VIDEO GAME CURRENCY: TAMING THE WILD WEST OF VIDEO GAME ECONOMIES.

• Author: Khorsandi, Josh

CONTENTS I. Old School Economies, New School Problems 1 II. The Current Shortcoming of Law to Meaningfully Regulate Video Game Economies has left a Regulatory Gap 5 III. Locke Based Property Rights Regimes Must be Recalibrated to Better Fit the Online Gaming Space 7 a. Understanding Lockean Property Theory as an Off-or-On Switch Ignores the Nuance of Living Economies 8 b. When Interests Conflict, the No Harm Principle Must Protect the Common Through Economic Norms 14 IV. The Enough and as Good Condition Understood as the Measurement of Economic Health in Video Game Economies 15 V. The Use of Socio-Economic Norms to Guide Regulation 17 a. A Theoretical Economic Justification: a Bottom-Up Approach to Regulation 20 b. A Theoretical Economic Framework to Limit Player Access to Real-World Economic Profit 26 c. Dealing with the Criticisms of Taxation as a Solution 27 d. Using a Concave Utility Curve to Limit Overproduction 29 e. Using Socio-Economic Theory to Develop a Regulatory Schema for the Regulation of Video Game Currencies 31 VI. Conclusion 33 I. Old School Economies, New School Problems

The tragedy of the commons is an ancient concept. (1) Perhaps the most famous explication is given by Professor Garret Hardin. In his brief article, Hardin paints a picture of a pasture open to the common. (2) He states that a pasture that is open and free to all is bound for ruination. (3) For centuries, the culling of herds brought on by wars, famine, and disease protected the farmers from overgrazing. (4)

However, the social stability of modern times has removed herd culling. (5) Without the natural thinning of herds, the open pasture is open to overgrazing. The farmer faces two realities: (1) they can capture the benefit of overgrazing when they raise, feed, and sell additional cattle, and (2) since the cost of adding cattle is borne on all farmers, all share the effects of overgrazing. (6) The rational conclusion is to graze until the common is ruined and unsuitable for future herds: "The individual benefits as an individual from his ability to deny the truth even though society as a whole, of which he is a part, suffers." (7)

The regulation of digital video game currency follows the same thinking. Consider the case of Old School RuneScape ("OSRS"). OSRS is a Massive Multiplayer Online Roleplaying Game ("MMORPG"). (8) Throughout this paper, "RuneScape" refers to the sibling game to OSRS that exists parallel to OSRS. In OSRS, you play as a human in a magical world of dragons--it uses themes from Dungeons and Dragons. (9) Most players play on a single account for many years. (10) There is no single goal of OSRS. Players can do many activities: killing monsters, making money, training skills, or even standing around chatting with people in social hubs. (11)

OSRS lives through good economic policy. When there is not enough money--i.e., Gold Pieces ("GP")--in the economy, the developer adds a new resource that players can transform into gold through, for example, magical alchemy. (12) When there is too much money, the developer adds activities that cost--i.e., delete or remove--GP to complete; this is how money leaves the economy. (13) It is the role of the game developer, Jagex, to act as a quasi-regulatory government. By setting proper economic policy, Jagex ensures a healthy virtual society.

It is also worth noting that OSRS uses a one-of-a-kind method for introducing updates. (14) Due to a politically contentious past, players must approve any significant update via in-game poll booths, with a minimum of 75% of the voting players voting yes. (15) Jagex must consider the economic impacts in terms of the game's health and whether it will appeal to its voters. While challenging at times, it ensures that egregious financial incentives do not make their way into the game. (16)

It is common for video games to have unofficial real markets for their virtual items. (17) A real market is a market that exists beyond cyberspace. (18) OSRS's real marketplace surrounds its centralized currency, GP. This GP has real-world value and even has a varying exchange rate to USD. (19) At the time of writing this paper, the current ratio is about $0.52:1M GP or fifty-two cents for every one million OSRS GP, depending on the seller. (20) For the average player, like me, this number is practically meaningless. For a healthy minority of the OSRS player base, however, this number reflects real financial gain. (21) Much like the times of the open pastures of the wild west, there is a new gold rush. Only this gold rush is invisible to the legislative eye.

