light chains, with the ε c ...
)'', a company that offered not only the virtual commodities in exchange for real money but also provided professional customer service. ''IGE'' had a trained staff that would handle financial issues, customer inquiries and technical support to ensure that gamers are satisfied with each real money purchase. It also took advantage of the global reach of synthetic worlds by setting up a shop in
Hong Kong Hong Kong ( (US) or (UK); , ), officially the Hong Kong Special Administrative Region of the People's Republic of China ( abbr. Hong Kong SAR or HKSAR), is a city and special administrative region of China on the eastern Pearl River Delt ...
where a small army of technically savvy but low wage workers could field orders, load up avatars, retrieve store goods and deliver them wherever necessary. This lucrative market has opened a whole new type of economy where the border between the real and the virtual is obscure. Hundreds of companies are enormously successful in this newfound market, with some virtual items being sold for several million dollars, like Beeple's ''
Everyday Everyday or Every Day may refer to: Books * ''Every Day'' (novel), by David Levithan, 2012 Film * ''Every Day'' (2010 film), an American comedy-drama starring Liev Schreiber and Helen Hunt * ''Everyday'' (film), a 2012 British drama direct ...
''. Some of these companies sell multiple virtual goods for multiple games, and others sell services for single games. Virtual real estate is earning real world money, with people like 43-year-old '' Wonder Bread'' deliveryman, John Dugger, purchasing a virtual real estate for $750, setting him back more than a weeks wages. This virtual property includes nine rooms, three stories, rooftop patio, wall of solid stonework in a prime location, nestled at the foot of a quiet coastal hillside. Dugger represents a group of gamers that are not in the market for a real house but instead to own a small piece of the vast computer database that was Ultima Online, the mythical world in which the venerable MMO Ultima Online unfolds. Such trading of real money for virtual goods simply represents the development of virtual economies where people come together where the real and the synthetic worlds are meeting within an economic sphere. Although virtual markets may represent a growth area, it is unclear to what extent they can scale to supporting large numbers of businesses, due to the inherent substitutability of goods on these markets plus the lack of factors such as location to dispense demand. In spite of numerous famed examples of the economic growth of
Second Life ''Second Life'' is an online multimedia platform that allows people to create an avatar for themselves and then interact with other users and user created content within a multi player online virtual world. Developed and owned by the San Fra ...
, an amateur analyst in 2008 estimated the income inequity in Second Life's economy as worse than has ever been recorded in any real economy: a Gini coefficient of 90.2, a Hoover index of 77.8, and a Theil index of 91%. However, the application of these economic measures to a virtual world may be inappropriate where poverty is merely virtual and there is a direct relationship between in-game wealth and time spent playing. The global secondary market - defined as real money trading between players - turnover was estimated at 880 million dollars in 2005 by the president of the, at the time, market leading company IGE. Before that, in 2004, the American economist Edward Castronova had estimated the turnover at over 100 million dollars based solely on sales figures from the two auction sites eBay and the Korean itemBay. A speculative extrapolation based on these quotes and other industry figures produced a global turnover figure of 2 billion dollars as of 2007. However, the secondary market is unlikely to have followed the growth of the primary market since 2007 seeing as game companies have become better at monetizing on their games with microtransactions and many popular games such as World of Warcraft are sporting increased measures against player to player real money trading. Also hampering the turnover growth are the extreme price drops that has followed the increased competition from businesses in mainland China targeting the global secondary market. Furthermore, the global decline in consumption that followed the
financial crisis of 2007–2008 Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fi ...
would have affected the secondary market negatively as well. Post 2007 secondary market growth is likely localized to
emerging markets An emerging market (or an emerging country or an emerging economy) is a market that has some characteristics of a developed market, but does not fully meet its standards. This includes markets that may become developed markets in the future or were ...
such as Russia, eastern Europe, South America, and South East Asia - all of which are relatively inaccessible to international merchants due to payment systems, advertisement channels and language barrier. For example, South Korea is estimated to have the biggest share of the global real money trading market and it has there become an officially acknowledged and taxable part of the economy. In western countries the secondary market remains a black market with little to no social acceptance or official acknowledgement. As for an actual economic model, secondary market turnover in popular player vs player oriented MMORPGs without trade restrictions such as Runescape, EVE Online and Ultima Online has been estimated at around 1.1 dollar per concurrent player and day. No model for more regulated MMORPGs such as World of Warcraft has been suggested. However, being a largely unregulated market and tax free market, any turnover figure or economic model remain speculative.


Types of virtual currencies


Standard currency

Many games, both online and off, use a common or standard type of currency that can only be earned in-game and used to spend on in-game items that cannot be traded with other players or converted to real-world funds by means provided by the developer; for example, by completing quests in ''World of Warcraft'', players earn gold pieces that are used to purchase new gear.


