Second Life Skullduggery

Daniel Terdiman of CNET points out an interesting story on a San Jose Mercury News blog. According to the blog post, there is “a flaw in Second Life virtual world that allows them to strip a user’s character of all of its in-world money.” The security hole lies not directly in Second Life code, but in Apple’s QuickTime, software which allows video playback. In Second Life, users can embed video into their avatars or their property – video that other users view using QuickTime. QuickTime, in turn, has a flaw that can be exploited to allow the unwitting transfer of Linden dollars from the target avatar to the thief.

In a statement issued Nov. 30, Linden Lab warned users about this problem with QuickTime, and said “At this time we advise that you disable streaming video playback in the Second Life viewer except when you are attending a known and trusted venue.” While it appears that no one has taken advantage of this exploit, Linden Lab added “We are able to track attacks, and rest assured, if we discover a malicious stream, we will vigorously pursue the attacker. This will include account termination and legal action if appropriate, as well as the appropriate assistance for affected Residents.”

From a policy perspective, the existence of such a simple means to steal Linden dollars raises some interesting questions. For example, if someone has their Linden dollars stolen, should the real world police get involved? If so, is there a threshold below which the police won’t pursue action? One Linden dollar (equal to about 37 cents) certainly wouldn’t precipitate action, but what about L$1,000 ? Moreover, can a local police or sheriff’s department investigate and prosecute such a crime when the various parties may stretch across multiple states and/or nations? Does that mean that the FBI has to get involved?

It seems to me that the best solution to this security problem, at this point, is to let Linden Lab police its own world. Linden Lab can track down the perps and identify suspicious activity with far greater effectiveness and ease than traditional law enforement. Perhaps the better role for law enforcement is to pursue systematic schemes to steal L$ on a widespread basis. The jurisdictional question does seem to raise to problems, however. If the server where the “crime” occurred is in California, and the victim is in Texas, but the organized theft operation is in France (or Malaysia or Cyprus…), then which law enforcement agency has the leverage and reach to catch the criminals and provide restitution to the victim?

Aside from the public policy questions, this issue reinforces the key point that virtual worlds involve real economic value. As such they need appropriate security safeguards. As Charles Miller of Independent Security Evaluators, who along with Dino Dai Zovi discovered the exploit, said. “Banks clearly try to make their operations secure. Game companies haven’t thought about it the same way. They need to think more about security.”

UPDATE 12/14/07: Via Virtual Worlds News, it appears that Apple has now released a patch, but that Linden Lab has yet to implement the change in Second Life. Thus, we almost have a fix in place.

Second Life Forum with Metanomics

I recently had the pleasure of taking part in an event put on by Rob Bloomfield of Cornell's Johnson School of Management and Metanomics. The purpose of the forum was for me to answer questions from an audience of 70+ Second Life residents, moderated by Bloomfield.

For my part, it was a good, productive discussion. Questions covered a wide range of territory. Taxes were an obvious concern, but participants also asked about regulation and the form and likelihood of intervention by the federal government. I was impressed by the quality of the questions and the discussion that took place by chat in the background. By far my favorite comment from the chat log was by Dizzy Banjo: "yay geeks in congress :D"

You can read more in this Reuters article. Video of the event is available online if anyone is interested. Jim Rapp of Cyberstrategies.us has posted some photos (including the one used here).

Bragg Lawsuit No More

Reuters has reported that Second Life has reached an out-of-court settlement over the lawsuit brought by Mark Bragg. The terms of the deal were not disclosed. While this settlement was self-evidently in the interest of both parties, it still leaves unresolved key questions pertaining to virtual worlds. If the case had gone to trial, then it is possible we would have obtained the first clear legal opinions on issues involving property rights and the applicability of terms of service (TOS) agreements. As I previously blogged, the court in this case had already handed down a significant ruling against the enforceability of a clause of the Linden Lab TOS. If the Linden Lab had suffered a defeat with respect to its TOS or regarding property rights in Second Life, it could have had a major impact on the future treatment of virtual worlds on tax and rights issues. Looks like we'll have to wait for another lawsuit, Congressional legislation or IRS ruling.

