June 13, 2024

Virtual Worlds: Only a Game?

I wrote yesterday about virtual worlds, and the inevitability of government intervention in them. One objection to government intervention is that virtual worlds are only games; and it doesn’t make sense for government to intervene in games.

Indeed, many members of virtual worlds want the worlds to be games that operate at some remove from the real world. Games are more fun, they say, when what happens in the game doesn’t have real-world consequences. This was a common topic of discussion at State of Play.

The crux of this issue is the status of the in-world (i.e., in the virtual world) economy. Players can accumulate in-world stuff, including in-world currency, and they can trade in-world stuff for in-world currency. (A world might be designed without an identified currency, but it’s fairly certain that one in-world commodity would emerge as a consensus currency anyway.) Is in-world money just Monopoly money, or is it in some sense real money?

The only sensible answer is that it’s real money if it’s readily exchangeable for real-world currency. If you can trade in-world gold pieces for U.S. dollars (or Euros, etc.), and vice versa, then in-world gold is real money, and the in-world economy is a real economy.

If the world-designer wants to keep the world’s economy from becoming real, then, the designer must stop members from exchanging in-world currency for real currency. And this seems pretty much impossible, because there is no way to stop players from making side payments in the real world. Suppose Alice has gold pieces and Bob has dollars, and they want to trade. Bob transfers the dollars to Alice via a real-world channel (perhaps PayPal); virtual Alice gives virtual Bob the gold pieces. In-world, all that happens is a gift of gold from Alice to Bob. The dollar transfer isn’t visible to the world’s management. The world-designer can ban gifts of gold, but Alice and Bob can work around that ban by having Alice “lose” the gold in a private place where Bob will find it, or by cooking up a sham transaction where Alice buys a virtual toothpick from Bob at an inflated price.

Experience seems to show that any sufficiently popular in-world currency will become exchangeable for real money, whether the world-designer likes it or not.

There’s a useful lesson here about the limitations of code as a law-enforcement mechanism. One might think that code is law in a virtual world, in the sense that the world-designer writes the software code that defines what is possible in the world. It would be hard to think of a situation where code had more power to control behavior than in a virtual world. And yet the code can’t separate the virtual world from the real world. The reason it fails to do so is that the code doesn’t define the whole domain of human action; and people can defeat the code’s would-be restrictions by acting outside the code’s domain of control.

Once a virtual world gets big enough, and people value in-world stuff highly enough, it can no longer be just a game. The virtual world will touch the real world, along a sort of border through which money and communication flow.


  1. You know what is also “just a game”. Sports. Yet it is universaly acceptable that a signed football by an entire NFL team might be worth millions, yet there is no such acceptance to the worth of virtual property (which DOES have tangible worth)

  2. The interesting question here is to what extent government regulation reaches into the game world, versus acting only at the boundary between the real and virtual worlds.

    Let us agree for the sake of argument that government has a legitimate role at the boundary. If people sell virtual goods for real money, that is a transaction that can be taxed and regulated just like selling any other good or service for real money. Likewise if a game takes people’s money in subscription fees and there are subsequent problems in performance or collection, these are real world issues just like for any other service provider and are the province of government.

    The question is, to what extent should regulation go deeper? Should transactions within the game be subject to taxation, for example? If Paul’s exchange above were to go through OK, should the parties involved pay taxes on the transaction, even though no real-world dollars are involved? Barter transactions are theoretically taxed in the real world, and this is arguably the same thing. Then, should the taxation be in real-money dollars, or could it be in game dollars? Would the government have the right to force any in-game exchange to pay a tax of in-game currency? If a troll eats an adventurer and takes his gold, would an omnipotent tax collector pop into existence and take away the state’s percentage?

    Paul’s example illustrates another issue, the case of fraud and failure to perform contracts. Should a real-world government impose regulations on purely in-game content to maintain fairness?