Premium currency

Many online games, particularly those that use the
freemium Freemium, a portmanteau of the words "free" and "premium," is a pricing strategy by which a basic product or service is provided free of charge, but money (a premium) is charged for additional features, services, or virtual (online) or physical (o ...
model, offer at least one additional form of currency beyond its standard one, called premium currency. Premium currency cannot typically be earned in-game like common currency but instead by purchasing the premium currency using real-world funds. Premium currency typically is limited to purchase time-limited virtual goods, access to new characters or levels, large quantities of standard in-game currency, temporary boosts to the player-character's experience growth, or other goods that cannot be acquired with the common in-game currency. Once premium currency is purchased, it is rare for players to be able to revert the premium currency, or the goods purchased with it, back into real-world funds without selling it to other players through 3rd-party websites, making it a "one-way currency". Most commonly, premium currency must be purchased through
microtransaction Microtransactions, often abbreviated as mtx, are a business model where users can purchase virtual goods with micropayments. Microtransactions are often used in free-to-play games to provide a revenue source for the developers. While microtransact ...
s in bundles of fixed sizes with discounts for larger purchases, and do not allow players to purchase exactly the amount of premium currency they need for a virtual good. This practice tends to encourage the player to buy additional bundles as to minimize their leftover premium currency, a favorable practice for the publisher.


In-game membership items

Some membership-based MMORPGs take advantage of the population of players who wish to buy in-game items with real money through in-game items that can only be generated by buying them from the developer, which can then be redeemed for membership status or traded with other players for items such as in-game currency. This also allows for games to maintain larger audiences of high-level players as they have the resources to buy membership with in-game gold from people who purchase and trade these items for gold. This also allows for an official conversion rate of in-game currency to real world currency to be established, though many 3rd-party item sellers will work to obtain the in-game currency needed to buy the membership items and sell them on 3rd-party markets at a lower real-world price than the official conversion rate. Many games who implement this monetization model often strictly prohibit 3rd-party real world trading and ban players who do so. Some examples of this form of monetization include Runescape's bonds and World of Warcraft's WoW Tokens.


Cosmetic items

Many online multiplayer games have player-run economies of cosmetic items, sometimes involving and encouraging the use of real-world money. ''
Team Fortress 2 ''Team Fortress 2'' is a 2007 multiplayer first-person shooter, first-person shooter game developed and published by Valve Corporation. It is the sequel to the 1996 ''Team Fortress'' Mod (video gaming), mod for ''Quake (video game), Quake'' and ...
'', a team-based online FPS released by
Valve A valve is a device or natural object that regulates, directs or controls the flow of a fluid (gases, liquids, fluidized solids, or slurries) by opening, closing, or partially obstructing various passageways. Valves are technically fittings ...
in 2007, is a hero shooter, where players selected from one of several created characters to control. In 2009, Valve introduced hats,
virtual goods Virtual goods are non-physical objects and money purchased for use in online communities or online games. Digital goods, on the other hand, may be a broader category including digital books, music, and movies. Virtual goods are intangible by defini ...
that could be used to customize the character models. Hats could be earned by players by accumulating in-game material drops and then used to synthesize the hat, or later could be purchased directly using real-world currency through the game's storefront. Valve also expanded this customization beyond hats to include weapons, weapon "skins" which change the appearance of the weapon, and similar means to customize the selected character avatar. In addition, through Valve's digital storefront
Steam Steam is a substance containing water in the gas phase, and sometimes also an aerosol of liquid water droplets, or air. This may occur due to evaporation or due to boiling, where heat is applied until water reaches the enthalpy of vaporization ...
, players could trade these items, sell them in exchange for monetary credits which could only be used on Steam (from which Valve would take a cut of the sale), or receive them in promotions with other publishers of products they owned. This created a virtual economy around the game, as certain customization items carried status and recognition, giving them a perceived social value status. This created a virtual economy around items in the game, as some rare items, known as "unusuals" by the game community due to various special effects applied, and are seen as having high social value, had traded for as high as , and because of the active trading that incorporated real-world money, Valve hired economist Yanis Varoufakis to help manage this. Valve followed the same pattern with its next major game, '' Counter-Strike: Global Offensive'', where players could earn crates in-game that could be unlocked with keys purchased through real-world funds to obtain weapon skins that were doled out based on a rarity scale, a practice they had started in ''Team Fortress 2''. As with ''Team Fortress 2'' skins, these ''Counter-Strike'' skins gained value as status symbols among players coupled with the rarity of certain skins, and became highly valued, and was considered to help boost the popularity of the game. However, as ''Counter-Strike'' gained favor as an esport, these skins became part of a larger
skin gambling In video games, skin gambling is the use of virtual goods, often cosmetic in-game items such as "Skin (computing)#Video gaming, skins", as virtual currency to bet on the outcome of eSports, professional matches or on other games of chance. It is ...
scheme, where grey market websites, integrated with Steam's features, could allow players to use skins to gamble on the results of ''Counter-Strike'' esport events, and later just using skins to play
games of chance A game of chance is in contrast with a game of skill. It is a game whose outcome is strongly influenced by some randomizing device. Common devices used include dice, spinning tops, playing cards, roulette wheels, or numbered balls drawn from ...
, sometimes skirting many gambling restrictions that virtual and real world casinos are subject to. While some of these websites were taken off line for various reasons, Valve was pressured to prevent abuse of the skin trading systems on Steam. Many games on Valve's video game marketplace
Steam Steam is a substance containing water in the gas phase, and sometimes also an aerosol of liquid water droplets, or air. This may occur due to evaporation or due to boiling, where heat is applied until water reaches the enthalpy of vaporization ...
would implement this form of trading in their games, monetizing it by taking a cut of sales revenue from these items, with Valve also doing the same.


