Virtual Economy
On virtual values with impact: in the second podcast of (un)Real Estate series.
by Alina Nazmeeva and Dr. Andrea Marie Chegut
Disclaimer:
(un)Real Estate is the Medium blog series and podcast series. It is a part of an open-ended research project at MIT Real Estate Innovation Lab, exploring the economy of the virtual, the value and norms of virtual space, land, goods, and a real life made of bits.
This is the second episode of our podcast series, Virtual Economy. In this episode we discuss the markets of virtual real estate and goods, different types of virtual worlds, how the design reflects different economic ideas, and the concept of scarcity, specialization, and accumulation in the context of virtual worlds and their economies.
As there are multiple genres and sub-genres of virtual worlds, we think of them all as measured against the possibilities of user interaction and user intervention into the narrative and the space: how much the users can modify and change the environment and the story of a given world. Imagining this as a gradient diagram, we discuss the crucial features of its opposite sides, such as rules, scope of interaction, choice of the character, and the possibilities of economic exchange within the world.
On the one side there are goal-oriented virtual worlds: with missions, levels, player specialization and accumulation of goods and skills: MMOs such as World of Warcraft, Fortnite, or Entropia Universe. On the other side of this gradient diagram there are social virtual worlds which may not have pre-defined objectives, but rather have an appeal for social interaction and creative expression. Those are Minecraft, Second Life or Decentraland.
Virtual economies use so-called in-world currencies. Fortnite has V-bucks, Minecraft has minecoins, World of Warcraft has its gold. Users exchange hard cash for these currencies in order to spend them on virtual goods. However, most of the virtual worlds prohibit the exchange of in-world currencies for hard cash: so if you exchange your WoW gold for hard cash, you most likely will be banned from World of Warcraft.
Further, there are two types of market and economic exchange in virtual worlds: the trade between the developer/publisher companies and the users, and the secondary user-to-user market. In the first case, the game publisher/developer corporations sell additional features and artifacts to the users. These items enhance the experience of a virtual world: they can either help to progress in the game, or serve as status symbols.
Another type of market is the secondary market of virtual goods between the players. While most of the publisher/developer companies in fact prohibit this market, as it violates their IP rights over the in-world content, this market exists in almost every virtual world. Here we arrive at a fundamental tension of Web 2.0 participatory economy, feeding off the value of user generated content. The value of the platform (in our case, a virtual world) is co-constructed by the users, yet they are constrained by the developer/publisher corporations to have ownership rights for the items they purchased, collected or even created from scratch.
Thus, the concept of property ownership, in the context of virtual worlds, has rather a virtual character. The users do not own virtual goods, but are granted a temporary right to use them by the game developer/publisher company. This economic system bears similarity, at least in terms of access and possession, to the other types of content subscription based services, such as Netflix or Kindle.
Besides, not every virtual world has a real estate market. In most of the goal-oriented worlds, land is owned and controlled by the game developer/publisher companies. Social virtual worlds can be opposite: here we see user-to-user trade of real estate and vibrant user-to-user economic interaction, buying and selling land, real estate developers and social grouping forming around certain districts, neighborhoods and collective land ownership.
As the scale and scope of virtual economies is growing exponentially, they have real world impact, with the growth of the user base, and the amount of content produced daily. Virtual economies alter and reinforce culture, systems of exchange and concepts of property ownership in relationship to goods and real estate. More and more daily activities take place in virtual worlds, or relate to virtual goods economies: from augmented reality clothes to mobile games. Back in 2002, gold mining market in World of Warcraft has exceeded $2 billion in value. In 2017, during the first land auction, Decentraland users spent over $16 million on virtual land. In 2018 Candy Crush users spent $4.2 million per day on additional items or ‘boosters’ in the game.
Moreover, economists study the systems of virtual worlds as they provide insight on how the users make economic decisions, and the ways in which different economic structures evolve and emerge over time. Virtual worlds, their data and the possibility to track individual economic transactions of the users provide the opportunity for economic and social research in great detail.
These and many more questions we discuss in this episode, titled Virtual Economy. Stay tuned!
In our next episode we will discuss the concept of Virtual Land, how it is designed, what are the constituent elements of this concept and what is the relationship between geography and economy in virtual worlds.