    We can stretch these examples to the point of silliness. Should there be a minimum wage for game players, so that parties who fail to recover enough gold from their raids get compensated somehow? How about health and safety issues? Is it fair for avatars to be subject to dangerous weapon cuts and even death from spells and animal attacks? OSHA would certainly not allow such actions in the real world, why are they allowed in the game world?

    Clearly, we cannot apply all of the rules of real-world experience to the game world. Perhaps we could successfully go to the other extreme and restrict government regulation and control to the interface between virtual and real worlds. This policy may become strained if games become more fleshed out and all-encompassing, and people spend more of their lives in virtual worlds.

    I suggest that the bottom line is that ultimately, we make these rules and regulations for our own benefit. Any proposed regulation of in-game activity should not be based on blind application of analogies, like barter above, or worse, by convoluted parsing of existing regulations by some bureaucrat or judge. We need to have a social conversation and debate about these emerging worlds where a new generation spends so much of its time. That is how we can decide what regulations make sense, in terms of making the game world a better and more enjoyable place for everyone.

  3. There is a simple way to prevent in-game transactions where money is exchanged outside the game: governments can pass laws to make that illegal and impose stiff penalties. Then when someon’e caught doing it, they pay fines and go to jail.

    I’m sure that sounds unreasonable and impractical to you, but bear in mind that big companies are currently trying, in many fields, to get governments to solve their problems exactly this way. Draconian laws against reverse engineering, or disseminating ways to crack a code, are two examples.
    – tobias d. robison, Princeton, NJ USA.

  4. Any idea what the going real-world prices of interesting artifacts are for virtual worlds where fraud is a part of the accepted ethos and ones where it’s not? (Economics being what it is, there are good explanations for any ratio, but it probably says something about the detailed thinking of people drawn to various kinds of virtual worlds.) The boxing analogy is definitely a good one, but I wonder whether ice hockey might not be even more illuminating — there are many violent acts that are allowed on the ice that wouldn’t be legal on a sidewalk; there are also violent acts that are officially against the rules but that carry only minor sanctions, then violent acts that carry major sanctions within the game world, and finally violent acts that can lead to sanctions outside the game world (players have, rarely, been prosecuted for causing serious injuries in other players).

    (By the way, I think now that I may have been wrong to say that virtual worlds have borders that are more permeable to persons than to goods. That depends on what you consider a “person” to be — insofar as it’s a carefully-built avatar, it may be portable only with major effort.)

  5. Paul,

    Your hypothetical is even more interesting in light of the differences in social norms between virtual worlds. In some worlds, the ha-ha-scroll trick is considered antisocial behavior. In other worlds, it’s just considered a clever trick that is “part of the game”. At State of Play, the guy running one such world, EVE Online, summed up the ethos of his world’s members pithily as “fraud is fun”.

    At one point this led to a discussion about law enforcement and the sport of boxing. The law allows things in the boxing ring that it wouldn’t allow on a street corner, because boxing takes place in a well-understood and accepted setting. (Leave aside for now the ethical arguments that boxing should be banned.) But that doesn’t mean that arbitrary violence is allowed in the boxing ring.

  6. The question, it seems to me, isn’t whether real-world law has any business in the virtual world, but rather what business it has in regulating behaviors that (actually or potentially) cross the border between real and virtual domains. If people could live entirely within virtual domains, a rule of “everything that happens in cyberspace stays in cyberspace” might be viable, but they can’t and don’t.

    If an anti-hex shield can be sold for $100 on eBay, and a virtual-gold bar can be sold for $10, then when I agree to transfer 10 anti-hex shields to you for 90 virtual gold bars, that sounds like a good deal. If what I deliver is 10 scrolls that shout “Ha-ha!” and disappear in puffs of smoke, you’ve just been defrauded of property worth $900 in the real world, and some enforcement entity should probably have a look at the matter.

