The Killer Glitch

The recent failure of BitCoin exchange Mt. Gox focused some attention on virtual currency. Authors such as Neil Stephenson and his 2011 book REAMDE address virtual currencies in the massive multiplayer gaming domain. So it was with some great curiosity and amusement that I watched and experienced one of the games I play(ed) collapse as a result of a technical glitch associated with their in-game currency.

The game is one of those where players group together in tribes to fight each other, and can pay real money to buy in-game currency (gems) to pay for armies, special skills and the like. Players have been known to spend thousands or even tens of thousands of dollars on these virtual goods, fueled apparently either by addiction or the desire to be first on their block with whatever new gadget the game purveyors dreamed up. This year for St. Patties Day, the game ran a special competition where Leprechauns with gems hid around the world. But, in one of the 30-odd worlds, there was a glitch…

In that world, the Leprechauns were paying out way more than expected, millions of gems where it should have been hundreds or thousands. Gems can be used across worlds, and some of my tribe were among the few who figured out what was happening, switched worlds temporarily, and harvested enough gems to last a lifetime. First came the excitement, a frenzy of activity to use the gems before the game company took them back. Rare items, where you need to purchase a thousand chances for the item to appear once, were suddenly available…just keep buying chances until you got lucky. Scarcity of anything was suddenly gone for these lucky few, and our tribe suddenly started winning every competition by huge margins.

Next came the boredom (the ennui of the very rich) and the recriminations (from other tribes accusing us of cheating). The game company started tracking down the scavengers on a case by case basis, randomly revoking newly acquired goodies and setting off a furious debate about what was fair (the letter of the rules, or the spirit of the rules). In the course of a few short weeks, the game went from a vibrant, competitive, money-maker to a rapidly dying world with fewer and fewer players. In the real world too, apparently several game masters have left the company and the job sites have posted ads for a new VP of Product Development, NA.

The sociology is fascinating. But what has surprised me even more is the economics of it. My first thought was hyper-inflation, the wheel-barrows full of gems to buy a loaf of bread kind of syndrome that in the real world accompanies unexpected boatloads of money supply. What I didn’t take into account was the need for the game company to keep it accessible to the full range of players from novices to the most experienced. So, no starvation of the peasants, and the cost of basic goods didn’t change (maybe massive Government subsidies?). Instead, what happened looked more like massive deflation of luxury goods, the price in gems unchanged but the lure and attraction suddenly gone, like when you realize the ingredients of that very expensive perfume can be found in your kitchen…

Which brings me back to BitCoin and the like. Watching such a slow motion train wreck in the virtual world is fascinating. But it makes very clear that electronic currencies are a different animal than real-world currencies, perhaps in the way that e-mail is different from hand-written letters sent via the Post Office. In the real world, such a collapse is frightening (just ask those countries whose currencies collapsed in the late 1990s), and the limits of our understanding make us even more susceptible to these types of events as we plunge ahead into this brave new world.

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