Economics are extremely complex
But like all things we tend to oversimplify them in order to make some sense out of the situation. Buy high, sell low. Low supply? High price. High supply? Low price. Higher risk? Higher interest rates! Lower risk? Lower reward.
Boom, solved it; I must be an economics expert now!
Economies are everywhere, and they exist to fill a need. That need is simple: facilitating a transfer from one person to another. Unfortunately, how this is actually accomplished is anything but trivial; the devil is in the details.
In the world of gaming
I personally have extensive experience within gaming economies. Legitimate academic papers have been written on it, with one of the most prominent economies arising from the MMO World of Warcraft. From there several other games created similarly complex economics, ranging from titles like Eve Online (sci-fi space economics) to Runescape.
The one common thread in all the most complex game economies is that they are all massively multiplayer. Why is this? Because economies depend on people. Without people there are no economies. The more people the better. The more diverse the better. If everyone could make everything they needed themselves there would never be a need for economies or currencies. Humanity itself is a hive of activity in which we depend on each other, even if we don't personally know those people.
That's why currency is so important in the first place.
On a basic fundamental level, currency is a language that everyone can understand. Because it is based in mathematics and on the ledger it translates across all cultures and ideologies without much friction or overhead cost.
If I give a dollar to someone who doesn't speak English: it does not matter, they know exactly what it is, even if they've never seen that exact type of paper money before. If someone hands me Nigerian Naira I know it's money even though I've never seen it before. I might not know the unit of account (what it can actually buy), but I know it can buy something, or at least a piece of something (divisibility).
Why are gaming economies artificial?
Humans (users) are the gods of the digital landscape. Gaming economies are artificial in nature because the scarcity of the assets in question is programmed by design. In the physical world this is not the case. We can't click a button and 3D print corn on a whim (yet). However, if we wanted to we could print more Bitcorn out of thin air. All we'd have to do is change the code and it would be so.
Ironically this makes gaming economies even more difficult to ~create~ balance than "real" economies. Why? Because If players can play the game and earn actual value, then there becomes a financial incentive to exploit the economy with targeted strategy, glitches, bots, and AI for a profit. None of these issue are present within non-artificial economies.
It's all based on scarcity.
This is ironic because the ultimate goal of crypto, technology, and humanity at large is to create abundance. Wouldn't it be nice if food was free and nobody ever went hungry? Wouldn't it be nice if rent was free and we could all just pursue whatever artistic desire we could think of? Yes, that would be great for people, but absolutely terrible for the economy. The economy depends on the fact that resources are scarce and there isn't enough to go around.
This makes gaming economies particularly weird and fascinating. We make the game difficult and the resource scarce... on purpose... for fun. It wouldn't be any fun if everyone could just have everything they wanted in the game the second they logged in (even though it would be very easy to program). That would be boring as hell and the game would be over before it even started. Rather it is the progression of our character and associated account that makes the MMO fun to play. Players love to compare their progress to their previous self and to other players as well.
Diversification
The best gaming economies are going to have specialties, professions, and custom affinities that force (or at least incentivize) players to work together rather than trying to go it alone. Maybe my character is a tailor and very good at killing fire elementals, while someone else's character is an enchanter that's very good at killing frost elementals.
- I trade my fire essences for their frost essences.
- I make us both frost-fire cloaks with my tailoring ability.
- He enchants both of the frost-fire cloaks with his enchanting ability.
- Now we both have a useful final product that has utility instead of just a lump of raw resources.
Localization
One of the big problems with MMO economics is that the Internet has no borders and it is a permissionless system. Sound familiar? Crypto has these exact same setbacks, so crypto gaming is doubly difficult to navigate, as there is exponentially more financial incentive to cheat.
What this means is that I might be willing to pay $20 for an item in a game as an American, but because the entire world can see that demand on the free market players might flood in from countries like China and India and actually be able to earn a living wage off that demand for a while due to the value of a dollar within that country.
