Digital economy being powered by Online Gaming - Unmasp - experience exhibiting blog

Post Top Ad

Post Top Ad

Digital EconomyEconomygamersOnline Gaming

Digital economy being powered by Online Gaming

Economists study virtual game economies to learn about digital assets, the future of economic growth in the virtual world


Did you know there are people in Venezuela that play video games 11 hours a day farming digital goods for resale in foreign currencies? They do it because their sovereign currency is worth less than what they can earn “gold farming” in a virtual game.
Massive multiplayer online (MMO) games like World of Warcraft have been around for many years. People from all over the world join these virtual communities to compete, have fun, and build communities.
But over the past 20 years, these communities became interconnected socio-political breeding grounds of economic activity.
The communities within these games have evolved to form real economies. Gamers assign value to virtual goods based on their utility and status within the community and they transact these digitized goods in real-time.
Because these digital communities represent a unique opportunity to study economics where its possible to track all the inputs and outputs. It creates an opportunity to understand real economic behavior in unparalleled ways.
Most importantly, it allows economists to gain an understanding of how people place value on digital assets. We are now learning how people (like the gold farmers in Venezuela) can find ways to extract value from digital assets into the real world.


Here are 9 attributes of virtual game economies. You can think of them as recurring themes that are characteristic of these small virtual economies. These attributes are important for understanding the core aspects of most MMO game economies.
They are precursors for what may continue to happen throughout the Metaverse economy.

Recurring Economic Themes In MMORPGs

Scarcity matters

The mechanics of most MMO games create a scenario where time spent playing equates to long term value. Gamers conduct productive activities while playing and increase their accumulated in-game value by acquiring accessories, skills, and achievements.
What type of activities? In most games players participate in a variety of quests, side quests, killing monsters, and farming materials to create items that can then be sold.
In most virtual game economies, there are rare and highly sought after accessories and items with utility and status values. These items are highly valued and create important market-making forces.
Scarcity is critical for creating a competitive environment and creates a market-making dynamic within the games.

Metagame scenarios cultivate a real economy

Whether it’s World of WarcraftEVE Online, or Second Life, digital gaming communities develop their own cultures. These cultures take on a sense of tribalism through player based alliances. It’s not unlike formal diplomatic agreements between political organizations in the real world. These tribes develop their own political structures and often create deep in-game folklore, history, and traditions.
The community-oriented mechanisms are important for the respective digital communities to achieve any sort of longevity and internal economic system. Once the endgame has been achieved (the formal achievements the developers intended a player to accomplish), these games enter an alternative phase of “metagame” scenarios beyond the original storyline.
Examples of the metagame phase include further competition between rival factions to showcase who is best within the game or competing to collect all rare and unique digital items.
At the metagame level, an endowment effect forms that economists are particularly interested in. The endowment effect is a psychological phenomenon where people tend to value what they have more than if they did not have that same item.
It’s important for understanding how value is derived in markets and is informative to learn it exists with digital assets.

Growth at all costs

Game developers try to cultivate an ongoing interest in games past their endgame scenarios by introducing patches, expansion packs, and adjustments to game mechanics.
All to reduce stagnation and keep players paying for game access.
Regardless of the business model, game developers want users to stay in-game and engaged as long as possible. This forces developers to come up with ways to impact gaming mechanics in order to keep the game feeling fresh to old and new players.
But there are costs to these growth tactics which very well could be a recurring issue within a growing Metaverse. Growth at all costs creates massive inflation and impacts the value of digital assets.

Inflation

One of the most significant costs to these tactics is the creation of inflation. The mechanics of most of these massive online games require players to spend time gathering resources to fabricate items or trade-up for other goods and services.
Altering the mechanics of the game impacts the underlying social market-making agreements. This by itself isn’t bad because it creates arbitrage opportunities for players until price equilibrium is found again.
But developers also provide new content through patches and expansion packs. These often provide new quests that generate significant in-game currency and developers have limited means of removing assets from the game. Ie: patches and expansions create a massive influx of currency and lead to inflation.
Inflation harms the entire ecosystem and can create a major challenge for new players to become competitive and older players from returning to the game after a hiatus.
The Metaverse is an environment nearly infinite in size and scope with an economy based primarily on digital assets. The ramifications of inflation within the Metaverse are very real and very likely to be a recurring problem.