Credit in the Metaverse

Now comes a credit card for Second Life. A credit card for the Metaverse, it is called the MetaCard and comes from First Meta. There are even different versions: Basic, Gold and Corporate. While the MetaCard appears to be the first of its kind, its presence is somewhat limited. First, only participating merchants will accept the card as payment. Second, there are limits on the amount that can be charged to the card: L$5,000 for Basic, L$10,000 for Gold and L$25,000 for Corporate per month. That amounts to less than US$20, US$40 and US$100, respectively. The interest for balances is 0.13%, compounding daily. While there is a 2.5% transaction fee charged to merchants for each transactions, merchants get the benefit of a MetaSavings account that yields interest of 0.09%, compounding daily.

More on Virtual Terrorists

There is a revealing article in today's The Australian about jihadists' use of virtual worlds.

“Terrorist organisations al-Qa'ida and Jemaah Islamiah traditionally sent potential jihadists to train in military camps in Pakistan, Afghanistan and Southeast Asia. But due to increased surveillance and intelligence gathering, they are swapping some military training to online camps to evade detection and avoid prosecution.”

“[Head of the Australian High Tech Crime Centre in Canberra Kevin] Zuccato told an Australian Security Industry Association conference in Sydney that people intent on evil no longer had to travel to the target they wanted to attack to carry out reconnaissance. He said they could use virtual worlds to create an exact replica and rehearse an entire attack online, including monitoring the response and ramifications.”

The article also mentions the threat posed by money laundering through virtual worlds:

“One of the most useful tools available is the ability to transfer SL money between avatars, funds that can then be translated into real currency. The SL currency of Lindens (about $L270 to $US1) can be bought using a credit card in one country and credited to one avatar (account) and can be given to a co-conspirator avatar in another country," [Intelligence analyst Roderick] Jones says.”

The use of virtual worlds by terrorists should be a concern for everyone eager to see these worlds develop and expand. If counter-terrorist legislation or rules were enacted that crack down on virtual worlds generally, there would obviously be a negative impact on their long term growth.

Ironically, it would seem that the harder governments try to squeeze virtual worlds, the more difficult it could become to track terrorist use of virtual worlds. Terrorist, one might expect, would simply shift to virtual worlds beyond the reach of western nations' laws. For example, worlds like Second Life, World of Warcraft and Entropia are likely to comply with any laws/regulations on this matter. However, rather than prevent terrorists' exploitation of virtual worlds, they might simply move their efforts to virtual worlds that are located offshore in places/countries unwilling to comply with U.S./E.U. laws. This is a problem that merits additional thought.

Tunneling between the Web and Second Life

James Wagner Au picked up in his New World Notes a very interesting development worth highlighting. Heretofore, Second Life existed as a self-contained environment. That is, once someone enters Second Life, he cannot access websites or other Internet content outside of Second Life. Similarly, someone surfing the 'net cannot access Second Life content.

Well, all that is about to change. A British teenager named Katharine Berry has created AjaxLife, an open-source viewer of Second Life content. What that means is that someone can access Second Life from within a browser like Firefox. Absent AjaxLife, one could enter Second Life only by using a separate application provided by Linden Lab. Although AjaxLife's capabilities are pretty limited right now (NWN: "you can use the SL map, teleport, chat and IM, and check your friend/L$ status, and that's pretty much it"), Katharine has released the code under a BSD license. The coding community can now think of all sorts of improvements and applications for AjaxLife.

The linking of the Internet and Second Life is potentially very significant. The most obvious benefit is that more people may start using Second Life, and current users could increase their SL activity. Bypassing a stand-alone SL application puts fewer demands on a computer's resources, thus enabling (theoretically) less powerful computers to access Second Life. Moreover, if someone wants to chat with a friend or attend a meeting in SL, all they would need to do is open a new tab in their browser.

Be sure to also check out Katharine's AjaxLife blog, as well as Adam Reuters's interview with her.