Player-driven economy

Some games may have currency systems that are partially or fully controlled by players of the game. Such games offer the means for players to acquire in-game resources which players may then sell or trade with other players, craft into gear which can be sell or traded, and otherwise create an virtual marketplace within the game above and beyond in-game stores established by the developer. This economy may also mix with real-world currency, with players trading in-game items through external websites to the game. '' EVE Online'' is a prime example of online game with a vast player-driven economy that, in 2014, was estimated to have a total virtual value of based on the trading of the in-game currency. Player-driven economies have led to
immaterial labor Immaterial labor is a Marxist framework to describe how value is produced from affective and Cognition, cognitive activities, which, in various ways, are commodification, commodified in capitalism, capitalist economies. The concept of immaterial lab ...
activities, such as
gold farming Gold farming is the practice of playing a massively multiplayer online game (MMO) to acquire in-game currency, later selling it for real-world money.
in ''
World of Warcraft ''World of Warcraft'' (''WoW'') is a massively multiplayer online role-playing game (MMORPG) released in 2004 by Blizzard Entertainment. Set in the ''Warcraft'' fantasy universe, ''World of Warcraft'' takes place within the world of Azeroth ...
'', where some players are paid in real-world funds to spend the time to acquire in-game wealth for other players.


Recent developments


More controlled markets


Price comparison

Information brokerages and other tools that aid in the valuation of virtual items on secondary markets have increased in number. This has occurred as a response to alleviate the labor involved in leveling that requires hours, days or weeks to achieve. Being able to exchange real money for virtual currency provides the player purchasing power for virtual commodities. As such, players are guaranteed opportunities, increased skills and a fine reputation, which is a definite advantage over others.


Taxation

Most scholars agree that the sale of virtual property for real currency or assets is taxable. However, there are significant legal and practical challenges to the taxation of income from the sale of virtual property. For example, uncertainty regarding the nature and conceptual location of virtual property makes it difficult to collect and apportion tax revenue when a sale occurs across multiple jurisdictions. In addition to taxing income from transactions involving real currency or assets, there has been considerable discussion involving the taxation of transactions that take place entirely within a virtual economy. Theoretically, virtual world transactions could be treated as a form of barter, thus generating taxable income. However, for policy reasons, many commentators support some form of a "cash out" rule that would prevent in-game transactions from generating tax liabilities. Nevertheless, as one commentator notes, "the easier it is to buy real goods with virtual currency (e.g. order a real life pizza) the more likely the IRS will see exclusively in-world profits as taxable." The IRS had included in-game currency as taxable property in forms for calendar year 2019 reporting, but subsequently removed mention of them after complaints were filed about their inclusion.


Gambling regulation

As with the above skin gambling concerns, conversion between in-game and real-world currency has led to direct comparisons with other online ''games of chance'' as 'virtual winnings'. This is why gamers and companies engaged in this conversion, where it is permitted by a game, may fall under
gambling legislation Gaming law is the set of rules and regulations that apply to the gaming or gambling industry. Gaming law is not a branch of law in the traditional sense but rather is a collection of several areas of law that include criminal law, regulatory law, ...
. During an interview with
Virtual World News Virtual may refer to: * Virtual (horse), a thoroughbred racehorse * Virtual channel, a channel designation which differs from that of the actual radio channel (or range of frequencies) on which the signal travels * Virtual function, a programming ...
, Alex Chapman of the British law firm
Campbell Hooper Campbell may refer to: People Surname * Campbell (surname), includes a list of people with surname Campbell Given name * Campbell Brown (footballer), an Australian rules footballer * Campbell Brown (journalist) (born 1968), American television ne ...
stated: "Now we've spoken with the gambling commission, and they've said that MMOGs aren't the reason for the , but they won't say outright, and we've asked directly, that they won't be covered. You can see how these would be ignored at first, but very soon they could be in trouble. It's a risk, but a very easy risk to avoid." He suggested that compliance might require MMOGs and related traders to obtain a gambling license, which is not excessively difficult in the EU. When queried about games where real-world transactions for in-game assets are ''not'' permitted, but there is an 'unofficial secondary market', Chapman responded: "Ultimately the point is whether the thing that you win has value in money or money's worth. If it does have value, it could be gambling." So to avoid regulation by these laws, the "operator would need to take reasonable steps to ensure that the rewards they give do not have a monetary value possibly by demonstrating enforcement of their terms of service prohibiting secondary markets.


