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CNN.com put up an article (which quotes me) on the Chinese virtual currency rules mentioned earlier this week on Law of the Game. GamePolitics has also posted two pieces on the rule, with different takes on the issue. It will certainly be interesting to see how this all plays out in practice.

News reports have come out that China has both defined 'virtual currency' and barred the use of that currency for purchase of real world goods. In theory, this is to combat certain underground uses of vitrual money by limiting their use to the purchase of virtual items. In practice, however, it could prevent the spread of virtual worlds like Second Life into China. Based on the Chinese definition of 'virtual currency,' the Linden Dollar used in Second Life is undoubtedly covered, and thus the interplay between the Linden Dollar and real currency would likely be problematic, though the use of Linden Dollars to purchase in-world goods may not be. It will be interesting to see how this continues to play out, especially in view of last year's finding that a virtual seizure had a real world value in China.

A few months back I posted a link to a gold farming study by Myke Sanders, a fellow Dallas IGDA board member. Well, Myke just forwarded me his new article on the use of virtual worlds for money laundering. A full PDF is available here.

When I had envisioned use of a virtual world for money laundering, I had always anticipated use of a front business in, say, Second Life such that 'dirty' money is used to buy Linden Dollars that are used to buy virtual goods, and then the front business cashes out the Linden Dollars for 'clean' money. Use of things like prepaid debit cards could even facilitate the laundering of dirty cash.

Myke has a background in credit card processing, however, and came up with an entirely different mechanism based on where the transactions couldn't be traced. While it could also use prepaid cards, it could also be used to generate cash from stolen cards.

As an interesting sidenote, Myke and I were discussing this very topic, and he suggested that the same methodology described in this paper could be used to put gold farmers out of business based on the number of chargebacks they would receive. Of course, that would be highly illegal.

In terms of solutions, I'm not sure his suggested idea of tracking transactions in virtual goods is practical, and even if it were, I don't know that it would be applied to item drops later picked up by other players. More importantly, as Myke pointed out to me, what if an organized crime group created their own MMORPG which they used for laundering, and simply didn't track transactions for that reason.

It's certainly an interesting issue to think through, and I'm not sure there's a readily available answer. I've seen other papers propose all sorts of solutions to the more traditional laundering I've mentioned in the past, but this newer methodology Myke describes is much harder to deal with.

CNN.com ran a piece on virtual currencies today, which includes a quote from me. I thought you all might find it interesting.

Article on CNN.com

A colleague and fellow Dallas IGDA board member, Myke Sanders, recently forwarded me a data analysis he did on the habits of players who purchase gold from gold farmers. It's a really fascinating bit of data, one that may give developers some revised perspective on how to combat the gold farming issue while continuing to avoid micro-transactions, implementing real money auctions, and/or monetizing the currency. While this isn't an overly legal issue, I still wanted to take an opportunity to comment on the findings. The full piece is available here (PDF).

Myke notes two specific spikes on each graph: There were spikes at single and highly repetitive (12) transactions within the 90 day window of the study. There was also a large spike of people making high value transactions. I would be interested to see a correlated data set of these two, but based on Myke's analysis, there were basically two groups of people: those buying a huge amount of gold once in 90 days, and those who bought almost weekly but for a much smaller sum. He reasons that the first group might be making purchases for a single, say, epic mount or piece of equipment while others might be buying to supply a weekly raid. He goes on to theorize that a loan system might satisfy the former while non-transferable buffs that are a better alternative to disposable equipment might satisfy the latter.

In general, I would tend to agree. It's almost surprising there hasn't been a 'Bank of WarCraft' to date, though I would have to say that it would need to be operated by Blizzard rather than by players (i.e. virtual loan sharks). Of course, Blizzard may need to employ an economist to at least design the system such that we don't end up with an financial meltdown in Azeroth. It would be very easy to over saturate the market with a virtual currency, which would lead to inflation and thereby throw off the balance of the game between the bank and random drops. It would also be interesting if you could actually earn interest on gold deposits. Another alternative might be a virtual credit market, but that gets even more complex. I guess the real questions is whether players want their virtual world to mimic the real world more or not.

The solution for the second group tends to be a little more complex, as it would take likely a pretty good revision to the overall mechanics of the game to get the kinds of buffs being proposed, or at least a major change to the game as it's currently available. Granted, this is not impossible, but I imagine the sudden change in strategy might not go over well with many players (a la the New Game Enhancements in Star Wars Galaxies) and may be better suited as an approach for developers of future games.

As a side note, it will be interesting to see if developers take advantage of the wide latitude granted by the Glider decision in order to go after gold farmers in a similar manner. The recent DMCA applications won't apply, but it is a similar inducement to break the EULA/TOS of most games.

I certainly hope that this will be the first of many studies into actual buying habits of those who utilize the services of gold farmers and even virtual commodity salespeople. While there has been plenty of anecdotal evidence over the years, only actual data like this will provide enough information to actually combat the problem, if your game is designed to avoid such outside monetary influences, by changing certain game design elements to be more in line with the way people want to play. Similarly, if you're looking to start a game that encourages monetization of one sort or another, this is likely a good source of information for your design decisions as well.

This week's LGJ revisits the always popular topic of taxing virtual worlds.

Read on!

This week's LGJ focuses on the potential problems associated with virtual currency, and what might drive the government to regulate it.

Read on!