Capitol Hill Interns

Every summer, thousands of college interns descend on Washington, with most landing on Capitol Hill. There is inevitably some embarrassing incident involving an intern and an inappropriate relationship, a misplaced confidential memo, a sensitive document left on a copier, or the like. Well, now it seems DC just narrowly escaped the first intern/metaverse fiasco. As reported on the Second Life News Network, an intern for a U.S. senator apparently left his computer unattended, with his Second Life id and password on a sticky note.

While the intern was away from his computer (in route to DC in fact), a house guest logged in to Second Life using the intern's information, and proceeded to deface a store near the senator's Second Life consulting office. The defacement consisted of swastikas, a Hitler portrait and the phrase "Kirby Hates our Troops" (the store was the new Kirby Avatar Emporium).

Fortunately for the senator involved, SLNN did not publish his name, as a campaign manager for the senator asked SLNN "not to associate the 'intolerant acts' with the senator or his campaign" since no one associated with the senator was directly involved in the defacement.

What, you may justifiably ask, does any of this have to do the economics of virtual worlds? Well, not a thing. However, as a Congressional staffer who witnesses the swarm of summer interns arrive in DC wide-eyed each year, and as someone who himself was an intern on Capitol Hill while in college, I can relate and appreciate the problems posed by these short-timers.

Real Companies in the Metaverse

Second Life resident Tateru Nino has compiled a list of real world companies operating (to one degree or another) in Second Life, and has posted the list to New World Notes. By her count, there are 139 "mixed-reality" sites (mixed-reality = virtual world + real world). The list includes corporations and companies, as well as non-profits and governmental organizations. She acknowledges the list is not exhaustive, noting in particular the omission of "perhaps hundreds of university/college sites."

Commoditization of Virtual Currencies

An entry on Daniel Terdiman's CNET News blog reports that Brock Pierce, the head of IGE, the leading marketer of virtual goods and currency, feels that virtual currencies are increasingly a commodity product. As a result, profit margins are shrinking as gamers discriminate among suppliers by price alone. It sounds like much of the commoditization push comes from China:

In fact, [Pierce] said, as Chinese competitors get more and more sophisticated, they are also willing to accept less and less profit margin. And that means, "they're perfectly happy to accept $20,000 in profit on $2 million of revenue."

Perhaps because of this economic shift, Pierce himself is planning to leave IGE.

From a purely economic point of view, there is no reason to find this development surprising. A quantity of Everquest platinum sold by IGE is identical in all respects to the same quantity sold by another vendor. The only difference, perhaps, is the reputation of the vendor: a small no-name outfit is more likely to be scam rip-off than a large well-established business.

The real question moving forward (as Terdiman notes) is how the game operators react to the increasingly off-shore nature of the secondary markets. It's much harder to threaten a firm in China with legal action than a firm in the U.S. So how do they respond to users of their virtual worlds, when such ventures are willing to accept 1% gross profit margins? Do game operators prefer the U.S.-/European-based gold farmer to the Chinese/Vietnamese/etc gold farmer? More generally, at what point does a game operator decide demand for currency is too pervasive and they are letting the gold farmer take money out of their pocket? At which point does it make sense, either from a profit or a control perspective, to simply create their own regulated market, much like SOE did with Station.com?

The Courts Weigh In

In what could have very significant implications for virtual worlds, there was an important ruling last week on the enforceability of the contracts governing virtual world usage. Last year, Second Life user Mark Bragg sued Linden Lab over the cancellation of his Second Life account. Linden Lab argued that Bragg had violated the terms of service (TOS) agreement for Second Life. Linden Lab charged that Bragg had found a way to buy land in Second Life at below market prices and so terminated his account. Unfortunately for Bragg, he lost the thousands of dollars of land he had purchased.

