Virtual Economies within the Real World

As much as we might hate to admit it, a major element of social interaction is based around commerce; social hierarchy and structure has formed around it since the days of hunter/gatherer societies, and does not show any sign of changing any time soon. Whether capital based or commodity based, commerce is simply a part of the human social organism. It shouldn’t be surprising, then, that commerce has migrated into the online world as well. We are already familiar with using real world finances to purchase real world items via the internet (such as eBay and Amazon, among many others); what has become a hot topic for designers and scholars alike is the purchase of virtual goods with real or even virtual money through virtual worlds.

Virtual worlds is a term that has grown out of a need to describe the communal aspect of massively multiplayer online games (MMOG) in a manner that delineates it from the ludological elements of the game. “Virtual World” and MMOG are used relatively interchangeably at this time, though they will continue to diverge as more research and study is performed: a MMOG is by nature a virtual world, but a virtual world needn’t have any ludological element to succeed.

As virtual worlds have grown in complexity and popularity over the past several years, they have begun to take on more and more elements from daily life, including that of commerce. Most virtual worlds have methods for sale and trade of items and virtual currency between players, most often based around the auction house method of sale: you place an item up for bid with a minimum asking price; players bid on the item until the minimum asking price (or more) is offered, at which point the item is sold. Alternatively, player to player private transactions can also be performed. These capabilities have enabled a new type of commerce: trade of real world currency for in game currency or goods. This originated via eBay, with early MMOGs such as Ultima Online and Everquest. These prototypical sales tended to be either in-game currency, or a high level character, selling for anywhere between $100 and $700. As time went on, the trend gained popularity, until it reached a point that people were collecting in-game cash for real world sale as a profession, primarily in parts of Southeast Asia where the exchange value would be maximized. These individuals have become known as “gold farmers,” and are considered a nuisance to players as well as the designers. (According to most End User License Agreements, the sale of in game assets for real money is not allowed, and justification for denial of services.)

That has not stopped the trend, however, and if anything has brought further validity to the idea. A more recent growth from this idea is online currency brokerages, that function much in the same way as a real currency exchange. These brokerages form the basis for a full scale currency exchange rate between virtual and real world currencies, making virtual currencies such as the Final Fantasy XI “gil” World of Warcraft “gold” a viable currency right alongside the yen or the dollar. This might seem unreasonable, but stop to consider for a moment; few if any countries still base their currency on a single commodity, to the point that the actual value of money becomes largely academic, a question of what we’re willing to pay for something, not on the actual value. Even the United States did away with the gold standard, instead basing its currency on a mishmash of variables including the gross national product, and the perceived buying power domestically and overseas. To further invalidate “real world” money as any less imaginary than “virtual” money, consider the fact that (again, in the US), banks are in essence able to create their own money: they are never required to have more than 10% of their total assets in hard currency; the other 90% is simply scrip loaned out to individuals through bank loans and mortgages. With this in mind, it does not seem unreasonable to consider a virtual currency to be just as valid as any other currency, as long as someone is willing to exchange real world money for it.

The validation of virtual currency has in turn provided validity to the notion of virtual space having a real world value. This has progressed past its prototypical origins of selling characters (which is ultimately still oriented around a service, namely taking the time to create a character for someone) and into the realm of selling property within a virtual world. One notable recent event was the purchase of a space resort within a MMOG for a total of $100,000 (Hunter “The Winner and Still Reigning Champion”). While the validity of this purchase as a sound commercial decision is debatable (I personally do not believe the market is mature enough yet for this to be a successful financial venture), the free market adage of “all the market will bear” once again proves true. In a related recent case, players of a particular MMOG created an in-game company that then performed an Initial Public Offering to collect enough in-game assets to purchase a prime property within the game (Hunter “EVE Online and Emergent Structures”). Given the nature of recurring revenue streams and the capability to migrate virtual currency to hard currency, this has overwhelming ramifications.

The next logical leap, and one that I foresee happening within the next few years, is the increased use of virtual currencies to purchase real world items. It is not that far fetched to have a Sims-like virtual world endorsed by several real world companies such as Ikea or Borders to have a virtual showroom, using in-game currency that is then honored by the virtual market exchange rate in order to purchase that item in the real world and have it shipped to your door. Since the virtual currency itself is commoditized, there is no reason for this not to be feasible. It’s the natural evolution of commerce and economics.

Works Cited:

Hunter, Dan. “The Winner and Still Reigning Champion”. Terra Nova. Oct 25, 2005. <>
Hunter, Dan. “EVE Online and Emergent Structures”. Terra Nova. Dec 05, 2005. <>