Lenny Raymond's Blog

Virtual Currencies :: Real Currencies

There's a good post over on Kevin's Corner about virtual currencies becoming real currencies.  He lays out a nice analysis.  To a limited degree, this has already happened (e.g. QQ Coins, the Octopus Card, Mindark's bank and its bridging the PED to the Swedish Kroner, etc., etc.).  Its just a matter of time, and not much, for

The IRS is Getting on the Ball - Virtual World Taxation Soon

The IRS should soon be issuing guidelines for reporting income derived from virtual world economic activity. Check out this post on Virtual Worlds News.  Even though nobody likes to pay taxes, its nice to see a US government agency at least being proactive and analytical in understanding the space. The better implication is that these guidelines are likely to serve as a forcing function that will push the creation of a rational (I hope) framework for virtual goods property rights.  This is a big deal.

Talk at Mercyhurst

I gave a talk about the economies of virtual worlds at Mercyhurst a little while back, to graduate students in their intelligence program.  My buddy Prof. Kris Wheaton recently wrote it up on his blog, Sources and Methods.  It's [here]

The Real Economy is Just Like A Poorly Designed MMO Economy

 

I just watched this video:

 

 

And it made me think that, fundamentally, our current economic problems are because we allowed the real economy to become like a poorly designed MMO economy.  A lot of my work lately has been on MMO metagame design, concentrating on making games sustainably fun, integrating the mechanics into the business model, and keeping the game manageable from an operator’s perspective.  A common problem, maybe the  most common problem, in MMO mechanics design is that they are too complicated.  Not just too complicated for players to understand and have fun with, but too complicated to model and test properly, such that unforeseen and unforeseeable pathological conditions are bound to manifest once thousands of people start using them and such that exploits are going to present themselves so rapidly from so many angles that developers will be unable to keep up patching for them.  Much of what my consulting consists of is helping game developers and designers simplify their mechanics such that they have analytically tractable systems.  The main ways to do that are to limit the number of moving parts, keep those parts closely related to the basic atomic game mechanics, ensure that the designs are modular / cellular, and keep the interactions among modules / cells limited to very clear and explicit ones at the top or bottom of any complex processes (i.e. process inputs/outputs, but no intermediate goods).

 

The financial markets in the real world used to be architected mainly by these principles:  currencies firewalled off national/regional economies, financial services firms were tied to specific jurisdictions and operated under more or less local oversight, financial products were relatively simple and their proliferation and innovation in their design was controlled by stick-in-the-mud regulators, derivatives were tightly tied to their underlying commodities, etc., etc.  Then finance globalized, regulators became decreasingly effective when faced with transnational firms and increasingly sophisticated products, product innovation accelerated at a breathtaking pace, structural firewalls fell away with the effective repeal of the Glass-Steagal Act and product deregulation like the Graham-Lugar act.  The upshot of all of this is that financial markets “mechanics” that had been relatively simple became ever more complex and less transparent and harder to analyze, firewalls that kept processes cellular and would have prevented systemic failures (like state chartered banks, investment banking separated from commercial banking from insurance, reasonable capital/margin requirements that apply to all instruments, all instruments going on the balance sheet, capital/margin requirements applying to all market participants, etc., etc., etc.), and an increasing disconnection of the “real goods economy” to financial markets.  They system become np-complete in its combinatorial complexity, or it became “Chaotic” (in the Complexity Theory sense of the word) on a global scale.  Of course, financial markets have always been Chaotic, but in the past they have been firewalled off from each other, and in the instances that they bled across borders (e.g. LTCM), they at couldn’t back up into the real economy too badly because derivatives were still fundamentally tied to their underlyings and there were still capital requirements against them. 

 

This is terrible metagame design.

 

When you make a game like this there will inevitably be exploits discovered by the players.  Witness: credit default swaps.  When the GMs are asleep at the switch, or the system is so complex that the effects of the exploit are not apparent until it gets to huge scale, or the GMs are in league with goldfarmers working the exploit, the exploit is absolutely bound to ruin the game, and nobody has fun anymore.

China Taxes Virtual Worlds

Virtual Worlds News reports that the government of China has imposed a tax of 20% on income earned in virtual worlds currency / for selling virtual goods.  This was inevitable, but is still hugely significant: it is bound to force a rationalization of property rights laws as the pertain to virtual worlds, and because gold farming is an inherently transnational business, China's tax and property policies are going to back up into the rest of the world very quickly.

Netherlands Court Determines Virtual Goods are Real

Its about time a proper country (no offense to Vanuatu) started acting sensibly and recognized that virtual goods can be every bit as much property as tangible goods.  I hope this sets a precedent for the EU, and then the WTO.  Thanks Virtual Worlds News.

Time for a 'Net Politician

There is a really insightful, thought provoking post on BLDGBLOG about how American politics, and politicians, are fixated on the notion that rural, small town America is the "real" America, and its values and problems are the ones that should be of greatest concern, whereas in reality the vast majority of Americans live in urban environments and the domestic problems of greatest importance to the nation are fundamentally urban. The well argued point of the piece is that knowing what it's like to live in an apartment New York City is far more relevant to knowing how to govern than is knowing what it's like to live on a ranch in remote Montana.  One of the factoids cited by the post is that there are more World of Warcraft players in the United States than there are farmers.

The fact that there are more WoW players than farmers in the country, I think, speaks to a larger point.  There are now far more people in the US that effectively make their livings, spend the  majority of their leisure time, do most of their communicating & socializing, and consume most of their media in cyberspace than there are farmers (or firefighters, or doctors, or you name it). While these people are not a coherent demographic group, they share a lot of concerns, have more than a few values in common, and are effectively addressed in more or less the same way - put those things together and you have a group that politicians should court. As today's kids who are natives on Twitter, Club Penguin, Facebook, etc. grow into increased political activity they will become a powerful social force, and possibly a powerful voting block.