The Pennsylvania court entertaining Bragg's lawsuit ruled on May 30 that Linden Lab's TOS was not enforceable, according to a Reuters story. The 46-page ruling is available as a PDF here. Specifically, the court found the requirement of arbitration for dispute resolution to be unreasonable:

In effect, the TOS provide Linden with a variety of one-sided remedies to resolve disputes, while forcing its customers to arbitrate any disputes with Linden. This is precisely what occurred here. When a dispute arose, Linden exercised its option to use self-help by freezing Bragg’s account, retaining funds that Linden alone determined were subject to dispute, and then telling Bragg that he could resolve the dispute by initiating a costly arbitration process. The TOS expressly authorized Linden to engage in such unilateral conduct. [p.34]

The court summarized its opinion thusly:

Taken together, the lack of mutuality, the costs of arbitration, the forum selection clause, and the confidentiality provision that Linden unilaterally imposes through the TOS demonstrate that the arbitration clause is not designed to provide Second Life participants an effective means of resolving disputes with Linden. Rather, it is a one-sided means which tilts unfairly, in almost all situations, in Linden’s favor. [p.41]

And concluded:

Finding that the arbitration clause is procedurally and substantively unconscionable, the Court will refuse to enforce it. [p.42]

I expect this ruling has enormous implications for virtual worlds. As the first judicial ruling on the enforceability of TOSs (or alternatively, EULAs), all future suits will likely turn to this one for precedence.

Virtual China

Entropia Universe scored a big win yesterday, announcing that it had been selected by China to build a cash-based virtual world for that nation, according to an AFP story. The agreement with China's Cyber Recreation Development Corp. (CRD) apparently took a year to negotiate.

Here are some of the newsworthy facts to emerge so far:

• CRD estimates that this new virtual world (or worlds) will create 10,000 real-world jobs in China.
• Up to 7 million people will be able to access the virtual world simultaneously. (This compares to a typical level of around 40,000 concurrent users today in Second Life.)
• The goal is to sign up 150 million residents globally.
• The virtual economy will generate $1 billion in commerce annually.
• One goal is reduce pollution levels by allowing increased telecommuting in the virtual world.
• The go-live date is September 2008.

This is definitely one development to follow. I suspect that China is doing this in part to better monitor and control what happens in virtual worlds.

Also, I am skeptical about whether a government entity like the CRD can compete with privately-run virtual worlds in terms of adopting the latest technologies and responding to user demands. Virtual worlds are already moving so fast that it's difficult for bureaucracies to keep up.

UPDATE: A story on BusinessWeek.com notes that "virtual police will exist in the Chinese game, and that it won't allow players to protest the 1989 Tiananmen Square crackdown, which killed hundreds of people."

Virtual Terrorism in Second Life

Last night cyber-attackers set off some sort of bomb on the ABC island in Second Life. As the before and after pictures show (hat tip: Kotaku), the bomb utterly nuked the place. While the island was restored within a few hours, ABC did spend tens of thousands of dollars to create the island in the first place, according to News.com.au.

If we place this event in the larger context of virtual worlds (as I am wont to do), this cyber-attack raises the issue of virtual property. What was the damage to ABC? It would seem that ABC simply lost any revenue it might have earned from the island during the downtime. But other questions intrude. What if it wasn't vandals, but an electrical problem with one of Linden Lab's server farms? Would Linden Lab be on the hook for damages? (I suspect there is something in the Linden Lab EULA/TOS that is on point.) Alternatively, what if the real benefit of ABC Island is not a revenue stream, but community relations and branding? How does one place a value (to ABC) on users being unable to download video or interact with others on the island? Indeed, it has been suggested that the main benefit for big corporations is not sales but customer relationships, branding, or gathering market data.

ABC Island is the 3rd most visited commercial site in Second Life, BTW.

Virtual Money, Real Pizza

A recent news story reports that Second Life residents will soon be able to order -- from within SL -- real pizza for delivery to their home. (This ability was once available for players of Everquest, but has been discontinued.) More importantly, residents can pay for the pizza with Linden dollars.

Now, in and of itself, this is not a major development that will dramatically change the nature of virtual worlds. Nonetheless, this service does cross a meaningful line that opens the door for much more complex treatment of virtual worlds: using virtual currency for the purchase of real goods or services.

