play money
DIARY of a dubious proposition



(And you can buy it at Amazon.)

Friday, May 30, 2003

The Laws of Virtual Worlds  

Dan Hunter (of U. Penn's legal studies department) and F. Gregory Lastowka (of the law firm Dechert LLP) have written a very nice paper on "The Laws of Virtual Worlds." Contrary to what a lot of people are saying about the paper over on Slashdot (in a thread that also, and with somewhat more justice, outs Yours Truly as a "wank[er]"), it's a thoughtful, nuanced consideration of the relationships, both theoretical and practical, between virtual-world social conflict and real-world law -- and not, in fact, a call to let the U.S. court system start sorting out EverQuest spawn-camping disputes.

Still, you never know. And if someday I find myself before a judge defending my right to make a living off of UO, I will definitely be citing Hunter and Lastowka on the status of virtual objects as property:

Adopting economic accounts that demonstrate the real world value of these objects and the exchange mechanisms for trading these objects, we show that, descriptively, these types of objects are indistinguishable from real world property interests. Further, the normative justifications for property interests in the real world apply - sometimes more strongly - in the virtual worlds.

5:59 PM

Thursday, May 29, 2003

The Twenty-Billion-Gold-Piece Man, Retired  

Behold: the gold farm. Twenty-one PCs, each running 20 or more sessions of Ultima Online, each session automated to exploit a 350,000gp-an-hour loophole in the UO economy. Shall we do the math? 20 x 20 x 350K x 24 hours a day = potential returns of over 3 billion gp (US$45,000) daily.

Was this, then, the source of the 20-Billion-Gold-Piece Man's windfall? Not this particular gold farm, says the well-connected player who sent me the photo. But something very much like it.

The farm was not his own, however. What the 20Bgp Man himself operated, it can now be revealed, was something even more lucrative: a trusted brand. He was none other than the illustrious Ingotdude, longtime supplier of iron ingots to the blacksmiths of Britannia and owner of a walloping 2983 positive feedback points on eBay.

He was, in short, the perfect front man. And if the back men were who I've been told they were (who the whole UO community's been told they were, actually), then a front man was desperately needed. For here, again, we encounter some well-known players: our old friends Black Snow Interactive, ill-fated legal champions of the right to gold-farm, inventors of the legendary Tijuana MMORPG maquiladora, and targets of a $10,000 FTC judgment for sleazy online sales practices (details here and here).

As the photo above implies, Black Snow weren't the only ones macroing the bejeesus out of the bandage bug. But in their eagerness to dump the ill-gotten gains on the market, they were the most brazen. And as there is justice even in imaginary worlds, their hubris once again seems to have brought them down. In the last few weeks OSI has been raining hell-fire on cheaters, closing down hundreds of accounts and issuing dark warnings to the populace at large. Among the first accounts to go, apparently, were Black Snow's.

And now the crackdown seems to have caught up at last with Ingotdude. Click on his Web site, -- for years a busy, chatty, fixture of the UO trading world -- and all you get now is a terse note saying, basically, that the jig is up. Search for his name on eBay, and you see something that to this habitué of the UO auction pages looks a little like the sun suddenly winking out at midday: "This seller is not currently offering any items for sale." (His latest feedback, one of only 14 negatives in four years, reports him "unable to honor longer on UO.")

Some are hopeful that this means the end of the gp's plummet against the dollar, and I can't help hoping too. With the major gold farms knocked out and Ingotdude's hoard off the table, a lot of inflationary money has been wiped from the economy.

But then there's that gold-farm snapshot staring out at me. And I can't help thinking that if bloating the money supply is as easy as that looks, then by this time next year the Britannian gold piece won't be worth the pixels it's made of.

Why am I trying to make money off this economy again?

5:47 PM

Sunday, May 25, 2003

The Twenty-Billion-Gold-Piece Man, Revisited  
OK, remember how I told you about a certain person who is single-handedly depressing the price of the Britannian gold piece (gp) at a rate of about 10% per month? And remember how I told you he is accomplishing this through steady eBay sales of a suddenly acquired 20 billion gp hoard? And remember how I told you he somehow acquired all that gold without actually adding any new gold to the economy?

Well, let's just say two out of three ain't bad: According to an anonymous but apparently well-informed post on the UO Stratics board, every last little bit of that golden hoard was pumped into the UO economy more or less out of thin air.

