Dan Miller, one of Capitol Hill’s few experts on the subject of virtual economies (he’s a staff economist with the Congressional Joint Economic Committee, working with the ranking member, Republican representative Jim Saxton of New Jersey), notes that different virtual worlds take different approaches to keeping transactions secure and transparent. Within Entropia Universe, every PED has a unique ID code and is tracked from its creation, through every transaction involving it, to the point at which the user cashes out by exchanging PEDs for real dollars. Linden dollars do not bear such codes, though the company says all transactions are monitored. Differences in transaction-tracking technologies could make it harder or easier for legal authorities to reconstruct alleged incidents of theft or fraud. But it also gives consumers a choice, Miller says: “If one virtual world likes the heavy-handed Big Brother controls to make everybody feel safe, that will appeal to certain people. If someone else is more of a caveat emptor person, they might go more toward another world.” He warns that any government intervention to regulate commerce could be a slippery slope. “If the government starts regulating aspects for criminal purposes, they might start regulating the economic aspects,” he says–by taxing virtual goods and services, for example.
David Naylor of Field Fisher Waterhouse, on the other hand, argues that if virtual worlds are going to attract more participants–and create a lucrative new front for e-commerce–they need real-world intervention. “The issue is that I don’t think the authorities, in any jurisdiction, have really got their heads around Second Life,” he says. “One reason is that it’s brand-new technology. Or if they are familiar with it, they take the view that in terms of the potential damage, or potential losses, they’ve got bigger fish to fry.” Cleaning up the situation “is going to take real-world regulators taking an interest,” he says. “Watchdogs can’t do it on their own. They can alert people to malpractice but can’t provide compensation.”
Cornell’s Robert Bloomfield is an experimental economist who conducts lab research–allowing 20 students to make simulated stock trades using real money, for example, and seeing how regulatory changes affect their behavior. He envisions a day when he can do larger studies by setting up parallel virtual worlds. “I could create two virtual worlds, one with one legal structure, one with another, and compare them,” he says. “I might lower the capital-gains tax rate in one and see how business responds. There are things I can’t do with 20 people in a classroom but I can do with 2,000 or 20,000 people in a virtual world.”
For now, though, he’s studying what’s actually happening among the 318,742 people who are spending money in Second Life. “It’s pretty much the Wild West, and that makes it a fascinating place for study in its own right,” Bloomfield says. “We just have to sort out what the best practices are, and the best practices involve a lot of transparency.” Yoon, meanwhile, says he wouldn’t be surprised if law enforcement was gearing up to prosecute some form of misdeed within virtual worlds, whether a financial scam or virtual pedophilia. “I have no doubt that that is going to be something that people are interested in looking into,” he says. “It’s not any different than Internet chat rooms as a collaboration medium. There are guys whose police beat it is to hang around in an Internet chat room, and to chase spam, and prevent those scams. I don’t see why they wouldn’t do this in virtual worlds.”
To be sure, there are plenty of fleeced avatars who want their money back–and who are already backing away from the experiment that Bloomfield finds so promising. One of them is Rick Jones, a 47-year-old retired navy electronics technician who lives with a roommate in Oceanside, CA. In Second Life, he named his avatar Kiyotei Xi and bought and sold some land. “I had animals and fish and stuff that I would put around the land, for entertainment,” he says. He makes art that he sells at another avatar’s gallery, and he surfs in an area called Chi. But his experience has been marred, he says, by losing $460 in Ginko. He says he’d join a class action suit, though he wouldn’t sue on his own. And has he lost his trust in in-world transactions? “Oh, heck yeah.”
Stephanie Roberts has also lost some of her trust–but not enough to overwhelm her love for the possibilities she finds within Second Life. And certainly not enough for her to overlook the fact that there’s nowhere in the virtual world to buy a digital Zamboni. Roberts is looking for someone to teach her how to design one, so she can start selling them to other residents–and do her own small part to expand the virtual economy. “Nobody else has built one yet,” she says. “I could earn quite a bit off the sale of this thing!”