This dynamic creates a toxic feedback loop in which casual players with 9-5 jobs in developed nations might be paying someone in Bangladesh $1 an hour to farm those fire essences for them instead of engaging within the intended economy where everyone is both a producer and a consumer. Players with access to more currency (both in-game and fiat) tend to stop being producers because competition and supply of the potentially infinite digital asset keeps getting driven down by borderless economics.
In fact this happens in the real world as well as we have seen many times over. For evidence of this look no further than the city of Detroit. Once the automobile industry migrated overseas for cheaper manufacturing that city was doomed to decay. Many of these economic issues apply to both in game and real world economies equally, which is what makes them so interesting.
How does one get around this setback?
The first rule of mitigation is always to catch and ban cheaters caught in the act. However, on a centralized system this means the company in charge has to pay a GM (game master not good morning) to hunt them down. What if the corporation decides that paying to find cheaters and remove them from the ecosystem is more expensive than just letting the ecosystem be exploited? Capitalism hard at work, that.
I believe that WEB3 will have a unique opportunity to sidestep this setback by allowing the community to police itself rather than the centralized entity that would normally lord over it. Gamers are more zealous and determined than some random guy being paid to perform a monotonous task day in and day out. This enthusiasm could pay for itself a thousand times over. Volunteers and even contractors have a tendency to be more effective than those being paid by the hour.
Permissioned system?
Another extremely ironic way to prevent cheating would be would be to take away the permissionless nature of crypto by design. If a crypto MMO node is balanced for an average of 1000 daily players... well that's not very many people, is it? The ability to play on a private server like this could be invite-only and based on reputation.
I know if I created a game on Hive it would not be that difficult to find a few dozen people I could trust to seed the node. Then those people bring in their friends and so on and so forth until we have 1000 people and a system in which we can police ourselves to keep the economy honest. If someone else wants to play the game they can boot up their own node instance with their own rules and/or invite list.
Conclusion
Regardless of whether the assets in question are artificially scarce or not, one thing is certain. Communities create economies. Where supply meets demand: markets are made. People need each other, and we create these systems to smooth out the rough edges of being forced to trust people we have never met before.
How are you reading these words right now? I guarantee you it's on a device that required some amount of work from millions of unique people. You ever think about who mined the gold that's in your smartphone? Nobody does. Economies are like a beating heart: you don't really think about it until it stops working properly.
Posted Using InLeo Alpha
have you had a look in to the splinterlands land whitepaper? I would love to hear your thoughts on the potential of this upcoming economic experiment.
https://hive.blog/splinterlands/@splinterlands/the-secret-of-praetoria-phase-2-whitepaper-reveal-part-5-ancient-ruins
There are nearly 50 different resources being planned which will all be created by the land owners themselves. And what we decide to produce will probably depend massively on supply and demand.... I hope it will be as fascinating as it promises, but of course....like you say in this post.... we will need a population to make it as dynamic and thriving as it can possibly be. Still we already have at least 1000 players involved so that is a good start.
My hope is that this project becomes a shining example of what can be done with a web3 game economy. If it fails....I can only hope it will fail ambitiously enough to be considered a historic case study. I continue to support the project through its ups and downs because I always feel that at the heart of splinterlands there is a groundbreaking vision.....its just taking a long long time to get there and there have been some frustrating decisions along the way so people get very salty. I would LOVE you to do a full post on the game and its vision even if its full of cut throat criticism. Your angle on its potential game economy mechanics would be fascinating....and hey.....surely someone could build a whole other game around the resources that are being farmed right? So even if splinterlands screws it up, someone else could utilise the farmers assets for something else entirely?
What king of lube is being poured on the gears? asking for a friend....
kinda
Fascinating.
Thanks!
It is just so sad that it is not possible for everyone to provide what they need for themselves and that’s why we still have economies and currencies
Scarcity and want cause so much on humans , well understood all of that dost exist just for the sake of keeping economies going and stimulating. But , actual truth is that it dost force lots of humans insane.
Perhaps , if not 💰 money sake , who would truly cares about economies.
Thanks'much for sharing this nature of educative post.