Friday, March 20, 2009

A Virtual Bank for a "Fiction of Convenience"

Over two years ago I wrote a post entitled "Virtual Money in the Real World," in which I examined the effort of the German city of Magdeburg to introduce its own regional currency (the Urstromtaler) as a way to encourage local spending. My conclusion was that "spending virtual money in the real world of Magdeburg builds a much stronger sense of community than spending real money in the virtual world of Second Life (not to mention spending real money to improve the skill level of your World of Warcraft character)." I do not follow (or participate in) World of Warcraft; but I would guess that it still maintains an economic infrastructure to support the atavistic passions of its players. Second Life feels like a thing of the past, not even "making the cut" in Caroline McCarthy's "How to get social on Inauguration Day" piece for CNET, which cited Facebook and MySpace activities (not to mention live blogging and Twittering). What strikes me as interesting is that none of the platforms McCarthy cited require an economic infrastructure, leading me to wonder if the world of social software had gotten over all that (except where a "defense budget" is concerned, which comes off as a disquieting parallel with the "real world").

Well, if I am to believe a story on BBC NEWS, virtual currency is alive and well in Entropia Universe. Indeed, its economic infrastructure is viable enough that a plan for a bank is in the works; and that bank will be licensed by the Swedish Financial Supervisory Authority. I found the details behind this story fascinating:

At current exchange rates, 10 PED (Project Entropia Dollars) are worth one US dollar.

Unlike many other online games, which charge a monthly subscription fee, the software for Project Entropia is free to download and install.

However, players pay real money to get at in-game items, such as guns, armour and other gear [that "defense budget" still drives the economy!], and the micro-payment system pays for Entropia's running costs.

The licence will make it easier for players to convert real world cash into PEDs and sustain their characters in the game, said Mindark in a statement.

"We will be in a position to offer real bank services to the inhabitants of our virtual universe," said Jan Welter Timkrans, boss of Mindark. It plans to offer players interest-bearing accounts, let them deposit their salaries and pay bills or lend cash via the in-game bank.

The licence also means that each account is backed by deposit insurance to the value of $60,000 (£42,000).

Regulators will get oversight of financial transactions carried out in the game world, so they can spot if criminals are using it to launder money.

Mindark claims that more than 800,000 people have registered to play the game and 80-100,000 are regular players. About $420m of player-to-player transactions were carried out during 2008, according to Mindark figures.

Presumably the penultimate paragraph about regulators refers to external auditors accountable to the Swedish Financial Supervisory Authority, but they will probably need the cooperation of Mindark management. Given the track record of malicious activities taking place on social software sites, the Swedish authorities are probably going to need technical help when those activities cross the line into their domain of monetary fraud; and it remains to be seen if suitable protocols of cooperation can be established to safeguard the integrity of user finances. Note the implication here: That "integrity of user finances" in Entropia is not, in any fundamental way, different from the integrity of any "real" currency assets possessed by those users. As I have argued in the past, any currency that is exchanged for PEDs is as much a "fiction of convenience" as the PEDs are. The only significant difference is that PEDs were not created to facilitate the purchase of food, clothing, and shelter (not to mention software) in that "real world" that all the users inhabit; but there does not appear to be anything to prevent a user exchanging PEDs back into dollars, meaning that, from a functional point of view, a PED is as "real" a currency asset as a dollar or a Euro.

Entropia may thus become a socioeconomic experiment worth following. As we become more aware that our current economic crisis emerged from a crisis of regulation, here is a virtual world in which the need for such regulation has been accepted as a "design axiom." I doubt that the "Bank of Entropia" (or whatever Mindark chooses to call it) will turn out to be a better place for me to put my dollars than the Bank of America; but, given the current fortunes of the Bank of America, I would not place any bets on that doubt!

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