Labor and game currency arbitrage

Like in real economies, MMO gaming economies typically provide options for individuals to gain value through time spent on 
productive tasks. This is especially true in the virtual world. Those with more time can gain value by performing quests and various in-game tasks, selling the goods they acquire along the way.
This also represents an opportunity for players in wealthier and more developed countries to pay fiat money to people in developing nations such as China to conduct gold farming.
Digital gaming economies are geographically global. Useful economic studies evaluate the difference in the perceived value of digital assets across the country of gamer origins and fiat currencies. As an example, when currencies were adjusted to match dollar values it was clear that World of Warcraft tokens was valued differently across country servers. (see figure 4 in the study).
This real-world to digital world arbitrage will create important market-making forces within the Metaverse because it is accessible to the global community. We can expect that wealthier countries will continue to outsource digital farming activities to developing nations within the Metaverse.

Currency and real money transactional exchanges

The outsourcing of “gold farming” practices has created a market where individuals in certain countries can make better livings through farming in-game currencies to exchange for fiat money.
This required the creation of real money transaction exchanges to swap fiat money such as dollars for in-game currencies or assets. Tools and real-world businesses were created to support these gaming economies. Like this EVE Online exchange rate tool.
These tools are early versions of what can be expected for value exchange between the analog world and the Metaverse.

Limited regulatory environments

These games were developed as closed systems that ended up intersecting with the physical and analog world. As a consequence, most of these virtual economies don’t have the typical regulatory frameworks you would expect from traditional economies.
Will the Metaverse grow as a libertarian utopia or will it experience growth in regulation?

Fraud

Fraud is a constant battle for game developers. Like all economies, as virtual economies grow so does the fraud that takes place. Developers have experimented with a variety of methods for controlling in-game to fiat currency exchanges as well as other methods for controlling inflation. Without regulatory efforts, these virtual economic systems are exploited by crime syndicates as a method to launder money.
If there is regulatory risk in the Metaverse it exists with national governments implementing capital controls and restrictive transaction policies. We can expect policies such as KYC (Know your customer) and AML (anti-money laundering) that are common in the developed world.

Money sinks — faucet and drain mechanics

A major mechanism for controlling inflation and fraud are the money sinks game developers incorporate into their economies.
As developers provide patches and expansion packs, they act as a faucet funneling new in-game currency into the game. In order to control runaway inflation, developers also include money sinks.
These manifest in the form of non-player characters (NPCs) that provide necessary essential in-game services at a price. The price is often set at a dynamic rate to control the total money supply within the virtual economy. In addition, developers incorporate permanent destruction of consumables such as the degradation of assets and the total destruction in “war”.

A 10-minute video that summarizes some of these concepts well.

Bitcoin’s model of limited supply may be indicative of inflation management of digital assets within the Metaverse. Unless there is a viable decentralized model we may expect some form of communal government to form in order to manage monetary policy.

The Implications of Virtual Gaming Economies

The economics of virtual gaming communities give a fascinating insight into how the value of digital assets are established. These gaming economies act as a precursor to the economies we can expect to start forming within the Metaverse.
The Metaverse is an infinitely large, persistent, digital, and interactive information space. The Metaverse is infinite because we can continuously add information to it and it’s persistent because it exists even when we don’t interact with it.
It’s a parallel universe of our digital lives and its growing and becoming interconnected with our physical world. First, we connected to the Metaverse through computers, then smartphones and AR and eventually we will continuously connect digitally with VR.
Studying the economics of virtual gaming communities provides key insights into how we can expect other types of virtual communities to form. It provides context into how goods and services are exchanged and how those transactions bleed into the physical world.

Looking Ahead to the Business of the Metaverse

In a recent study on gamer motivation, it was found that the top motivations for US gamers were to escape everyday life and fill time.
As virtual environments become more sophisticated and allow more creative forms of escape, we can expect virtual economies to continue to grow at a rapid rate.
This growth and how virtual gaming economies currently function raises a few critical questions.

How will businesses continue to integrate into the Metaverse economy?

We’ve seen special events transpire within virtual gaming communities such as the recent Travis Scott concert. It will be important to monitor how brands are built within these communities and how physical world brands work to get their brands exposed to the Metaverse.

What type of government regulations will form to tax and control the Metaverse commerce?

Technically speaking, the Metaverse is not based in any single jurisdiction but is built upon a global network of computers.

What types of financial tools will be built to support digital asset exchanges including real money transaction systems?

As more users look to escape their physical lives in favor of the Metaverse there will be a growing industry of businesses building accessible on-ramps.


Studying virtual gaming economies is important because it sheds light on what type of digital business opportunities will be available in the near future.

Related Posts

No comments:

Post a Comment

Post Bottom Ad