Suppose I have a Second Life business that generates Linden dollar income for me. Suppose also that I cash out all my profit into US$, and dutifully report that income on my tax return. Now, however, if I spend $20 on this virtual pizza service, does that $20 escape tax-free because it never gets converted to US$. In the real world, with a traditional salary, I could also spend $20, but that $20 is still reported as part of my AGI. (Obviously, the tax on $20 is pretty trivial, but the underlying principle is what’s important. What if I buy a car with Linden dollars?)

What is the proper tax treatment of real-world purchases using virtual currency? Should I report $20 as ordinary income? As barter income? If I do, that could raise my compliance costs since I have to file Schedule C. What about horizontal equity – the tax treatment of individuals in similar economic circumstances? If I don’t report the $20, but my buddy who spends $20 on pizza using salary income does, then I will end up paying less in taxes, even if he and I make exactly the same amount of income.

Cross-Platform Transfers

Now this is interesting: a new venture will soon be offering cross-platform transfers, as in transfers between two different virtual worlds. Reuters reports that Anshe Chung Studios will offer the ability to transfer virtual money from Second Life to Entropia Universe, and vice verse. Now this project still won’t directly offer users the ability to trade virtual currencies for dollars (or other real currencies), but both Second Life and Entropia already allow dollar-to-virtual currency exchanges. Thus, someone could take Linden dollars, transfer them to Entropia PEDs, and then convert the PEDs to U.S. dollars. In fact, Anshe Chung Studios is itself planning to issue an ATM card which would allow Entropia residents to withdraw cash. Reuters posted a correction noting the ACS is not planning to offer ATM cards. However, MindArk, the parent firm of Entropia, is planning to issue such an ATM card.

Why is this interesting? Well, first, as the Reuter story correctly notes, this opens up a wide world of arbitrage opportunities. The Linden dollar is set to a floating exchange rate with the U.S. dollar, while the Entropia PED has a fixed exchange rate (10 PEDs = US$1).

Second, this development is another indicator of how fast these virtual worlds are moving. Before most governments are even aware of the economic value created in virtual worlds or their tax implications, innovators are pushing the envelope to introduce new financial mechanisms.

Third, such cross-platform transfers would seem to make tracking money transfers much harder to do. If funds can freely move in to, out of, and between virtual worlds, it would seem to make the job of tracking down cybercrime like money laundering more difficult. Fortunately, Chung’s Dreamland website, which allows individuals to buy and sell Linden dollars, seems aware of potential problems and offers this limit on the purchase of Linden dollars: “We currently do not execute orders above 300 US$ / 250 EUR per customer per week!”

Fourth, this venture underscores the international nature of the business of virtual worlds. Anshe Chung Studios is based in Wuhan, China, while Entropia is based in Sweden and Second Life operates out of California. Anshe Chung, who along with her husband is the woman behind Anshe Chung Studios, lives in Germany. Given such diverse geographical bases, it begs the question of which nation's (or nations') laws apply and how to enforce them.

Where to next?

U.K. Report on Financial Crimes in Virtual Worlds

A new report from a British group has concluded that there is a growing risk of financial crimes in virtual worlds, according to Reuters. The panel also recommends that governments treat transactions on MMO websites "as genuine financial instruments covered by existing laws and regulations." The report specifically discusses the potential problems with credit card fraud, database vulnerabilities, money laundering, tax evasion, and international currency transfers. The report comes from the Fraud Advisory Panel of Institute of Chartered Accountants in England & Wales.

Unfortunately, the report does not appear online, but you can check out the press release.

For my own part, it should not surprise anyone that the threat of cybercrime is legitimate. Any time there is a new medium of economic exchange, it is unavoidable that cybercrime will surface. That fact, however, should not stop efforts to prevent such crimes from taking place.

Interestingly, the press release did not appear to call for any new laws or penalties, merely the application of existing ones to the virtual world space.

Rolling Stone article

There's an interesting article in Rolling Stone about Second Life. The article includes a noteworthy quote from Linden Labs founder Philip Rosedale:

“I’d like to see it get to a point where it’s all irreversible. It’s all a little bit too under our control. That power shouldn’t be in our hands. We don’t want to make mistakes. For me, there’s a critical point that we’ll get to where everyone can take this stuff and run with it.”

