I’ve been reading a bit about the “virtual economies” inside online role-playing games. Very interesting stuff, not just because of what’s happening in these games, but because of the far-reaching philosophic questions raised by it.

I’ll quote directly from an article on Freedom to Tinker:

Something remarkable is happening in virtual worlds. These are online virtual “spaces” where you can play a virtual character, and interact with countless other characters in a rich environment. It sounds like a harmless game, but there’s more to it than that. Much more.

When you put so many people into a place where they can talk to each other, where there are scarce but desirable objects, where they can create new “things” and share them, civilization grows. Complex social structures appear. Governance emerges. A sophisticated economy blooms. All of these things are happening in virtual worlds.

Consider the economy of Norrath, the virtual world of Sony Online Entertainment’s EverQuest service. Norrath has a currency, which trades on exchange markets against the U.S. dollar. So if you run a profitable business in Norrath, you can trade your Norrath profits for real dollars, and then use the dollars to pay your rent here in the terrestrial world. Indeed, a growing number of people are making their livings in virtual worlds. Some are barely paying their earth rent; but some are doing very well indeed. In 2003, Norrath was reportedly the 79th richest country in the world, as measured by GDP. Richer than Bulgaria.

Virtual worlds have businesses. They have stock markets where you can buy stock in virtual corporations. They have banks. People have jobs. And none of this is regulated by any terrestrial government.

This can’t last.

Last weekend at the State of Play conference, the “great debate” was over whether virtual worlds should be subject to terrestrial laws, or whether they are private domains that should determine their own laws. But regardless of whether terrestrial regulators should step in, they certainly will. Stock market regulators will object to the trading of virtual stocks worth real money. Employment regulators will object to the unconstrained labor markets, where people are paid virtual currency redeemable for dollars, in exchange for doing tasks specified by an employer. Banking regulators will object to unlicensed virtual banks that hold currency of significant value. Law enforcement will discover or suspect that virtual worlds are being used to launder money. And tax authorities will discover that things are being bought and sold, income is being earned, and wealth is being accumulated, all without taxation.

When terrestrial governments notice this, and decide to step in, things will get mighty interesting. If I ran a virtual world, or if I were a rich or powerful resident of one, I would start planning for this eventuality, right away.