According to today's New York Times:

"HANGHAI — The buying and selling of the make-believe currencies used in online gaming has become so widespread that Chinese authorities fear it will affect the real economy. To quell that threat, those authorities said on Tuesday that they had issued new regulations aimed at restricting the trade and use of virtual money.

....Last year, nearly $2 billion in virtual currency was traded in China, according to the China Internet Network Information Center. Some experts say they believe there is a much larger underground economy in the virtual world.

......On Tuesday, China said that new regulations would restrict the trading and use of virtual money, and that virtual currencies would be banned from being exchanged for goods."

The official statement can be found at China's Ministry of Commerce.

The problem China is facing is that users have started to take virtual currency such as the widely popular QQ coins and exchanged them for real goods and services. This in effect bypasses the government's highly regulated currency which is subsequently seen as a threat to government control.

Via VERN: Dr Jack Qiu from the Chinese University of Hong Kong; who has been a regular observer of gold farming and other informal sector activities in China, observes four phases of Chinese gold farming:

"1. Globalization (c.2003-c.2006)
The growth that we are all aware of, serving the global and regional games market

2. Localization (c.2006-c.2007)
A very rapid expansion of gold farming serving the local Chinese market, spreading West from the Southern/Eastern coastal origins of gold farming.  In particular, related to Shanda's Legend games.  At least some of the livelihoods created in this way were "playbourers" who received payouts from Shanda itself.

3. Partial Decline (c.2007-c.2008)
A severe decline of gold farms ("workshops") serving the local market for the Legend games; particularly due to a furor over the business model that Shanda had been using, and a notorious case of "gold slaves" in which students at a South China university were found to be forced by their professors to undertake unpaid "internships" if they wanted to pass their classes.  These involved gold farming either all night (male students) or all day (female students).  As evidence of the decline, Jack cites the example of  his own home city of Wuhan (popn. c.6m), which had some 4,000 "workshops" that grew up during the second phase to serve the local market but which now has few, if any.

4. Current State (c.2008-date)
Gold farms serving the global market remain as, too, do farms serving the local market.  The latter particularly represent a very "footloose" form of capitalism.  Footloose in the traditional sense of readily closing down operations in one place and opening up in another that has low wage and low rent costs and has recently obtaining decent broadband access.  And footloose in the sense of games.  The workshops will target a new or growing game, and try to find ways to make money out of it for a month or so.  If it succeeds, they stick with it for the moment. If not, they move on to the next game. "

Weirdly, we had never heard of the "gold slave" controversy, although a lot never makes it to the western media.

What the War on Drugs and Virtual Game Currency Have in Common

Has the “moral” war on virtual currency created the same harmful behavior we are seeing in Mexico from the war on drugs? 

Recently, Steven Davis CEO of SecurePlay makes the strategic case for limiting the use of the Banhammer on virtual game accounts:

“I am not a big fan of banning. "The Banned" are (usually) paying customers, an issue I discussed at length recently in The Cost of Punishing Cheaters on Microsoft's Xbox Live. Even if The Banned one is not currently a paying customer, they are sufficiently interested in your product to use it.”

In particular he makes a comment about banning and the effects it has on secondary markets:

“Banning motivated players encourages even worse fraud. I would argue that the transformation of nuisance gold farmers into much more dangerous and damaging gold frauders was partially the result of banning.”

As we’ve discussed before banning gold farmers doesn’t really decrease gold farming. It merely raises the prices of gold (and usually only temporarily, as Mudflation always wins out). If anything banning can be seen as an covert tax on gold farm operations both in time/virtual currency (the time required to get the virtual currency and level the characters that were lost) and a monetary tax as the gold farmers have to purchase brand new game keys from the developer to start farming again.

Furthermore, almost every large MMO developer knows that a significant portion of their playerbase engages in secondary markets. This is because a large portion of their playerbase simply doesn’t have the time nor willpower to grind away at poorly designed boring game mechanics. This isn’t because developers are sadistic, rather it’s cost issue. You can either make a player “farm” an event 500 times to get desired effect X or you can create 500 fun original unique events to achieve the same result. Both take commitment and dedication to beat, but many people will pay someone else to play the repetitive boring event, but people will pay to play the fun creative events. No one pays someone to beat a fun game for them. There aren’t any companies that specialize in beating Halo 3 for you and taking a screenshot of the ending credits. (One such alternative to the content vs. cost issue is to outsource some of that work to the community, but that’s a different subject.)

