October 30th, 2006

Brad @ Burning Man

He was a money launderer for online mafiosi!

In 2004, Ultima Online addict and occasional freelance writer for Wired magazine Julian Dibbell stumbled across the work of economist Edward Castronova. Castronova, who Dibbell calls "the Adam Smith of Everquest," specializes in "the puzzle of puzzles," namely why do people waste time on things that are merely fun when they could, instead, be doing something productive with their time. His early work on Everquest related to the implications of the then-new world of Real Money Trading, or RMT, in Massively Multiplayer Online Roleplaying Games (MMORPGs). He did some research to find out what the Everquest loot and gold that were being sold on eBay averaged out to in price. Then he extracted some data from players and from online guides to determine how much loot and gold the average player collected, online, per hour. He also obtained, from readily available sources, the estimate of the number of players and the number of hours each player played per year. If you multiply the number of player-hours per year by the amount of loot per hour by the number of dollars per amount of loot, you can calculate the equivalent Gross Domestic Product of the fictional fantasy country of Norrath. Castranova did, and even no bigger than EQ1 was, Norrath's then 400 thousand "inhabitants" had a GDP of $912,000,000. Thats a per-capita GDP of $2,280/yr, and an hourly "wage" of $3.42 per hour - if they were to take everything they received as loot and as gold pieces in the game and sell it all on eBay every time they got it.

One of the things that caught Dibbell's eye about that was that by 3rd world standards, $3.42/hr is a pretty good wage. And by the time he stumbled across this in 2004, the widespread rumor through the MMOs was that that was where most RMT came from: from sweatshops in China and Mexico and other poor countries where people were being paid to sit and "goldfarm" in Ultima Online, in Everquest, in World of Warcraft, in Star Wars: Galaxies, and so forth. That is to say, not to play the game in whatever way seemed fun to them but in the way that their managers had determined would return the maximum amount of loot per hour; the managers then sell the loot on eBay, pay the workers anywhere from 25 cents to a buck-fifty per hour, and pocket the rest. Dibbell, seeing both a way to justify his Ultima Online addiction to himself and potential grist for more articles to sell to Wired, decided he wanted into that business. No, he didn't want to move to Singapore and slave away in some sweatshop playing UO by script for sixty hours a week; he wanted into the part of the business that involves brokering the money to the players who want it and are willing to pay cash. Such brokers are needed because goldfarming for cash is against the rules in nearly every game out there, where it's viewed as cheating. More on that, in a second. The business opportunity that their anti-cheating enforcement creates is that if the goldfarmers were to dump their loot for cash through a single point of sale, that point of sale would show up as a gigantic blip on the game companies' radar and would be easily shut down. So instead, they employ an army of middlemen. Dibbell set himself up as one of those middlemen, buying gold from the goldfarmers and selling it on Internet auction sites. He also supplemented that income by buying stuff that people didn't know what it was worth and flipping it to hungry sellers at a multiple of what he paid for it. His new book, Play Money, Or, How I Quit My Day Job and Made Millions Trading Virtual Loot, is the documentary history of the year that he spent trying to meet the self-imposed challenge of, in one year, in his first year in the business, making more money in the Ultima Online universe than he ever did in one year as a moderately successful freelance writer in the real universe.

That it is a personal chronicle is the source of the book's only real flaw. It's adapted from his blog entries at the time, reprinting some of those blog entries in their entirety. And anybody who reads blogs -- heck, anybody who reads this blog -- knows the pitfalls of reading a raw or even lightly edited blog. And in particular, his blog for that year is dragged down by the fact that his work situation got weird and his marriage went south. (In both cases, he insists on very little evidence that Ultima Online was not to blame. I suspect others in his life might say otherwise.) But despite the tendency to wander into bleak depression and then wallow around in it for a little while, the book was absolutely a good read. I took several very interesting things from it, some of which I'll share with you.

I obviously need to study more Castronova myself, because some of Castronova's insights in this book are fascinating. One of them reminded me of a very bleak scene in the original The Matrix that, at the time, I thought horribly unrealistic. Apparently it's not. In The Matrix, the whole human race has been kidnapped by artificial intelligences and, to end a war between those AIs and the humans, the humans and all their descendants are trapped inside a full-sensory immersive virtual reality, a 24x7 MMORPG that they don't know is just a simulation. Inside the Matrix, as in all MMOs, there are unkillable demi-godlike enforcers who crack down on anybody who tries to cheat in the game, whether hackers like our Zionite heroes who are trying to crash the game or exploiters like the Exiles who just use cheat codes to enrich themselves inside the game, and in the Matrix, these game master characters are called the Agents. Agent Smith is venting about his personal aggravations to one of the Zionite hackers, I forget if it's Neo or Morpheus, and the hacker asks the GM what seemed to me to be a really good question. If the AI developers of the Matrix can make it simulate anything they want, why on Earth did they trap the whole human race in the awful recession at the end of George Bush's first term? If their artificial reality is infinitely programmable, why does it have to be so miserable? Why not make it a virtual paradise? Agent Smith explains that they tried this, and it didn't work, and that's one of the reasons why he hates the "customers" of the Matrix so much. If life didn't suck, if it wasn't a constant struggle for survival, if getting ahead didn't involve backbreaking work and heartbreaking betrayal, humans sensed that it was unrealistic, stopped believing the evidence that the Matrix was feeding their senses, and the whole game crashed.