Virtual crime

Monetary issues can give a virtual world problems similar to those in the real world. In
South Korea South Korea, officially the Republic of Korea (ROK), is a country in East Asia, constituting the southern part of the Korea, Korean Peninsula and sharing a Korean Demilitarized Zone, land border with North Korea. Its western border is formed ...
, where the number of
video game Video games, also known as computer games, are electronic games that involves interaction with a user interface or input device such as a joystick, controller, keyboard, or motion sensing device to generate visual feedback. This fee ...
players is massive, some have reported the emergence of gangs and mafia, where powerful players would threaten beginners to give money for their "protection", and actually steal and rob. Other similar problems arise in other virtual economies. In the game ''
The Sims Online ''The Sims Online'', also known as ''EA-Land'', was a massively multiplayer online variation on Maxis' computer game ''The Sims''. It was published by Electronic Arts and released in December 2002 for Microsoft Windows. The game was sold in retail ...
,'' a 17-year-old boy going by the in-game name "Evangeline" was discovered to have built a cyber-
brothel A brothel, bordello, ranch, or whorehouse is a place where people engage in sexual activity with prostitutes. However, for legal or cultural reasons, establishments often describe themselves as massage parlors, bars, strip clubs, body rub par ...
, where customers would pay sim-money for minutes of cybersex. Maxis canceled each of his accounts, but had he deposited his fortune in the Gaming Open Market he would have been able to keep a part of it. A 2007 virtual heist has led to calls from some community members in ''
Second Life ''Second Life'' is an online multimedia platform that allows people to create an avatar for themselves and then interact with other users and user created content within a multi player online virtual world. Developed and owned by the San Fra ...
'' to bring in external regulation of these markets: "In late July, a perpetrator with privileged information cracked a stock exchange's computers, made false deposits, then ran off with what appears to be the equivalent of US$10,000, disappearing into thin air. This heist left investors feeling outraged and vulnerable." In '' EVE Online'' however, theft and scamming other players is perfectly allowed within the game's framework as long as no real world trading is committed. Players are allowed to loot all items from fallen victims in battle, but there is a disincentive in the form of NPC police intervention in higher-security space. Virtual possessions valued in the tens of thousands of USD have been destroyed or plundered through
corporate espionage Industrial espionage, economic espionage, corporate spying, or corporate espionage is a form of espionage conducted for commercial purposes instead of purely national security. While political espionage is conducted or orchestrated by governmen ...
and
piracy Piracy is an act of robbery or criminal violence by ship or boat-borne attackers upon another ship or a coastal area, typically with the goal of stealing cargo and other valuable goods. Those who conduct acts of piracy are called pirates, v ...
. This has resulted in widespread retributive warfare and crime between various player
corporation A corporation is an organization—usually a group of people or a company—authorized by the state to act as a single entity (a legal entity recognized by private and public law "born out of statute"; a legal person in legal context) and r ...
s.


Black market

Many MMORPGs such as '' RuneScape'', ''
World of Warcraft ''World of Warcraft'' (''WoW'') is a massively multiplayer online role-playing game (MMORPG) released in 2004 by Blizzard Entertainment. Set in the ''Warcraft'' fantasy universe, ''World of Warcraft'' takes place within the world of Azeroth ...
'', ''
Guild Wars ''Guild Wars'' is an online role-playing game franchise developed by ArenaNet and published by NCSOFT. The games were critically well received and won many editor's choice awards, as well as awards such as Best Value, Best Massively Multiplaye ...
'', '' Warhammer Online'', ''
Lord of the Rings Online ''The Lord of the Rings Online'' is a massively multiplayer online role-playing game (MMORPG) for Microsoft Windows and OS X set in J. R. R. Tolkien's Middle-earth, taking place during the time period of ''The Lord of the Rings''. Originally dev ...
'' and ''
Final Fantasy XI also known as ''Final Fantasy XI Online'', is a massively multiplayer online role-playing game (MMORPG), originally developed and published by Squaresoft and then published by Square Enix as the eleventh main installment of the ''Final Fantasy ...
'' strictly prohibit buying gold, items, or any other product linked with the game, with real world cash. '' RuneScape'' went as far as making this practice impossible after being threatened by credit card companies when their customers who bought gold had their credit cards stolen to be used for bot accounts to farm even more gold by criminal traders. They did this by removing unbalanced trades and their traditional player vs. player fighting system to prevent players from trading items by killing each other in combat for each other's items (this was scrapped on February 1, 2011, after having been in place for 3 years), resulting in over 60,000 cancelled subscriptions in protest. ''
Final Fantasy XI also known as ''Final Fantasy XI Online'', is a massively multiplayer online role-playing game (MMORPG), originally developed and published by Squaresoft and then published by Square Enix as the eleventh main installment of the ''Final Fantasy ...
'' and '' Warhammer Online'' both have entire task forces dedicated to the removal of real money trading from the game. To control real money trading, '' EVE Online'' created an official and sanctioned method to convert real world cash to in-game currency; players can use real world money to buy a specific in-game item which can be redeemed for account subscription time or traded on the in-game market for in-game currency.


Stability

For a persistent world to maintain a stable economy, a balance must be struck between currency sources and sinks. Generally, games possess numerous sources of new currency for players to earn. However, some possess no effective "sinks", or methods of removing currency from circulation. If other factors remain constant, greater currency supply weakens the buying power of a given amount; a process known as
inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reductio ...
. In practice, this results in constantly rising prices for traded commodities. With the proper balance of growth in player base, currency sources, and sinks, a virtual economy could remain stable indefinitely. As in the real world, actions by players can destabilize the economy.
Gold farming Gold farming is the practice of playing a massively multiplayer online game (MMO) to acquire in-game currency, later selling it for real-world money.
creates resources within the game more rapidly than usual, exacerbating inflation. In extreme cases, a
cracker Cracker, crackers or The Crackers may refer to: Animals * ''Hamadryas'' (butterfly), or crackers, a genus of brush-footed butterflies * '' Sparodon'', a monotypic genus whose species is sometimes known as "Cracker" Arts and entertainment Films ...
may be able to exploit the system and create a large amount of money. This could result in hyperinflation. In the real world entire institutions are devoted to maintaining desired level of inflation. This difficult task is a serious issue for serious MMORPG's, that often have to cope with
mudflation This list includes terms used in video games and the video game industry, as well as slang used by players. 0–9 A ...
. Episodes of hyperinflation have also been observed.