What makes this attitude remarkable is that most people already feel that Linden Labs has a pretty small footprint in Second Life as is. According to a 2004 Linden Labs paper in the New York Law School Law Review, well over 99% of content in Second Life is user-created, and it takes a fairly laissez-faire attitude toward resident activity.

Of course, it's also worth noting that Jim Saxton, JEC's Ranking Minority member, was quoted about how taxation of virtual worlds remains unresolved:

“Virtual economies are still at the early stage of development, so it is difficult to predict how tax policy toward them might evolve over the next five or ten years.”

WoW credit card?

A Gamespot.com article reports that Blizzard is now offering a World of Warcraft Visa card, in partnership with First National Bank. Called the World of Warcraft Rewards Visa, applicants can choose from 13 different artistic designs. Users of the card will earn free game time at the rate of 1% of purchases. Applications can be made online.

As the story notes, such a move by Blizzard carries a degree of irony. Blizzard has taken a strong stance against linking in-game activity to real money transactions. While this card does not in any way appear to sanction RMTs, it does establish a formal link between the real world and the virtual world.

Second Life Nationalities

A new study from comScore estimates that 61% of active Second Life residents are European. As reported by Reuters, Germany alone has (slightly) more active SL users than the United States.

• Germany 209,000 (16.3%)
  
• United States 207,000 (16.1%)
  
• France 104,000 (8.1%)
  
• Britain 72,000 (5.6%)
  

comScore also found that the number of U.S. residents in SL grew by 92% from January to March. The European growth rate was a relatively paltry 32%.

comScore's figures differ somewhat from Linden Labs own numbers released for March. Those numbers show that close to 27% of active residents were in the U.S., compared to 13.5% from Germany, 8.2% from France and 6.7% from the U.K.

Sony's Experience with Its RMT Site

Alone among the major MMORPGs, Sony Online Entertainment (SOE) maintains a sanctioned RMT site, called Station Exchange. There, players can buy and sell in-game items, currency, and characters.

Station Exchange launched in 2005 on two Everquest servers and in February SOE released a white paper detailing its experience with the first year of Station Exchange.

Although this white paper, “Station Exchange: Year One” by Noah Robischon, has been discussed elsewhere, I thought it was interesting enough to post a link to download the paper from Gamasutra.com. Anyone interested in the topic should also read Gamasutra.com’s interview with SOE’s CEO, John Smedley here.

You can also check out SOE’s press release on the paper here.

Among some of the more interesting findings in the paper:

• Total cash that passed through Station Exchange in its first year was $1.87 million, averaging nearly $2,600 per day.
• Sony generated $274,083 in revenue during the first year of Station Exchange. About 68% of that amount came the 10% commission on successful transactions, with nominal listing fees constituting the remainder.
• A single platinum piece in Everquest 2 was equal to $7.35 averaged over the year.
• The large majority of completed auctions were for in-game currency. Of the nearly 40,000 transactions, 68% were for currency, 18% were for items, and 14% were for characters (though characters had by far the highest prices).
• A high level Everquest 2 character sells for as much as $2,000.
• The top single seller on Station Exchange completed 351 auctions to earn $37,435.

Robischon also reaches some interesting conclusions about why players engage in RMT:

• “The majority of people paying real money for virtual items are not part of a criminal underground that is preying on the player base at large. They are not ‘farmers’ looking to make a quick buck.”
• “Station Exchange traders are not radically different from the rest of the EverQuest II player base.”
• “Station Exchange is not an extension of game play. It is a utility. It offers a fundamentally different approach to play: a means of skipping the boring parts.”

Prices for WoW Goods

Curse-gaming.com posts weekly reports on the median sale prices of more than 100 goods commonly seen at the World of Warcraft Auction Houses. The report for the week of April 26, 2007 can be found here.