The point is that some of these game mechanics are so ridiculous players are willing to spend hundreds of dollars to bypass them. However, if you let everyone bypass the treadmill the more hardcore portion of your community, the “early adopters” that often brings their casual friends into these games, blow through your game in a month, trash it, and move on to another. If anything secondary markets allow developers to market to different target markets at the same time multiple target markets the same way movie theaters create senior discounts (In this case you have the a movie showing that cost the same amount if there is one person watching it or if there are one hundred people watching it similar to a server of an MMO. The owners don’t want everyone to pay the lower price that would fill the theater as the younger people would be willing to pay more. However, the majority of seniors on fixed incomes can’t pay that higher price. If you just charge the higher price the movie theater won’t be full. So you create two payment systems and discriminate based on age which is hard to fake, therefore filling the theater and making the maximum revenue).

These casual players unlike gold farmers are not as likely to start a new account and continue playing the game if they are banned from it. As such “virtual currency stag operations” usually go after the suppliers and not the users.

To push the drug war analogy further, I’d agree with Davis that the war against secondary markets has weeded (no pun intended) out the small legitimate local sellers (who a banhammer bankrupts) that were prevalent when the secondary market wasn’t so heavily persecuted. In the profit power vacuum that followed the lowest common denominators often gained control. It takes certain connections to keep coming up with ways to mask your ip traffic, acquire massive new accounts with different addresses, and continue to find labor cheap enough that a ban doesn’t bankrupt you. Notably, these connections tend not to be available to the smaller mom and pop shops or the player selling a bit of gold on the side. The stronger the use of force against the gold farmers, and the further and further underground the industry is pushed the more and more shady people end up running these organizations. The Mexican Drug War provides a potent real life analogy.

The formation of GameRates was largely a response to such shady people taking over the secondary market.

However, I still think banning can be used as a tool to discretely rack up the costs of harmful virtual currency sellers without a full legitimization. If a virtual currency operation is constantly spamming, then developers should do everything possible to link their accounts together and ban them at every chance they get. However, those that are not spamming, annoying players, kill stealing, etc. are allowed to slide. This sends a strong market signal and once the farmers realize this they will start engaging in behaviors that doesn’t trigger the Banhammer. Perhaps the problem isn’t the Banhammer, but the random and untargeted use of it against the entire virtual currency secondary market instead of specifically targeting harmful behavior.

This is probably because the war on drugs and the war on virtual currency are both sort of wars of morality (Which makes Mark Jacobs virtual currency's version of FBI Director Robert Mueller). In the virtual currency wars some players that aren’t buyers often consider buyers “immoral” and think it’s unfair that they have to spend hours farming an item while someone else took a quit shortcut to instant gratification similar to those who find “joy” in a pill. Restricting others choices due to jealousy is childish at best. Furthermore, it misses the point that the journey is often much more important than the destination. If you take the shortcut because the journey is "hard", but if it is hard because it involves team bonding, skill, lore, puzzles and challenge which creates an amazing experience, then there really isn’t any reason to complain about those who are missing out. It's like complaining about someone reading the end of a great book, or looking up the answer to a puzzle instead of solving it. However, if the journey is boring and not even fun and is just a treadmill to maybe get to the fun part; why are you on that journey anyways?

The problem isn’t gold buyers. The problem is disruptive gold sellers, and this is who should be targeted. Those that sell and buy gold and don’t disrupt the game any more than someone farming the same items for themselves should not be persecuted. What’s the difference between paying someone to log onto your account and politely farm some items, and you doing it yourself?

The vast majority of virtual currency purchasers would prefer to purchase currency from legitimate operations that don’t harm the game they enjoy so much they are willing to spend hundreds of dollars on. These virtual currency purchases do little or zero harm to the game society just as a pot smoker does zero too little harm to our real society. Just as the pot smoker would much prefer not to inadvertently support Mexican drug cartels and organized crime, the gold buyers doesn’t want to support spammers and kill stealers. Fully legitimizing the market would make both of this possible. If that’s not a political reality, then at least on an organization level the destructive suppliers should be punished and the non-destructive suppliers should be allowed to flourish. In the meantime we at GameRates will do our best to expose those virtual currency sellers that are legitimate and those that are crooks.

For point-counterpoint debate about the ethics and legality of secondary markets check out the following. 

News from China last week brings possible vast legal ramifications:

“Four young men were convicted of and sentenced for theft of virtual facilities and coins of online games, according to sources with a local court in Shenyang, capital of northeast China’s Liaoning Province.

On Oct. 22, 2008, Wang and his three friends beat, coerced and forced “Shenyang fellow” to transfer to 100,000 yuan worth of QQ coins, a kind of virtual money, and a large amount of virtual facilities to Wang.

Wang Xiaoquan received three years’ imprisonment and his three accomplices received reprieved sentences, each of the four was fined 5,000 yuan (about 735.3 U.S. dollars), according to a verdict statement of the People’s Court of Dongling District on Saturday.”

