A Discussion on Virtual Economies

Sydwell Rammala
Aug 15, 2020
4 min read

Updated: Aug 3

In this article, we take a look at some of the financial aspects that gamers face while traversing their favorite virtual environments. We will also briefly touch on the role of blockchain in the gaming world. To keep in line with some of the themes covered in this article, we will also discuss the decline of a market of sorts. Let us begin!

Virtual Economies: Brief Overview

Understanding Economies

Before discussing virtual economies, it is important to understand what an economy actually is. As this definition is not for a test or an exam, it can be given in terms which will help us understand it thoroughly.

An economy can be understood as a system of organizations and institutions that play a role in the production and distribution (or trade) of goods and services in a society. Economies determine how resources are distributed among members of a society. This means that economies determine the value of a good or a service. In addition to determining value, they also determine what can be traded in exchange for those goods and services. Currency is usually used to buy or sell goods and services

Final comments on economies would be that most of them function under a market system, where individuals own the factors of production, and can do as they choose with what they own, subject to legal constraints. In such a system, the law of supply and demand governs the prices of goods.

Understanding Virtual Economies

According to Wikipedia, a virtual economy is an economy existing in a virtual world, where there is usually an exchange of one virtual good for another in the context of an online game. In a virtual economy, production usually takes the form of players hunting for rare weapons or earning currency in game through a video game’s reward system(earning in game currency for completing missions).

Distribution in virtual economies usually takes the form of bartering. This entails exchanging one good for another. Alternatively, if one player has in-game currency, this currency can be exchanged for a good owned by another player.

One type of video game that provides a really good view of what a virtual economy functions like is Minecraft through its Minecraft Server software. An interesting thing about Minecraft Server economies would be that some of them are studied to obtain a better understanding regarding how real-world economies function. Because there is no central bank intervention in a Minecraft Server Economy, it can be considered as a pure economy, making it ideal to study topics like income inequality. Interested readers can gain more information on income inequality in Minecraft from this paper.

The final point worth mentioning about virtual economies would be they are considered “ethical” within gaming circles, because they do not cut into the profits of video game developers as the topic discussed below does.

Real-Money Trading(RMT) as a Black Market?

A real money trade is the act of trading real world money for in game virtual items or currency. From the perspective of a gamer in an online world, RMTs are “foreign trade” with the outside world. In economics, this is equivalent to a closed economy adding the trade of goods and services with other countries, but doing so illegally.

Alternatively known as the “spillover” effect from the real world, an RMT is when real wealth and currency leaks into the virtual economy and therefore affects the distribution of wealth. Some developers are in favor of RMT, such as those of Team Fortress 2.

From a financial perspective this view has so many advantages for the individuals who play these types of games. In a game like Team Fortress 2 where 90% of the game content in created by the individuals who play the game, there is the additional incentive of not only obtaining recognition for your creations, but also the reward associated with receiving income for your creations.

However not everyone is in favor of RMT. Many players and publishers see the purchase of virtual goods as a form of cheating. Because a wealthy player can simply buy into a game and forgo the trials associated with acquiring virtual wealth through traditional means, other players who have invested time and effort into their progress within a particular game feel alienated by individuals who bought their way there.

While some individuals see RMT as a natural expansion in the same way that international trade signified progress regarding the closed economy system, other individuals like Edward Castranova see it as a pollution of a service that designers are attempting to provide to their customers. Considering the economic implications, I am personally in favor of RMT. Developers and players can both profit from it. What else is there to want from a game?