Specifically, the money was made by purchasing cloth from one set of non-player vendors (bots), then quickly snipping the cloth up into bandages, then selling the bandages to another set of vendors for an hourly profit of about 350K (US$5-7). And the thing to keep in mind about gold that comes from vendors (and other non-player characters, like monsters, who typically drop 50 to 1000 gp when slain) is that it comes from nowhere, minted straight into the database the moment the NPC pays out. Every time you sell to a vendor or vanquish a monster, in other words, you're printing money. Indeed, it's the only way money gets added to the UO economy at all.

Now, this might seem like a fairly wacky way to regulate a currency supply. If we're leery of governments' ability to print money at will, shouldn't we be even more so of a system that lets anybody go out and mint up some cash whenever he or she gets a mind to? In fact, though, UO's system is in the abstract indistinguishable from the most fiscally rigorous monetary system known to economic history: the late, little-lamented gold standard (about which, by virtue of an article or two I've written about gold bugs, I know more than a run-of-the-mill fiscal liberal like me has any right to).

Under the gold standard, gold was more or less the definition of money, which meant that anyone could create money just by going out and digging some up. The catch, of course, was that digging it up was hard, in much the same way slaying UO monsters or finding something to sell to UO vendors is hard. This is why hardcore fiscal conservatives get misty-eyed over the gold standard to this day, because it meant that in practice the supply of money was governed not by random whims but by market forces: if people dug up more gold than the size of the economy warranted, then demand for gold went down, the return on the gold-digger's effort went down, and gold-diggers stopped digging until the economy caught up again.

However, even gold bugs acknowledge that technology puts a kink in this system. Technology, after all, tends over time to make things easier to do, including digging up gold. But because this tendency in general keeps pace with economic growth, it didn't generally disrupt the neat relationship between gold supply and economy. There were occasional exceptions, however, when radically new mining techniques suddenly dropped the cost of digging up gold faster than expected, flooding the money markets with supply. And on gold-bug mailing lists today you can hear talk (in tones usually reserved for the prospect of an asteroid hitting planet Earth) of the gold investor's worst nightmare: that someday some mad scientist may figure out an affordable way to extract the microscopic gold adrift in seawater, of which there are many times more than of all the gold that's ever been dug up on land.

What does all this have to do with UO? Simply this: If technology is the gold standard's wild card, then implementing a gold standard in a world made of pure technology is asking for trouble. No matter how hard you try to establish some reasonable ratio between effort invested and money produced, people will constantly be figuring out end runs that make the extraction of gold from seawater look like the extraction of loose change from sofa cushions.

Enter the 20-Billion-Gold-Piece Man, about whose alleged gold-extraction techniques I will have more to say shortly.

10:44 AM

Monday, May 19, 2003

LOL Break  
The Iraq invasion reimagined as a UO champ-spawn hunting expedition: enjoy.

12:43 PM

"I hate it with every bone in my body," said Mark Jacobs, president of online-game developer Mythic Entertainment Inc, from the stage of a conference panel last Wednesday at the Los Angeles Convention Center, where E3, the Babylon of video-game trade shows, was in full swing. He said it like he meant it, which I guess he did, which I guess is why a little bolt of shame shot through me when I heard him say it. For what he professed to hate was the sale of virtual items for real money, and I couldn't help feeling that meant he hated me too.

I wouldn't have minded so much if Mythic's Dark Age of Camelot were not the quality act it is. As it is, once the sting of Jacobs's contempt started to pass, there were only his arguments, and they didn't strike too deep. He offered the usual complaint that eBay sales turn a game into a two-class society and undermine the social contract that promises rewards for those who invest the most time in the game (what's so great about that arrangement remained unexplained). Jacobs also made a strange point about why he opposed the idea of Mythic's selling in-game goods itself: namely, that players would sue Mythic over it, suspecting that the company was making the game harder in order to encourage players to buy things that would make it easier. (Not a bad point if you're worried about maintaining your customers' good will, but nutty if you're worrying that players would actually bring such a suit or courts would support it.)

Later that day, I met up with economist Edward Castronova, the Adam Smith of EverQuest, and cruised the mighty floor of E3's exhibit halls. This was more pleasant. Castronova doesn't much like what the eBay markets do to games either, but unlike Jacobs, he's in no position to wish they'd never existed: after all, the dollar price of EverQuest goods is his bread and butter, allowing him to come up with brilliant stats like his famous GDP of EverQuest ($143 million, last he checked).