Non-fungible token

A non-fungible token (NFT) is a unit of data on a digital
ledger A ledger is a book or collection of accounts in which account transactions are recorded. Each account has an opening or carry-forward balance, and would record each transaction as either a debit or credit in separate columns, and the ending or ...
called a
blockchain A blockchain is a type of distributed ledger technology (DLT) that consists of growing lists of records, called ''blocks'', that are securely linked together using cryptography. Each block contains a cryptographic hash of the previous block, a ...
, where each NFT can represent a unique digital item, and thus they are not interchangeable. NFTs can represent digital files such as art, audio, videos, items in video games and other forms of creative work. While the digital files themselves are infinitely reproducible, the NFTs representing them are tracked on their underlying blockchains and provide buyers with proof of
ownership Ownership is the state or fact of legal possession and control over property, which may be any asset, tangible or intangible. Ownership can involve multiple rights, collectively referred to as title, which may be separated and held by different ...
. Blockchains such as Ethereum, WAXP,
Bitcoin Cash Bitcoin Cash is a cryptocurrency that is a fork of Bitcoin. Bitcoin Cash is a spin-off or altcoin that was created in 2017. In November 2018, Bitcoin Cash split further into two cryptocurrencies: Bitcoin Cash and Bitcoin SV. History Since i ...
and Flow each have their own token standards to define their use of NFTs. NFTs can also be used to represent in-game assets which are controlled by the user instead of the game developer. NFTs allow assets to be traded on third-party marketplaces where players of games such as
Axie Infinity ''Axie Infinity'' is a non-fungible token-based online video game developed by Vietnamese studio Sky Mavis, known for its in-game economy which uses Ethereum-based cryptocurrencies. Players of Axie Infinity collect and mint NFTs which represent ...
or MyCryptoHero can trade their tokenised "Axies" or "Heroes".


Capital

In these virtual economies, the value of in-game resources is frequently tied to the in-game power they confer upon the owner. This power allows the user, usually, to acquire more rare and valuable items. In this regard, in-game resources are not just tradable objects but can play the role of ''
capital Capital may refer to: Common uses * Capital city, a municipality of primary status ** List of national capital cities * Capital letter, an upper-case letter Economics and social sciences * Capital (economics), the durable produced goods used f ...
''. Players also acquire
human capital Human capital is a concept used by social scientists to designate personal attributes considered useful in the production process. It encompasses employee knowledge, skills, know-how, good health, and education. Human capital has a substantial ...
as they become more powerful. Powerful guilds often recruit powerful players so that certain players can acquire better items which can only be acquired by the cooperation among many players.


Other virtual economies

Virtual economies have also been said to exist in the "metagame" worlds of
live action role-playing games A live action role-playing game (LARP) is a form of role-playing game where the participants physically portray their characters.(Tychsen et al. 2006:255) "LARPs can be viewed as forming a distinct category of RPG because of two unique feature ...
and
collectible card games A collectible card game (CCG), also called a trading card game (TCG) among other names, is a type of card game that mixes strategic deck building elements with features of trading cards, introduced with ''Magic: The Gathering'' in 1993. Genera ...
. Other "metagame" currencies have cropped up in games such as ''Everquest'' and ''World of Warcraft''.
Dragon kill points Dragon kill points or DKP are a semi-formal score-keeping system ( loot system) used by guilds in massively multiplayer online games. Players in these games are faced with large scale challenges, or raids, which may only be surmounted through th ...
or DKP are a semi-formal score-keeping system used by
guilds A guild ( ) is an association of artisans and merchants who oversee the practice of their craft/trade in a particular area. The earliest types of guild formed as organizations of tradesmen belonging to a professional association. They sometimes ...
in massively multiplayer online games. Players in these games are faced with large scale challenges, or raids, which may only be surmounted through the concerted effort of dozens of players at a time. Dragon kill points are not official currencies, but are created and managed by
endgame Endgame, Endgames, End Game, End Games, or similar variations may refer to: Film * ''The End of the Game'' (1919 film) * ''The End of the Game'' (1975 film), short documentary U.S. film * ''Endgame'' (1983 film), 1983 Italian post-apocalyptic f ...
guilds to manage distributions of rewards in those raids. Virtual economies represented not only in MMORPG genre but also in online
business simulation game Business simulation games, also known as economic simulation games
s (''
Virtonomics ''Virtonomics'' is a massively multiplayer business simulation video game developed by Cyprus indie developer Gamerflot. It allows the players to be in charge of fictional start-ups in several industries. There are three different versions availa ...
'', '' Miniconomy''). Simplified economy represented in almost all
real-time strategies Real-time strategy (RTS) is a subgenre of strategy video games that do not progress incrementally in turns, but allow all players to play simultaneously, in "real time". By contrast, in turn-based strategy (TBS) games, players take turns to pla ...
('' StarCraft II: Heart of the Swarm'', '' Command & Conquer: Red Alert 2'') in a form of gathering and spending resources. ''
Diablo III ''Diablo III'' is a hack-and-slash action role-playing game developed and published by Blizzard Entertainment as the third installment in the Diablo (series), ''Diablo'' franchise. It was released for Microsoft Windows and OS X in May 2012, Play ...
'' has its virtual economy as well which is represented by online game auction.