The virtual currency was worth about $14,700 USD and comes from the Chinese web portal Tencent with over 300 million active users. It is important to note that since the virtual QQ currency once purchased or won can not be converted back into cash the traditional argument for it having value was not deployed. Instead the court found that:

“…although no law has acknowledged legitimacy of the virtual property, game players have paid time and real money to accumulate their virtual property, which should be protected by the law.”

As more and more online companies use virtual currency to generate revenues, it will be interesting to see what happens when such cases go to U.S courts and what ramifications it will have on secondary markets.

On a side note QQ made it in the WSJ some time back because players were using it as a real alternative to China’s heavily regulated currency.

From the mainstream media:

"(CNN) -- Your husband, an avid gamer and techie, dies of a heart attack, leaving his vast online life ­-- one you don't know much about ­-- in limbo.

His accounts, to which you don't know the passwords, go idle. His e-mails go unanswered, his online multiplayer games go on without him and bidders on his eBay items don't know why they can't get an answer from the seller.

Web site domains that he has purchased, some of which are now worth hundreds of thousands of dollars,­ will expire, and you may never know.

It's a scenario that's becoming more likely as we spend more of our lives online. And it's raising more questions about what happens to our online lives after we log off for the final time.

Until now...."

The news report is about a few new companies such as "Legacy Locker" which is a sort of will for your digital assets.

"A Legacy Locker account costs $29.99 a year. Users can set up their accounts at www.legacylocker.com to specify who gets access to their posthumous online information, along with "legacy letters," or messages, that can be sent to loved ones "

It's only a matter of time until grandchildren start fighting over grandma's level 100 World of Warcraft Champion Mage with millions of gold and a great deal of Second Life real estate.

One of the fears of the anti-RMT crowd deals with the potential of player v. player lawsuits. If your character and virtual sword is worth a real world amount, then what happens if you wish to role-play (the MMO legal equivalent of pleading "insanity") as thief in a MMO and cheat someone, steal something from them, or use some exploit to grief them. If they for example lost their sword or their character suffered some loss could you sue them in court?

This question came up in the class action lawsuit where WoW players sued IGE in Hernandez v. IGE. In that case World of Warcraft players filed a class action lawsuit against IGE as a third-party beneficiary of the EULA contract IGE signed with Blizzard everytime an employee logged into the game. However that case settled out of court so the question was never answered. Can individual users/players of an EULA/TOU sue each other for violations?

It seems the recent court case: Jackson v. American Plaza Corp has provided a probable answer. The case ruled that one Craigslist member could not sue another for a violation of Craiglist's TOU (Terms of Use). This should provide precedent should an MMO player ever try to sue another for "damages" (in the form of lost real world RMT value) for breaking an MMO's EULA such as "griefing". 

For a full analysis head on over to: E-Commerce and Tech-Law Blog

There has been a bit of new data about WoW Gold farming recently and Professor Richard Heeks has provided some updates over at VERN. Some of the key takeaways:

• Estimates of 400,000 people working in China on gold farming/trading are seen as very realistic, and the number could be 500,000 up to 1,000,000 (with *possible* total Chinese RMT turnover of up to $10 billion a year...which seemed way too high for us)
  
• The system is setup so that there are brokers (e.g: Swagvault) who sell to American consumers and gold farm shops
• It has been estimated that there are 60,000 "brokers" (this number also seemed a bit high)
• Gold farms employ those with just high-school diplomas or below, and so the farms are put where they can get space cheaply; typically some way outside a city or in smaller towns/cities.
• The gold farms Anthony saw were full of young guys aged around 18-20 with beers and cigarettes, hanging out playing games and having a good time. They realize it's not a long-term occupation but they also appreciate that they are part of something that is rather new and different. His estimate is that they'll stay for maybe 1-2 years before moving on to another kind of job.

Is gold farming the Chinese equivalent of the  American Teenagers Fast Food Summer Job?

Nielsen Came out with a new report which gave some US demographics on WoW players.

In a chart comparing the PC game usage of females and males aged 25-54, World of Warcraft was the most-played "core" game for females, with over 428,621 unique female players estimated in December 2008.

The statistic is even more impressive when considering that an estimated 675,713 unique male players of the same age group logged into World of Warcraft during the period, indicating that the WoW gender gap may not be as large as some imagine.

To cull the numbers, Nielsen uses a software meter to measure game usage on 184,000 PCs worldwide. The metric program is capable of tracking over 1,700 PC games, according to the company.

Another Nielsen report recently indicated the average WOW player plays 649 minutes a week or about 11 hours.

