How inflation is impacting virtual game economies?

Virtual economies are becoming quite the norm these days within the modern gaming hemisphere and having control over these economies can at times become challenging while at the same time exhibiting a huge impact on the longevity of the game.

For most gamers, trading is becoming an essential part of playing and experiencing the virtual world. Any game that allows players to trade virtual goods among themselves has the potential to develop a virtual economy, particularly if the goods can be bought and sold for real-world money. 

In-game Inflation

Most of us have heard and witnessed hyperinflation that happened in Diablo 3. The game runs a full virtual economy model, where the economy started with zero gold and now enjoys itself in trillions. This has enabled the supply of gold to constantly rise while the price of gold relative to real money has been steadily dropping. If these virtual economies are not managed well they can lead to major issues such as inflation, fraud, and economic collapse.

As virtual currencies are digitally-created and not commodity-backed, therefore, not particularly dissimilar from real-world currencies in this day and age, those such as Diablo 3’s gold are de facto fiat currencies. (Fiat currency is often established by government regulation but has no intrinsic value attached and is not backed by commodities).

Since a virtual economy, like a real economy, is made up of real people creating exchanges, many concepts of real-world economics will apply to virtual economies as well. Some of these may include the laws of supply and demand and inflation. Conversely, virtual economies have a number of exceptional conditions such as the presence of non-player character (NPC) vendors and a potentially infinite supply of goods and currency, which adds their own challenges to managing these virtual worlds.

A Cause for Concern

Inflation is an impediment that emerges in real and virtual economies both, occurring when the cost of goods or services rise, at the same time reducing the value of money. In the real world, the situation might be slightly different. Inflation may occur when the central bank of a country prints more money than necessary giving rise to money in circulation. Now, since there is more supply of money than demand, the value of that particular currency declines, resulting in higher prices of goods.

On the other hand, due to their digital nature, video game economies are extremely vulnerable to inflation and hyperinflation. This is because, even more so than the real world, virtual economies are not dependent on any specific money forms. All currency is digital, and for this reason is practically limitless. Digital currency tends to be created out of nothing simply by playing the game. Every time you kill an enemy for gold, trade your warrior on an online exchange platform or sell an item you crafted to an NPC, you are adding money to that virtual economy that didn’t previously exist.

How to Fight Virtual Inflation?

In actual fact, real-world economic issues don’t apply to a virtual world. Since the virtual economy is fundamentally a closed system there is no worry about countries stockpiling for example gold in Runescape, placing embargoes, or initiating trade wars. In addition, there is no worry about the supply of scarce resources hampering economic growth (represented by an increase in the number of players) because the game designers could theoretically adjust the supply of the backing resource based on the player population.

However, this may not just be it, virtual economies have a few pressing issues to address and the regulatory bodies are working rigorously to come up with an authoritative solution. The question arises, how do you make a digital resource-scarce? In general, digital resources can be duplicated infinitely, so up until recently, there wasn’t a good solution to this issue. However, one emerging technology may actually make a predetermined digital currency possible – blockchain.

Blockchain is a relatively new (and quite complicated) technology that was originally invented for use with the cryptocurrency Bitcoin. However, up until now, the technology isn’t backed by any government. The basic idea behind blockchain is that it can keep track of all transactions using the currency in a well-maintained public ledger comprising of transactional details. Once a transaction has taken place it is nearly impossible to go back and change. Because all transactions are public, it also makes it basically impossible to duplicate the currency or make fraudulent transactions.

(Disclaimer: The opinions expressed are the personal views of the author. The facts and opinions appearing in the article do not reflect the views of Devdiscourse and Devdiscourse does not claim any responsibility for the same.)