It used to be that a gold star earned in your favorite video game wouldn’t be worth much in your local supermarket, but that’s changing. There is a thriving economy in valuables like virtual swords and spaceships in online gaming. And Facebook recently released a currency system with which you can purchase services in online games and applications. The growth of these social networks is edging us closer to a structure that bridges the real and virtual worlds. The more these social networks connect with viable online financial systems, the more anyone on the planet can provide knowledge labor based on his or her ability.
The resulting meritocratic economy erodes the geographic inequality between the first world and the third world — and simultaneously enables copious criminal enterprise. So far, the most nefarious use of this development has been money laundering. A criminal in one country anonymously buys a game card worth an hour of play and uses it to pick up a load of virtual goods from another character in an online game, such as World of Warcraft. Once they log out, there is no useful record of who gave what to whom. Connect this with today’s thriving markets for in-game goods, and you have a nice scheme for moving funds between countries and individuals entirely anonymously.
Our governments are all too aware of this: Online money markets for trading virtual goods and valuing them against each other in real time have existed for years. However, until recently, those online funds have suffered the same fate as any currency that wasn’t backed by something stable, and wild inflation, market crashes and intervention from outside systems made virtual currencies a risky proposition.
That’s changing too. Last year, for example, Entropia Universe, a massive multiplayer online game based in Sweden, was granted a license to conduct banking activities by the Swedish financial supervisory authority. The game can now act just like a bank in the real world in almost every regard: It is backed by Sweden’s US$60,000 deposit insurance, offers interest-bearing accounts for its clients, features direct-deposit options, lets players pay bills online and is even intending to offer loans to its players.
These developments might not matter so much if games required the same type of identification that banks do. However, they don’t: As with most things online, games usually use authenticity instead, and the difference between the two — identity and authenticity — is critical.
Identity is a set of information that includes one’s real name, address, bank account and social security number, as well as a variety of other verifiable, “real world” bits of data. Authenticity, on the other hand, is usually a complex string of encryption that can verify that one bit of online data was made by the same person who made a different bit. For example, if I post something on MySpace as DragonRider13, and send you a message from LinkedIn, then Google’s Friend Connect platform can validate that the same person did both. What those tools cannot do, however, is say who that person is “in real life.”
This allows anonymity — the driving force that has allowed so many strangers to successfully collaborate since the Internet began, supporting everything from Wikipedia to the crowd-sourced rescue effort in Haiti. Being able to take risks with their own developing reputation encourages people to share personal information on medical research message boards or to volunteer countless hours on open-source projects.
However, anonymity runs counter to the real world view of finance. In the banking system you’re trusting the bank (or your government) to know (and trust) the person you’re exchanging with — and to be able to enforce the conditions of that trust. However, as we’ve seen from systems such as eBay, authenticity can work just as well, especially when backed by the reputation a longstanding social network provides. In these systems, the cost of alienating yourself and ruining your reputation acts as the enforcement to the trusted relationship.
This doesn’t mean we’ll all be banking in the virtual world Second Life at any time soon, but the limitations of existing financial systems can no longer be ignored. Their regulations remove the benefits a thriving online social platform would offer — reputation, peer accountability, context, on-demand collaboration, evolving personal relationships and so on.
As social networks continue to grow and make authenticity easier to use — through systems such as Facebook Connect and Google’s OpenSocial — the question becomes: When do we start exchanging actual goods and services for virtual currencies. More intuitive forms of human valuation — such as reputation — are being combined with enough scale and scope to have a community-based relationship with any authenticated individual without requiring identity. Social networks have already demonstrated their value, and trade-and-barter systems are common within them. Once these networks connect with a viable online financial system that’s unencumbered by existing regulation and fees — and eventually, they will — we’re going to be faced with an entirely new financial ecology.
Will this new world of commerce be laden with child pornographers and drug-money launderers, or empower the global disenfranchised? Because, along with allowing anonymous individuals to invisibly transfer funds comes the opportunity for anyone anywhere to participate. The current geographic inequalities in the knowledge labor market will be eliminated in favor of a meritocratic online economy. On the Internet, nobody knows if you’re Tanzanian or Texan, and as long as your work (and reputation) is good and you can be easily transacted with, who cares?
The rapid rise in online economies could lead to brutal anarchy or a golden age of equal access. We know things are changing; the big question is, for better or worse?
Josh Klein is a digital strategist.
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