When these prices are paired with the market value (in U.S. dollars) of gold, it is easy to see that even fairly mundane crafting and consumable items have substantial economic value. One study surveyed third party gold vendors to estimate that the cost in dollars for 1,000 WoW gold pieces averaged $259.52 across all American servers (Horde and Alliance). That study is available on-line at http://www.gamerprice.com/wow-gold-study.html

Here is a list of the top 10 most expensive items on the list, in gold and U.S. dollars (using the above dollar-gold exchange rate):

1. Blacksmithing Plans for Hand of Eternity: 1,250 gold; or $324.40
   
2. Blacksmithing Plans for Dirge: 1,200 gold; or $311.42
   
3. Blacksmithing Plans for Felsteel Longblade: 925 gold; or $240.06
   
4. Blacksmithing Plans for Black Felsteel Bracers: 870 gold, 2 silver, 63 copper; or $225.79
   
5. Enchanting Supplies for Void Crystal (per 10): 795 gold, 5 silver; or $206.33
   
6. Blacksmithing Plans for Blessed Bracers: 777 gold, 50 silver; or $201.78
   
7. Leatherworking Pattern for Thick Netherscale Breastplate: 600 gold; or $155.71
   
8. Tailoring Pattern for Girdle of Ruination: 555 gold 55 silver, 55 copper; or $144.18
   
9. Leatherworking Pattern for Gloves of the Living Touch: 550 gold; or $142.74
   
10. Leatherworking Pattern for Netherdrake Gloves: 500 gold; or $129.76

Of course, prices can vary significantly from server to server, and between Horse and Alliance. But these figures still give a sense that even in a game like WoW, which specifically bans RMT, there is still significant economic value to the items.

RMT Sites for MMORPGs

Interesting round-up and review of 10 third-party real money trade (RMT) sites.

MMORPG Service Reviews 2007
http://mmorpg-service-review.toptenreviews.com/

Not surprisingly, IGE tops the list. The summary table lists sample pricing for each site, like how much 500 gold costs in WoW. The reviews also cover which sites allow players to sell or trade items to the third-party sites.

New Research on Tax Issues Affecting Virtual Worlds

A pair of recent articles by legal scholars attempts to shed light on the tax questions related to virtual worlds.

The first is by Bryan Camp, a tax law professor at the Texas Tech School of Law who previously worked in the IRS Office of Chief Counsel. His paper is available for download from the Social Science Research Network: The Play's the Thing: a Theory of Taxing Virtual Worlds

The second paper is by Leandra Lederman, who is the William W. Oliver Professor of Tax Law and Director of the Tax Program at the Indiana University School of Law. Her paper is also posted on the SSRN: 'Stranger than Fiction': Taxing Virtual Worlds

World of Warcraft Tops 8.5 million Users

A recent news story posted on Gamasutra.com reports that the MMO World of Warcraft has now surpassed 8.5 million paying subscribers.

http://www.gamasutra.com/php-bin/news_index.php?story=13022

Press Release: Virtual Economies Need Clarification, Not More Taxes

Virtual Economies Need Clarification, Not More Taxes

October 17, 2006

WASHINGTON, D.C. – The past few years have seen a dramatic increase in the popularity of online gaming and the virtual economies that accompany them. The population of these online worlds has been estimated to exceed 10 million people worldwide. Because of their newness, some uncertainty exists regarding taxes and intellectual property rights.

“There is a concern that the IRS might step forward with regulations that start taxing transactions that occur within virtual economies. This, I believe, would be a mistake,” Chairman Jim Saxton said today.

In response to this concern, the staff of the Joint Economic Committee has begun an examination of the public policy issues related to virtual economies. A virtual economy is defined as the universe of transactions that occur within an online community, such as Second Life or World of Warcraft. These transactions include the sale of goods and services and take place entirely within virtual economies; there is no real-world or physical exchange. However, a real-world value can often be assigned to such transactions using exchange rates or other methods.

Based on existing law, if an individual generates cash income in U.S. dollars from transactions in virtual economies, the question may arise whether a tax is due on that real-world income. However, if the transaction takes place entirely within a virtual economy, then it seems there is no taxable event. Such distinctions should be addressed and resolved in a common-sense
manner.

Clearly, virtual economies represent an area where technology has outpaced the law. The goal of the forthcoming JEC study is to help lawmakers understand the issues involved and head off any premature attempt to impose a tax on virtual economies.