We made our way to the nVidia booth, where Philip Rosedale and Corey Ondrejka, founder and VP of Linden Lab, were wedged into a corner, demoing their ambitious virtual world Second Life. It looks at least as promising as There, and the economy seems to be very nicely designed. It's a sort of Leninist-capitalist utopia, with all property taxed at something like 30% a week and tax revenues doled back out to players according to their reputation points (awarded for creativity, productivity, popularity, etc.). The idea, I gathered, is to punish hoarding and reward virtue. Castronova, at any rate, seemed fascinated and peppered the Second Lifers with questions.

Me, I kept looking for a way to make a living off the thing. Didn't find one.

12:29 PM

Tuesday, May 13, 2003

The Twenty-Billion-Gold-Piece Man  
The Britannian gold piece has lost about 20 percent against the dollar in the last couple months, and here, apparently, is why:

One eBayer, one month of sales, over 1.5 billion gp offered, about half of it sold.

Word on the street is that this gentleman recently came into 20 billion gp -- or roughly half of all the gp said to circulate on the non-Asian shards of UO. It's not clear just how he did it, but nobody's claiming he conjured the gold out of thin air, as in the classic duping schemes of yesteryear. Fair and square (or not), he cornered a huge slab of the existing money supply without expanding it in the least.

What then -- aside from one man's $300,000 windfall -- is the significance of this play? Somehow I can't help thinking it was arranged by some lesser deity of continuing education to serve as a lesson to me (and anyone else paying attention) in the intricacies of monetary economics. For while the dynamics that led to the fall of the Malaysian ringgit, for instance, may be too vast for my untrained mind to comprehend, the fall of the gold piece is taking place within just the kind of sandbox economy I might be able to wrap my head around. So what have I learned?

For one thing, currency valuation and domestic price inflation are only distantly related, if at all. I always used to wonder, somewhat stupidly I suppose, why it is that when a country devalues its currency the prices of goods in that country do not immediately rise in proportion with the discount. If a dollar buys a dozen eggs one day, after all, and the next day the dollar's value is reduced by half, then shouldn't it now buy only a half dozen eggs? Well, no. And now that I've seen a full-blown currency devaluation unfold before my eyes, I understand why: because a currency devaluation is relative to other currencies -- not to the goods priced in that currency. So when Mr. Moneybags drives the dollar price of the gold piece down 20% by flooding the money market with product, that doesn't automatically mean the gold price of Britannian goods goes up. He has increased the amount of gold available for dollars, but he hasn't increased the amount of gold in the economy, so the price of a +115 Blacksmithy Power Scroll remains about 2.5 million gp, even though its dollar value may have dropped from $62.50 to $50.

Which isn't to say this won't affect gold-denominated prices sooner or later. It may. Because the other thing I've learned from this economics lesson is that a currency devaluation is effectively a large-scale transfer of wealth. In this case, our smooth operator has moved 20 billion gp out of the market for goods and into the market for money, thus making gold less available to one population (the teenagers and such with more free time than dollars, whose prodigious game play produces the bulk of goods) and more available to another (the grownups with more dollars than free time, whose buying power fuels the export market that is eBay). Is this a good thing or a bad thing? Hard to say. Conceivably, the newly flush grownups will be more liberal spenders of gold, which could mean prices go up in at least some markets. And if you're a teenager, that could either make you rich or gentrify you out of your own neighborhood. Analogies to real world economies, in any case, seem obvious.

None of these hypotheses are very easily testable, of course. But here's one that is: Eventually the 20 billion will all be sold off, and the gold will fritter away into smaller and smaller purchases, thus dispersing that huge concentration of gold into sums people will be more likely to spend on goods than sell on eBay. At that point, the supply of gold available for dollars should dry up nicely, and the price should recover in equal measure. The test, then: Buy one of those $180 lots of 10 million gp currently breaking off of the 20-billion slab like icebergs from a glacier, and hold it. If it isn't worth $230 or more by the time the 20 billion finishes breaking up, then I haven't learned a thing.

6:29 PM

Thursday, May 08, 2003

Conversation with My Broker, Part 2  

"dude, bad news"


"very bad"

"*sigh* -- it's about the plant set, right?"


