What virtual markets can tell us about their real life counterparts
Money has evolved a lot since trading and bartering. For a few years now, it’s taken the form of intangible assets : Bank accounts, stock, cryptocurrencies… or games.
A few years ago, popular RPG Diablo III experienced an economic crash. That’s right, the virtual economy inside the game failed beyond the developers’ control. In this article, I’ll explain how it happened and why this is so relevant in our pandemic-ridden world.
Firstly, a bit of nomenclature. The ways that a virtual economy works is, just like in real life, by the transfer of assets between players. The way it differs from real life, though, is where the money starts and where it ends up. Faucets are ways that currency is created out of nothing. Quests, stores (not the kind you see in game, the kind where you can buy currency for real life money, commonly called “Pay To Win”), and loot from enemies all constitute faucets. Without intervention from game operators, those faucets will keep giving currency to players indefinitely.
Then there’s sinks, or drains. Those are the opposite of faucets, their goal is to remove currency from circulation. Ingame shops, service fees, and crafting with a probabilty of failure, are all examples of sinks. Most of them, like shops and crafting, will give the player a commodity in exchange, but of lower resell value - if sellable at all -.
As you may have guessed, there’s one very important rule that governs this whole system : The sinks must always remove as much as the faucets put out. If the money supply decreases, and prices outside of the player driven economy stay the same, this will make it harder to progress and stifle the player driven economy. If the money supply increases, prices will too, giving new players a disadvantage and increasing inequalities.
This is what happened in Diablo III : Players abandoned the ingame blacksmith, one of the game’s main sinks, in favor of player-to-player trading. As the sinks stopped working, the faucets continued to put out gold, which created inflation. Even worse, a glitch briefly allowed players to duplicate their gold, creating another, extremely large, faucet. This caused inflation and lowered the value of gold by a few orders of magnitude.
But what made it worse was meddling from the game operators : The gold-to-dollars exchange ratio used to be capped at $0.25 for 1,000 gold. Because of that inflation, nobody wanted to pay $0.25 for so little gold, so it was raised to $0.25 for 1,000,000 gold. This caused a cascading effect, as players started to fear their gold would be devalued, and tried to get rid of it before it happened, lowering the value of gold even more.
Readers living in Venezuela might find that last paragraph awfully familiar. Since the 2000s, the country has been battling heavy inflation and, recently, even hyperinflation. Inflation is a problem that goes beyond real life markets, and even has to be watched out for in video games. So next time you’re playing a RPG, remember that the experience has been carefully calibrated by mathematicians and economists to ensure something like this doesn’t happen to you.
See also : World of Warcraft experienced a pandemic in 2005. That experience may help coronavirus researchers.