At the time, I thought that was horribly unrealistic. But in his study of MMOs and how people play them, Castronova found a direct correlation between how much you have to suffer to play them and how much people are willing to pay and how long they play. People judge the quality of their play by the intensity of the obstacles they've overcome. They play for pride of achievement, and for most players, that achievement tastes like ashes in their mouths if it came too easily. Ah, but not everybody plays at the same skill level. Ideally, the game should be equally difficult for everybody, regardless of their natural abilities. But almost none of these games comes with a difficulty slider. (City of Heroes/Villains is a rare counter-example.) So if people are determined to get ahead in these games and surmount the insurmountable obstacles, some of them cheat. And the most common form of cheating is to import success from the larger "game," real life. People who aren't at all successful inside World of Warcraft and who don't have the help of powerful WoW clans, but who are successful in real life either through their own skills or by being born into or having married into powerful real clans, take the cash they have in real life and trade it to cheaters inside the game, who use it to turn the difficulty slider down for them by providing them with extra powerful equipment that they didn't have to work for. Of course, it's my experience that this doesn't do the cheaters who buy the stuff any good, either, for the same reason that most of these games don't have difficulty sliders. They turn the difficulty down too far. They let their cash play the whole game for them, or very nearly, and are left at the end of the game with no feeling of accomplishment. So they quit out of boredom almost instantly thereafter.

Another really interesting thing that I took out of this book was Dibbell's description of his experience dealing with the big-money professionals in the MMO-cheats industry. I thought I knew a thing or two about this world, but it turns out that a thing or two was all I knew. As with probably every job and industry in the world, there are things about how the world work that only people in that industry know, that come as a major shocking revelation to new employees when they finally realize them. And one of them is this: the Chinese goldfarmer is mostly a myth. It's a lie made up by the gold sellers to explain where they got their gold. Nearly all of that gold comes from hacking. They engage in outright cybercrime to hack the communication back and forth between their computers and the game companies' servers, exploiting loopholes in the game universe's code to do things that no actual player of even infinite skill and infinite patience could do. What few actual goldfarms and goldfarmers do exist come from attempts, like Dibbell's attempt at one point in the book, to set up their own goldfarms to compete with the gold sellers at the supplier level -- only to fail when they can't match the much lower costs of fully automated cheating. I did not know that.

Nor did I foresee just how much that smallish network of hackers would resemble any other criminal enterprise. The feuding and rivalries rather closely resemble any account you've ever read of similar criminal enterprises. This reads very much like a sequel to one of my all-time favorite books, The Big Con, where web pages and in-game sales reps substitute for the faux storefronts and confidence men of the Long Con confidence games of the 1900s through the 1930s. With not a little of The Godfather or gangster rap mixed in. One of the participants in a particularly nasty feud between two warring cartels of gold sellers forwarded to Dibbell the instant message log from when the feud began. Dibbell describes reading this chat log as feeling like an FBI agent listening to the wiretap on a couple of mobsters discussing a deal gone wrong, and he's not exaggerating. These really are people who, like con men and gangsters and crack dealers, live in a world where tens of thousands of dollars are on the line and contract disputes can't be litigated and stolen merchandise can't be reported to the cops, and human beings in such environments get very nasty and very ugly.

Oh, yeah, one other thing I almost forgot to mention. By now, most of you have heard of the controversy over how, exactly, the income from goldselling in these games should be taxed. Once he got out of the business, Dibbell's journalistic instincts (and habits acquired from working for Wired) left him with a determination to force the issue. He determined to report the roughly $45k he earned from selling online gold to the IRS as income, and forced them to give him a tentative ruling on it. What the IRS told him as an informal rule, specific only to his situation, is that any cash you bring in from selling online goods is treated as sweepstakes income. But they also told him very specifically that they do not want to pursue this, that they don't want to hear about it, that they have no intention of making a formal rule about it. Why not? Because that same element of the tax code applies to all sweepstakes prizes, not just cash ones. Which means that technically, every time you defeat a monster in World of Warcraft and get a piece of loot, they're supposed to record that transaction as a prize that they gave you. At the end of the year, they're supposed to calculate the cash-equivalent value of all of the prizes you won, as if you had sold them on eBay, and issue you a form 1099 (with a duplicate copy to the IRS) forcing you to report the value of all the loot your character won as taxable income. Admittedly, you would then, by the same chapter of the tax code, get to deduct your monthly fee from those winnings, plus any money you spent on eBay to buy such loot, as "ticket prices." But for nearly all players that would still result in a net increase in taxable income even if they never converted any of it to cash. And, the IRS told him, you really don't want to open that can of worms. And neither do they. And neither do the gaming companies, for whom the record-keeping requirements would be so onerous that they'd probably have to double the monthly fees. So instead, the IRS is reserving the right to bring up the "sweepstakes income" angle on any big-money goldfarmers that they audit if they want to, but leaving ordinary players alone. That's right, people, the IRS's semi-official policy is selective enforcement: leave the "good people" alone, charge the full tax amount to the "bad people." Chew on that.