As the market grows, so too does the purveyor of wealth's hunger. Players who sell gold gather their wealth through one of a few means: gold farming (exclusively partaking in activities that yield high in-game monetary returns for the sole purpose of sale), cheating (having automatic code scripts called "bots" play the game and gather resources to sell), or hacking (getting into other player's accounts and stealing their items to sell). (22) Jagex wages a never-ending war to identify and ban these players as it violates their Terms and Conditions to sell GP. (23)

Even Jagex employees are not free from financial temptation. In 2018, Jagex fired Moderator Jed ("Mod Jed") after discovering he had been grossly abusing his moderator privileges. (24) Mod Jed stole hundreds of thousands of dollars' worth of GP from players and even attacked the OSRS servers during a live Jagex tournament with a cash price of $10,000. (25) At the time of this paper, the police investigation into his actions has yet to conclude. (26) With his real bank accounts frozen, Mod Jed had gone into hiding, changed his name numerous times, and is still missing. (27)

Nonetheless, companies have an incentive to allow players property rights in the value they create within the game. When a player creates value on their account--their license--the game companies cannot capture the value. A game company that takes from its players' accounts to turn a profit is unlikely to survive for long; players are not keen on having their labors taken when they have worked hard to achieve them. The current model allows players to generate any quantity of value on their accounts but does not allow anyone, player or company, access to said value.

Players exchange in-game value for real-world currency when they feel as though the game and its content are popular enough to warrant the deal. If a game company were to allow players property rights to their in-game value, it would encourage more players to play the game. This is because there is a social aspect of playing video games. That is, players may be more likely to play a game if they see others placing more value in its content--a herd mentality of sorts. For the company, more players playing the game means more revenue. Since no one is currently reaping the rewards of player-generated value and it goes against good business practice to take away from a player base value they have generated, it is prudent for companies to allow players to own the value they create through their individual licenses.

2. The Current Shortcoming of Law to Meaningfully Regulate Video Game Economies has left a Regulatory Gap

   Regardless of how society views video games, many will pay top dollar (28) for the items in these virtual worlds. The goal of this paper is to build a regulatory scheme for legislatures to use in the future. First, I will establish that there is a need for regulating video game economies like OSRS. Second, I will take some time to consider two Lockean views of intellectual property law to find the philosophical starting point. Third, I will push a slightly more nuanced understanding of Locke and use this as my base argument. Fourth, some economic explanation and suggestions on solving the presented issues. Finally, the paper will conclude with an attempt to create a regulatory coda. Future regulators may want to use this as a model with theoretical and practical evidence to support it.

   Until now, I have presented several ad hoc examples. However, it is not clear that it is worth the valuable time for our legislatures to examine the issue. As motivation for property rights is not the focus of this paper, I will briefly discuss how legislation may already cover such virtual economies before building a more tailored, yet general approach.

   A nonbank financial institution ("NBFI") is an unlicensed financial institution that offers individuals the ability to store money for numerous purposes. (29) Currency exchanges are a type of NBFI. (30) The digital currency of OSRS carries enough value to have a varied exchange rate. (31) The exchange rate on private websites lists where players can pay real currencies in exchange for GP. (32) Therefore, I argue that these websites act as currency exchanges.

   Title 31 of Section 5330 of the United States Code ("Section 5330") requires the registration of all money-transmitting businesses. (33) Currency exchanges fall under the code definition of money-transmitting businesses. (34) Title 18 of Section 1960 of the United States Code ("Section 1960") criminalizes unlicensed money transmitting business when the money transmitting affects interstate or foreign commerce in any manner or degree. (35) Under the Titles of each Code, websites that engage in the sale of OSRS GP must file their existence with the government; however, none currently do. (36)

   Moreover, suppose we assume that players have property rights (superseding the current license language that forbids property ownership therein (37) ) in their video game wealth that are taxable when sold for profit. Section 61 of the Internal Revenue Code defines gross income: "Gross income means all income from whatever source derived, unless excluded by law. Gross income includes income realized in any form, whether in money, property, or services. Income may be realized, therefore, in the form of services...