The Virtual Economy Research Network takes an academic look at the profitability of secondary markets for publishers that already support official RMT:

"While the analysis I have presented is very straightforward and lacks depth, one reason for establishing an operator-controlled secondary market in terms of maximizing service provider profit appears to be fairly compelling: secondary markets seem to exist in virtual world environments regardless of whether the service provider endorses them or not. Therefore, by not establishing a controlled secondary market the service provider forfeits a part of the available welfare – consumer surplus in form of transaction taxes – to an outside party such as an online auction house. Attempting to curtain secondary markets seems pointless in the given framework, as even outside, well-functioning secondary markets increase profitability of the primary market according to Shulman and Coughlan compared to the situation where no secondary market exists. Furthermore, trying to prohibit secondary market transactions would result in monitoring costs, making it even more disputable in terms of service provider gains."

The paper was written to see if games that have an official RMT market should also promote/allow the resale of those goods. However, the conclusions the paper reaches is that a secondary market exisits reguardless of the developers "official" stance, monitoring/controlling the secondary market is too costly or impossible, and the publisher loses out on potential "RMT tax" profits if it doesn't provide a secure channal for RMT and impose a tax on it.

This is from 2006 but somehow I missed it. In an interview with Escapist magaizne Richard Garriott (Lord British) of UO/Tabula Rasa noted that he purchased virtual currency in MMO's:

Since he raised the issue, and since it's the talk of the industry of late, we had to ask. Virtual property: Good, bad or ugly? Richard fielded that one with an unexpected answer, saying, "Well, I think first of all, it's inevitable," taking a moment to comment on the legal ramifications before getting back to that "inevitable."

"What I mean by inevitable, I think the definition of value has something to do with the amount of human labor that goes into the creation of something. Gold is hard to find, therefore it's more expensive. Aluminum is pretty easy to mine, so it's pretty cheap. People invest a lot of time in getting gold or things of high value in a virtual world. It makes sense that that has real world value. Therefore, of course, secondary markets will exist to allow people to shortcut that work and reward cycle," he says, showing a remarkable grip of economics and human nature without the high dudgeon so common among game designers on this issue.

"I buy virtual gold all the time," he says, adding, "I have no problem with it. I'm a supporter. I understand that my position on this is different from our sole corporate perspective. But anyway, I participate in it."

With the accompanying PR rep in need of medical assistance, he shifts his perspective back to that of a publisher and developer, saying, "That being said, as a developer and as a publisher, there is a real big legal problem associated with the sale of virtual property. As long as what we're selling for our subscription fee is access to our service, and all we're warranting is that, oh, you'll be able to play, whatever that means. It doesn't matter what rules we change about how you play." He uses a simple example, saying, "It doesn't matter if somebody comes up to you and says, 'Hey, I'll give you two gold for that incredibly valuable sword that I'll convince you is valueless,' and you sell it to them, and then find out tomorrow that, in fact, it was worth a gazillion gold pieces. None of those things matter, because what we're selling is entertainment opportunity.

"As soon as we are involved at all in the sale of a sword," he begins, sounding like this is a scenario they've gone over a time or two. "Suddenly, if its value changes because we change the rules, suddenly if it gets lost because of a technical glitch, if you get bilked out of it by some other character in the game, all those things suddenly mean that our company is exposed legally to that transaction, like it would be in the real world with a real sword. If you sell somebody a rusty sword that disappears, you're in trouble. If you sell a sword and charge ten times what it's really worth, you're in trouble.

"There's a line there that I think, once a game developer has chosen to go across, you just have to prepare your content to expect that. That is not what the current designs are designed for," he says, echoing RedBedlam's Kerry Fraser-Robinson. "Anytime you're selling items, you expect a certain amount of data integrity in backing that up. You go to an airline, for example, and you buy even a $50 ticket on Southwest. You show up at the airlines and they say, 'Hmm, looks like we lost your ticket; guess you're going to have to buy it again.' You're going, 'Wait, that's not fair. You can't just lose my ticket.'"

Disclaimers aside, though, Lord British says he's "very interested in creating games that have virtual items that are sold just outright for real money, and skip the front end. As an enthusiast, I think it makes a great deal of sense, but it has to be backed up with all the rest of the banking backdrop, which most of the people doing these early ones are not [doing]. The only people I think are going to succeed these days, out of the few companies that are selling items and stuff, tend to be small companies who are not worried about losing their portfolio, or they're in Hong Kong or China, where you can't sue them anyway, or they work through other people and just sort of connect people. They're trying to protect themselves from being able to be sued. I'm really interested in seeing how the Sony [Exchange] works out, because they are obviously a major company and they're backing it up. I don't know that they've had any real problems, but probabilistically, they are going to when they lose something substantial, and how they back that up, I'm really wondering."

Wow. We here at GameRates are huge fans of the Ultima franchise and have always loved Lord British and we couldn't agree with him more when it comes to virtual currency. In other news back in 2009 the Sony Exchange just extended it's tentacles to Vanguard. Oh how "The Vision" has changed...