Moderation on social news and networking sites

On a number of discussion and networking sites, such as Slashdot,
Reddit Reddit (; stylized in all lowercase as reddit) is an American social news aggregation, content rating, and discussion website. Registered users (commonly referred to as "Redditors") submit content to the site such as links, text posts, images ...
, care2 and
Yahoo! Answers Yahoo! Answers was a community-driven question-and-answer (Q&A) website or knowledge market owned by Yahoo! where users would ask questions and answer those submitted by others, and upvote them to increase their visibility. Questions were orga ...
, points are gained through the garnering of trust evidenced in upward moderations of posted content; however, as stated by Slashdot co-founder
CmdrTaco Rob Malda (born May 10, 1976), also known as CmdrTaco, is an American Internet content author, and former editor-in-chief of the website Slashdot. Career Malda is an alumnus of Hope College and Holland Christian High School. In 1997, Malda and ...
, his implementation of user moderation was not intended as a currency, even though it has evolved on other discussion-oriented sites into such a system. On some such sites, the accumulation of "karma points" can be redeemed in various ways for virtual services or objects, while most other sites do not contain a redemption system. On some sites, points are gained for inviting new users to the site.


Controversy

A game's synthetic economy often results in interaction with a "real" economy; characters, currency, and items may be sold and bought on online auction websites or purchased from standalone webshops. Since January 2007 users are no longer allowed to sell virtual goods of online games on
eBay eBay Inc. ( ) is an American multinational e-commerce company based in San Jose, California, that facilitates consumer-to-consumer and business-to-consumer sales through its website. eBay was founded by Pierre Omidyar in 1995 and became a ...
due to the ambiguous legal status of real world trading. While many game developers, such as Blizzard (creator of ''
World of Warcraft ''World of Warcraft'' (''WoW'') is a massively multiplayer online role-playing game (MMORPG) released in 2004 by Blizzard Entertainment. Set in the ''Warcraft'' fantasy universe, ''World of Warcraft'' takes place within the world of Azeroth ...
''), prohibit the practice, it is common that goods and services within virtual economies will be sold on online auction sites and traded for real currencies. According to standard conceptions of economic value (see the subjective theory of value), the goods and services of virtual economies do have a demonstrable value. Since players of these games are willing to substitute real economic resources of time and money (monthly fees) in exchange for these resources, by definition they have demonstrated
utility As a topic of economics, utility is used to model worth or value. Its usage has evolved significantly over time. The term was introduced initially as a measure of pleasure or happiness as part of the theory of utilitarianism by moral philosopher ...
to the user. Some virtual currencies have even accrued higher value and stability than some real world currencies. One example is Runescape's gold coins, which is more valuable and stable alternative to the Venezuelan Bolívar, with many Venezuelan's turning to selling Runescape gold to make a living. In January 2010, Blizzard stepped up its offensive on account security scams with the launch of a new website. The new Battle.Net account security website hopes to highlight the importance of keeping it safe when it comes to subscribers' accounts.
These pages are part of a larger effort to provide you with the knowledge and tools necessary to identify and report threats to your account's safety, to spotlight ways in which we work to fulfill our security commitment, and to act as a helpful resource in case someone manages to steal account information from you.
Ongoing campaign by WoW fan sites to boycott gold ads on their sites is just one of several community efforts to raise awareness against crackers.
Gold sellers and leveling services are responsible for the vast majority of all account thefts, and they are the number-one source of World of Warcraft-related phishing attempts, spyware, and even credit card theft. Players who buy gold actively support spam, hacks, and keyloggers, and by doing so diminish the gameplay experience for everyone else.
On August 1, 2011, Blizzard Entertainment announced that their forthcoming MMORPG,
Diablo III ''Diablo III'' is a hack-and-slash action role-playing game developed and published by Blizzard Entertainment as the third installment in the Diablo (series), ''Diablo'' franchise. It was released for Microsoft Windows and OS X in May 2012, Play ...
, will include a currency-based auction house, wherein players will be able to buy and sell in-game items for real money. Robert Bridenbecker, Vice President of Online Technologies at Blizzard, explained that the intent behind the effort is largely to reduce account thefts resulting from player interaction with third-party sites. An undisclosed fee structure including listing fees, sale fees, and cash-out fees will accompany the Auction House at launch, and all transactions will exist within the protected context of Blizzard's MMORPG. The "Real Money Auction House" (RMAH), as it is called by the ''
Diablo III ''Diablo III'' is a hack-and-slash action role-playing game developed and published by Blizzard Entertainment as the third installment in the Diablo (series), ''Diablo'' franchise. It was released for Microsoft Windows and OS X in May 2012, Play ...
'' fanbase, will exist in the presence of a parallel auction house wherein items are exchanged for gold, the in-game currency. Accordingly, gold can be posted on the RMAH such that the two currencies may be exchanged for one another at the market rate less applicable fees. Other virtual world developers officially sell virtual items and currency for real-world money. For example, the MMOG ''
There There may refer to: * ''There'' (film), a 2009 Turkish film (Turkish title: ''Orada'') * ''There'' (virtual world) *''there'', a deictic adverb in English *''there'', an English pronoun used in phrases such as ''there is English grammar is the se ...
'' has
therebucks ''There'' is a 3D online virtual world created by Will Harvey and Jeffrey Ventrella. There Inc. was founded in the spring of 1998. Closed beta began in July 2001, with various stages of beta following, and ending with an October 2003 launch date ...
that sell for US dollars. If the currency in ''
Second Life ''Second Life'' is an online multimedia platform that allows people to create an avatar for themselves and then interact with other users and user created content within a multi player online virtual world. Developed and owned by the San Fra ...
