Beyond Gold Farming: The Economics Of Virtual Worlds (Introduction)

(Several months (!) ago, we had the good fortune here at Mercyhurst to have a truly gifted speaker give a great lecture about the economies and economics of virtual worlds in a genuinely unique manner. I am just now getting around to writing about it...)

First, A Little History

Beginning with last year's student project into possible Islamic extremist use of Second Life and YouTube, I have begun to become increasingly interested in how virtual worlds and augmented reality will impact our notions of national security -- what are the threats and opportunities (if any) presented by these new technologies?

Over the summer I had the occasion to further explore this topic with a large, diverse and fascinating group of people from a variety of different disciplines. I came away from the experience convinced that this was not only a topic worth exploring but also one that would likely facilitate learning. Many of my students, after all, were already into this stuff -- a trend that I think is highly likely to continue. Figuring out how best to teach (and what can one usefully learn) in these high interest environments seemed to make some sense.

With this in mind, we formed a small, all volunteer research group (AKA "a bunch of people talking about the same thing (more or less)") to explore the possibilities of these new technologies. We gave it a grand name (the Mercyhurst Virtual Worlds Initiative) and set about trying to figure out what that might mean.

We decided to focus on two virtual environments to begin with -- one open and one closed. For the open environment we chose Second Life. It is arguably the best-known virtual world (though far from the largest) and its low cost of entry (free) and well-developed environment made it particularly attractive.

For the closed environment we chose the massively multiplayer online role-playing game, World Of Warcraft or "WoW" as it is often called. We chose WoW becaue it IS the largest such game (with 11.5 million players and growing) and because a number of the Intiative's members were already very familiar with the game and its mechanics.

• The students also established a wiki for the Intiative. It serves mostly as a way to organize events, collectively compile notes and other info of interest to the group. It is not designed to be a Wikipedia-like product or the basis for a finished analytic report. It is really just a "place for our stuff" (You can take a look at it if you like but the organization is fairly idiosyncratic and its utility to anyone outside the Initiative is questionable...).

Picking A Topic

Economics is one of the places where the virtual is already blurring with the real. Real currencies today have a strong virtual element to them. Most transactions in dollars or euros or yen are little more, in reality, than the exchange of a torrent of 1's and 0's across the internet.

Likewise, many virtual currencies, such as Linden Dollars or WoW Gold, are actually or effectively exchangable for harder currencies. The size of these virtual economies is still fairly modest but the possibilities for large-scale money laundering are there and these virtual currencies are attracting the attention of regulators in places like China and Iceland.

Despite these pressing and very real issues involving virtual economies, one aspect -- so-called "gold farming", or the practice of using inexpensive labor in under-developed countries to harvest virtual currencies for sale to players in wealthier countries for real money -- has, to a certain extent, captured the public imagination and dominated the discussion until fairly recently (See the video below for an introduction to gold farming).

Fortunately, one of the people I happened to meet over the summer was able to address, in a sophisticated yet accessible manner, not only the issue of gold farming but also the broader issues tied up with virtual economies. It was a simple thing to determine that economics should be the Intiative's first topic and that getting this guy as a speaker should be our first project. Simple in concept, that is...

Tomorrow: The Speaker And The Setting