Game Money: The Future Currency

By Author: Joe Helper
Total Articles: 3698
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It is largely understood that the prices for online game currencies such as World of Warcraft, WOW Gold, Final Fantasy XI Gil, and Lineage II Adena fluctuate wildly because of the fact that these economies are unregulated. As a result, rampant inflation spreads due to the constant creation of new money at a faster pace than the creation of different ways to spend this money, also known as money sinks. This was first noticed in early text based Multi-User Domains, or MUDs, which can be considered the predecessor to the MMORPGs of today. The term mudflation was coined to describe this phenomenon which is still rampant in today's most popular online games.

There are several ways to track if mudflation exists in your game, including checking the in-game prices of staple items such as raw materials, foods, or potions that are required equally at all stages of the game. Another, more readily traceable method, involves tracking the exchange rate of a game's currency with a real world currency, such as the US Dollar. Ignoring the moral, legal, and ethical issues surrounding buying and selling game money, known as the real ...
... money trade, or RMT, several 3rd party companies do offer such services to the players of these games.

Until recently, the RMT industry had been dominated by a single company with a near 100% market share. But with the growing popularity of massively multiplayer online role playing games, MMORPGs, many more legitimate companies have sprung up to fill the added demand. As more companies and websites enter the real money trade, supplies become more readily available and prices become more competitive, at least theoretically.

The problem however, is that, even with the emergence of many more websites, the industry is still a strong oligopoly, a market dominated by a few large and powerful companies. It is extremely hard for the little guys to get noticed and trusted, even when they have better prices and better service, in an industry dominated by a few and rampant with fraud and corruption. But things are changing.

In 2006, several websites were created to compare the prices of many of the leading WOW Gold sellers, the most popular MMORPG to date. Other games were also sometimes added, and gamers could easily compare prices for several games from many different websites. These were great services that helped to find the cheapest prices for items like WOW Gold. Unfortunately they were seriously lacking in determining whether or not the price was at fair market value or if the price was inflated drastically due to the oligopoly nature of the game gold selling industry.

Enter mudflation.com, a site similar to previous websites that compare the prices for WOW Gold, FFXI Gil, Lineage 2 Adena, etc. However, they also have the added feature of listing the prices at which these companies are willing to buy WOW Gold, known as a bid, and other game currencies. This is extremely important and a powerful method to determine not only the liquidity of a currency, but also the fairness of its pricing.

Take for example, the first entry for WOW Gold at mudflation.com. At the time of this article, 1000 Gold has a highest bid of $20.00 and a lowest ask of $68.77. This means one website is willing to pay $20.00 for 1000 WOW Gold, while another is planning to sell it for $68.77, a $48.77 spread (difference between bid and ask) or a bare minimum 244% return on their investment. Compare this to the current bid of $54.20 and ask of $54.22 for a share of Electronic Arts Inc. (NASDAQ:ERTS), the largest video game publisher, and we see a drastic difference in spreads, and the fairness of prices.

This is the power of liquidity and the bid/ask exchange market system, the cornerstone for our capitalist society. The real money trade industry is still young and facing the growing pains of any new industry. But as it matures and irons out some wrinkles, we can clearly see the direction it is going. Perhaps one day even speculators and hedge funds may end up investing in game currencies as they do now for real currencies.