'', the Linden Dollars, can be easily acquired with real money, the reverse is done through a market place owned by Linden Lab, but is not guaranteed, as the TOS of linden Lab explicitly says that Linden dollars are not redeemable. Rates would fluctuate based on supply and demand, but over the last few years they have remained fairly stable at around 265 Linden Dollars (L$) to the US Dollar, due to "
money creation Money creation, or money issuance, is the process by which the money supply of a country, or of an economic or monetary region,Such as the Eurozone or ECCAS is increased. In most modern economies, money creation is controlled by the central bank ...
" by Linden Lab. The currency in '' Entropia Universe'', Project Entropia Dollars (PED), could be bought and redeemed for real-world money at a rate of 10 PED for U.S$. 1. On December 14, 2004, an island in ''Project Entropia'' sold for U.S. $26,500 (£13,700). One gamer also purchased a virtual
space station A space station is a spacecraft capable of supporting a human crew in orbit for an extended period of time, and is therefore a type of space habitat. It lacks major propulsion or landing systems. An orbital station or an orbital space station i ...
for U.S. $100,000 (£56,200) and plans to use it as a virtual
nightclub A nightclub (music club, discothèque, disco club, or simply club) is an entertainment venue during nighttime comprising a dance floor, lightshow, and a stage for live music or a disc jockey (DJ) who plays recorded music. Nightclubs gener ...
. Another example was recently cited o
CNBC
that one seller was selling a Pokémon Go account for $999,999. Many Korean virtual worlds (such as
Flyff ''Flyff'' (short for ''Fly for Fun'') is a fantasy MMORPG by Korean development company Gala Lab (formerly Aeonsoft & nFlavor). Flyff is hosted in 13 countries and 10 languages and has over 30 million registered accounts. Development In Decem ...
) and other worlds outside that country (such as Archlord and Achaea, Dreams of Divine Lands) operate entirely by selling items to players for real money. Such items generally cannot be transferred and are often used only as a means to represent a Premium subscription via a method which is easily integrated into the game engine. These intersections with real economies remain controversial. Markets that capitalize in gaming are not widely accepted by the gaming industry. Reasons for this controversy are varied. Firstly, the developers of the games often consider themselves as trying to present a fantasy experience, so the involvement of real world transactions takes away from it. Further, in most games, it would be unacceptable to offer another player real currency in order to have them play a certain way (e.g., in a game of ''
Monopoly A monopoly (from Greek language, Greek el, μόνος, mónos, single, alone, label=none and el, πωλεῖν, pōleîn, to sell, label=none), as described by Irving Fisher, is a market with the "absence of competition", creating a situati ...
'' between friends, offering another player a real dollar in exchange for a property on the board); and for this to be necessary or valuable may indicate a
Kingmaker scenario In game theory, a kingmaker scenario in a game of three or more players, is an endgame situation where a player who is unable to win has the capacity to determine which player among others will win. This player is referred to as the ''kingmaker'' ...
within the game. However, such rules of etiquette need not apply, and in practice they often don't, to massive game worlds with thousands of players who know one another only through the game system. Further and more involved issues revolve around the issue of how (or if) real-money trading subjects the virtual economy to laws relating to the real economy. Some argue that to allow in-game items to have monetary values makes these games, essentially,
gambling Gambling (also known as betting or gaming) is the wagering of something of value ("the stakes") on a random event with the intent of winning something else of value, where instances of strategy are discounted. Gambling thus requires three el ...
venues, which would be subject to legal regulation as such. Another issue is the impact of
taxation A tax is a compulsory financial charge or some other type of levy imposed on a taxpayer (an individual or legal person, legal entity) by a governmental organization in order to fund government spending and various public expenditures (regiona ...
that may apply if in-game items are seen as having real value. If (for example) a magic sword is considered to have real-world value, a player who kills a powerful monster to earn such a sword could find himself being charged tax on the value of the sword, as would be normal for a "prize winning". This would make it impossible for any player of the game ''not'' to participate in real-money trading. A third issue is the involvement of the world's developer or maintenance staff in such transactions. Since a developer may change the virtual world any time, ban a player, delete items, or even simply take the world down never to return, the issue of their responsibility in the case where real money investments are lost through items being lost or becoming inaccessible is significant. Richard Bartle argued that this aspect negates the whole idea of ownership in virtual worlds, and thus in the absence of real ownership no real trade may occur. Some developers have acted deliberately to delete items that have been traded for money, as in
Final Fantasy XI also known as ''Final Fantasy XI Online'', is a massively multiplayer online role-playing game (MMORPG), originally developed and published by Squaresoft and then published by Square Enix as the eleventh main installment of the ''Final Fantasy ...
, where a task force was set up to delete characters involved in selling in-game currency for real-world money. However,
Second Life ''Second Life'' is an online multimedia platform that allows people to create an avatar for themselves and then interact with other users and user created content within a multi player online virtual world. Developed and owned by the San Fra ...
has shown a legal example which may indicate that the developer can be in part held responsible for such losses. Second Life at one stage, offered and advertised the ability to "own virtual land", which was purchased for real money. In 2007, Marc Bragg, an attorney, was banned from
Second Life ''Second Life'' is an online multimedia platform that allows people to create an avatar for themselves and then interact with other users and user created content within a multi player online virtual world. Developed and owned by the San Fra ...
; in response he sued the developers for thereby depriving him of his land, which he – based on the developers' own statements – "owned". The lawsuit ended with a settlement in which Bragg was re-admitted to Second Life. The details of the final settlement were not released, but the word "own" was removed from all advertising as a result. (Bragg purchased his land directly from the developers, and thus they were not an uninvolved third party in his transactions.)