I'd been waiting for this. Two days earlier, Radny had put a notice on his vendor reporting a major financial setback. According to the notice, he had accidentally priced a full set of rare potted plants at 15gp rather than 2.6 million (the going price) and was now hoping that whoever had bought it at 15 would please please please return it. The fault was a software bug's, allegedly; Radny had entered 2600000 and seen that price on the item, then later somehow the thing got sold for nada. I quickly ascertained that the bug hypothesis was unlikely -- turns out you can't price anything on a vendor higher than 1 million, and if you try, the item will be auto-priced ridiculously low while the figure you entered will show up as the item's description, which to an untrained eye might look like the price but which any other sort of eye would have no excuse for not catching and immediately correcting. The screw-up, in short, was Radny's. But somehow, as soon as I saw what had happened, I knew I'd be paying for it.

"you're gonna have to give me a couple weeks to get your 2 million"

"uh huh"

"no profit on it -- but i'll get you your money back"


Best case: Radny's as good as his word, and my money has been sidelined for weeks. Worst case: Radny defaults, and Runic Enterprises is back to square one.

Maybe I need to rethink my investment strategy.

11:14 AM

Rational Choice and Pixel Crack  
Lunched at the Stanford Humanities Center on Monday -- very civilized affair. At the table were two bioethicists, one of them a visiting Australian about to give a talk on genetics and addiction. I mentioned my curiosity about the addictiveness of games like UO and got a nice little rundown on the state of addiction theory. The Australian pointed me to the work of George Ainslie, cognitive scientist and originator of the "hyperbolic discount theory," which observes that people tend to devalue a given future event in roughly exponential proportion to how far away in time it lies -- and concludes from this that our preferences are always shifting with time, always potentially at war with each other, and typically biased toward immediate payoffs out of all proportion to their long-term drawbacks. Addiction, in other words, isn't so much a brain disease or a moral failure as an occupational hazard of being alive and in flux.

What intrigues me in particular about this proposition is that it's as much an economic theory as a psychological one, and a tidy corrective to classic rational-choice economics (which has trouble accounting for the compulsive, impulsive, and otherwise irrational choices that make up so much of human behavior). As such, it may be the ideal foundation for understanding an economy based, as UO's is, almost purely on compulsion. Paying $175 for some grainy little piece of pixel crack may not be any more logical than spending 80 hours a week in a pixel-crack world, but make room for addiction in your theory of what is essentially human, and it starts at least to make sense.

3:22 AM

Sunday, May 04, 2003

High Finance  
After some thought, I decided how to reinvest my $37 and did so. The first step was to turn it into gold, not the easiest thing to do if you're unwilling to pay more than $18/million. The best I could find off the bat was 1 million at $18.50 on eBay. Won the auction, PayPal'd the money, picked up the check from one Isis of Eden at the bank near my house, then went in search of my broker.

I found him hanging out at the vendor mall around the corner from my place. The conversation went something like this:

"who's my hoe?"

"sup radny? -- listen, i have 1 million i'd like to invest with you -- at the usual 20% commission on profit of course"

"of course :)"

I gave him the check. Some chitchat about the mechanics of farming Champion Spawns ensued (a lucrative business; champ spawns drop power scrolls that can sell for upwards of a hundred bucks), along with the usual high-toned badinage. I believe Radny at various points called me a loser, if not a candyass.

"all right," I said finally. "this isn't working -- give me the check back -- NOW!"

All in good fun, of course. Radny threw the check on the ground, where any passerby could have grabbed it, and I typed "NOOOOOOOO!" and LOL'd. He LOL'd too and the check disappeared, back into his backpack presumably.

"ok give me the check back," said Radny.


"no seriously -- i just dropped it on the ground for a joke -- you didn't pick it up?"

"lmfao," said I, and my laughter, though genuine, was nervous.

"lol" he said at last. Jesus.

Later, I found another million on Tradespot for $15.50 and gave that to Radny too. He'll go to the auction at Majestic Oaks tonight and do some buying for me, along with his own. The last investment I placed with him, 500,000gp, netted me 300K in two weeks, for a 60 percent ROI. If he does as well this time, my 2 million gp will become 3.2, which with any luck I can eBay for $64, for an 88% return on my $34.

Yes, folks, that's how it's done.

6:09 PM

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