    Ultimately, except for the current informality of transactions in game-oriented virtual worlds, there’s not much difference I can see between the hypothetical transaction above and the one where you send me a pile of bits that my computer can use to do nice things (let’s call this pile “Photoshop”) and I send you a pile of bits that you can take to my bank and exchange for money (let’s call this other pile of bits “a credit-card authorization”).

  7. It’s sad how often you see real world transactions for in-game items, Ebay houses thousands of auctions for virtual items for incredible prices on items in games.

  8. Don’t take it too much for granted that virtual worlds will always have an owner.

    Laws are more readily applicabled to owned worlds because of their stability, which is primarily a choice made by the commercial interests of their owners, who because they charge access, must therefore ensure they have absolute control over access, and because they charge for a service, they also have a resposibility. It all adds up to a good semblance of control over a stable environment, precisely the right kind of conditions to give players sufficient confidence to do real world deals in exchange for virtual world consequences.

    You take away the owner, and it all becomes a lot more flaky.

    Real world law has no business in the virtual world – it’s a different universe.

    Otherwise, we’ll be seeing people in court for defaulting on their rent in a game of Monopoly.

  9. Ulrich Hobelmann says

    Paul, I think the most useful social sanction about market-people you don’t like is the same as in the real world: don’t buy from them. If they don’t make a profit, they’ll go away all of their own 😉

    The converse tells you that they’ll probably be nice to people, if they’re in it for a profit.

    Other “crimes” could be punished community-wise. If someone decides to burn down a village (for instance), people will surely start fighting, and expel him. Just think of how a real-world small town, somewhat away from “civilization”, and without a magical state that protects them handle problems: on their own.

    If someone would buy enough in-game material and pay bribes to build an army, I’m sure people would build an alliance against them (like they do against attacking barbarians).

    And of course: as long as nothing is *actually* broken (i.e. no actual pests running around), don’t fix it…

    (by the way, I think that the potential for real-world-like conflict is what could make these games even more exciting. simple high-score and character-building gets boring after a few days)

  10. Nato Welch says

    “Gaming” is used in many contexts, today. First, there are “table-top” dice-and-paper role-playing games like the venerable Dungeons & Dragons. Next, there are video games, from arcade stand-ups to today’s console and PC games. Then, there is the oldest of all: gambling. I’m not sure how long the term “gaming” has been using to describe gambling, but it’s certainly had the hell regulated out of it; mostly because of it’s relatively unique habit of dealing in national currency. If an MOG does the same thing, I don’t see why it should be unusual to think of regulating it. In fact, I wouldn’t be surprised if a large body of law intended for gambling *already applies* to MOGs.

    Second, I wonder if by not only constraining gifting exchanges, but also the price of transactions, a game operator might be able to successfully shut off transactions. Convenience is a primary feature of currency; if the game developers make trade inconvenient enough *for the purposes of out-of-game trading* while keeping in-game trade fair, it could still work.

  11. It could be interesting to see what market regulations can effectively be established in virtual worlds. If, for example, you had a community of people who believed that trade with meatspace should be discouraged (say, because a real-money-rich entity could buy seriously game-distorting advantages, or because people engaged in activities for real-money profit could damage the quality of life in the virtual world) you might be able to apply social sanctions. Or, with a slightly different governance structure, a network of informers might develop, so that the world-owner could sanction those credibly accused of breaking the rules. (World-owners are, “of course”, ultimately absolute despots constrained only by whether too many people get fed up with their rule; this may change if people start losing significant assets with real-world value.)

    In some ways, these kinds of trade issues resemble real-world trade questions, but with a twist. In the real world, capital and intellectual property cross borders easily, but human movements are sharply constrained. In cross-border interactions with cyberspace, people move freely, but the movement of goods is uncertain.

  12. Ulrich Hobelmann says

    Just like all market regulations in the past only brought up black markets with cigarette currencies 😉

    In games people would simply throw (expensive) weapons around if all money transfers would be controlled. The more control is desired over people the more expensive it gets (and the more will people just quit that game for something else, less restrictive, given the choice).