See also

*
Cryptocurrency A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it. It i ...
*
Digital currency Digital currency (digital money, electronic money or electronic currency) is any currency, money, or money-like asset that is primarily managed, stored or exchanged on digital computer systems, especially over the internet. Types of digital cu ...
*
Electronic money Digital currency (digital money, electronic money or electronic currency) is any currency, money, or money-like asset that is primarily managed, stored or exchanged on digital computer systems, especially over the internet. Types of digital cu ...
*
Simulated reality The simulation theory is the hypothesis that reality could be simulated—for example by quantum computer simulation—to a degree indistinguishable from "true" reality. It could contain conscious minds that may or may not know that they live i ...
*
Social simulation Social simulation is a research field that applies computational methods to study issues in the social sciences. The issues explored include problems in computational law, psychology, organizational behavior, sociology, political science, econom ...
*
Virtual reality Virtual reality (VR) is a simulated experience that employs pose tracking and 3D near-eye displays to give the user an immersive feel of a virtual world. Applications of virtual reality include entertainment (particularly video games), educ ...
*
Virtual world A virtual world (also called a virtual space) is a computer-simulated environment which may be populated by many users who can create a personal avatar, and simultaneously and independently explore the virtual world, participate in its activities ...
* Virtual currency


References


External links


Virtual Economy Research Network bibliography
– a comprehensive bibliography of publications related to virtual economy * Castronova, Edward. "Virtual Worlds: A First-Hand Account of Market and Society on the Cyberian Frontier,
''CESifo Working Paper No. 618''
December 2001. * Castronova, Edward. "On Virtual Economies,
''CESifo Working Paper Series No. 752''
July 2002. * Castronova, Edward. "The Price of 'Man' and 'Woman': A Hedonic Pricing Model of Avatar Attributes in a Synthethic World,
''CESifo Working Paper Series No. 957''
June 2003. * Dr. Richard A. Bartle
Pitfalls of Virtual Property
– A philosophical case against the concept of "virtual property" ownership.
Virtual Economies
The Economist, Jan 2005, (subscription) * Zonk (Slashdot)
"Virtual Island Sells For $26,500"
14 December 2004.
Fairfield, Joshua, "Virtual Property"
Boston University Law Review, Vol. 85, 2005
Internet Gambling Regulation Present and Future
– Mark Methenitis' Essay for
Texas Tech University School of Law The Texas Tech University School of Law is an ABA-accredited law school located on the campus of Texas Tech University in Lubbock, Texas. The school offers three academic centers, ten dual-degree programs, a nationally recognized legal writing p ...
detailing internet gambling and economies within MMORPG's and the problems that will be faced in the future.
Economic Theory and MMOGs
– Powerpoint presentation by Sam Lewis, a designer working with
SOE SOE may refer to: Organizations * State-owned enterprise * Special Operations Executive, a British World War II clandestine sabotage and resistance organisation ** Special Operations Executive in the Netherlands, or Englandspiel * Society of Opera ...
, on the interaction between economic theory and MMO design.
Virtual Goods: the next big business model
by Susan Wu * * Lastowka, Greg and Hunter, Dan. "The Laws of the Virtual Worlds,
California Law Review
* Yoon, Ung-Gi. "Real Money Trading in MMORPG items from a Legal and Policy Perspective"
South Korean Judge's thought on RMT in virtual world

A Virtual Weimar: Hyperinflation in a Video Game World
{{DEFAULTSORT:Virtual Economy Emergent gameplay Economic systems Video game terminology