Korean court legalizes some game-item sales

It's hard to parse out the nuances in this news-story, but it appears that a high Korean court has taken steps to legalize the practice of selling virtual goods from video-games for real cash, provided that the virtual goods are acquired through work and skill, not luck or chance. The implication appears to be that game-companies can essentially mint money:

The two allegedly purchased "Aden," cyber money in an online multiplayer role-playing game "Lineage," worth 234 million won ($207,558), which was lower than market price, through game item-trading Web sites.

Then they allegedly resold those purchased items to some 2,000 other players and earned about 20 million won.

Aden is used to buy accessories, cyber weapons and other items that appear in the game so that players' avatars - characters living in the online virtual world - in the game can gain more power.

Supreme Court acquits two in cyber money game case

(Image: Lineage 2) (via /.)



  1. “The implication appears to be that game-companies can essentially mint money”

    That’s not the way it works.

    Virtual goods in a game are valuable for the same reasons real-world goods have value, except they have zero marginal production costs. Do all goods cost the same as their production costs? No. People pay the value of a good, not the cost.

    People pay for immediacy, they pay for personal branding & vanity, they pay for utility. Part of this is scarcity, and most highly valuable virtual goods are scarce.

    So game designed can’t print money. They must first create value, then that value can be later exchanged for cash like any other product.

    And note that increasing the size of the economy isn’t the same thing as printing money. Our economy is a positive sum system, where whole new industries can be birthed and grown without negatively impacting other industries through mutual exclusion or inflation. There is certainly a strict scarcity of attention and time, but in this respect the virtual goods industry is just like any other industry.

    1. I’ll second what Ivan said. It’s no more “minting money” than, say, writing a book and selling more than one copy of it is. Any item only has value based upon the value that the game, and thus the game company, creates. So any digital or IP-based product where the costs to the creator are very front end loaded will have a similar appearance of “free money” for the creators.

      I also believe that most of the money from this – under current business models – would be going to the individual gamers or gold farmers that are selling the virtual item, and not the game creators. I.e., when a gamer sells an in-game item to another gamer, how is the game company benefiting? At least under most existing models, they aren’t. I’m sure that will change as this sort of transaction becomes more common.

    2. Very well and clearly put.

      Also, if an episode of CSI:NY is to be believed, this is legal in the US as well – within the confines of Second Life.

  2. I don’t think this is in principle any more different than selling any piece of art. To create fiat money, some legitimate central bank has to be involved.

  3. Once an exchange rate is established between a game token and a sovereign currency, the token is a lot like money.

  4. The basic question of whether virtual currencies are money or not is still open. Gaming companies try to keep them as not-money for various reasons: money is stored value and has to be accounted for, money is hard to keep secure, and players cashing in for money can violate gambling laws. The latter case is why online poker games ban third-party chip selling and routinely dump users who do so.

    This decision seems to be on the question of whether selling currency amassed in Lineage is gambling, i.e. whether Lineage is a game of chance or not. If the defendants were cashing out poker chips in the same way they would likely be considered to be engaging in illegal gambling, but Lineage was determined not to be a game of chance, so cashing out its currency does not facilitate illegal gambling.

    It doesn’t appear to have established if Lineage is a bank.

  5. “So game designed can’t print money. They must first create value, then that value can be later exchanged for cash like any other product.”

    This is hair-splitting to bust Cory’s chops. The Korean game companies have created MMOs with artificial scarcity of virtual goods tied to virtual currency they created– and apparently their government just said that currency has a valid, recognized cash value. That does basically mean they can mint money (provided the games stay popular.) It’s as if a US court ruled that poker chips from Harrah’s can be used as legal tender outside the casino.

    1. That doesn’t follow. “Legal tender” means that monetary debts can be paid with it – the debtor cannot refuse the legal tender of the realm.

      If someone accepts virtual money, game money, poker chips, etc he’s free to do so. Over here in Germany some businesses regularly accept Deutsche Mark as payment, just to generate business.

      Can the Korean companies mint money? No. But they can produce virtual goods which they might be able to sell for a high profit – like the music industry.

      Perhaps some people get a little overboard, but it’s not really different from turnips.

  6. The key part is in the last two paragraphs:

    “For game providers, a new business model can be created since those providers could engage in trading themselves. In particular, small and medium providers look forward to getting opportunities to grow.

    “Room for game providers to directly enter a market that trade cyber money with cash has been created,” said Yun Sun-hee, a law professor at Hanyang University in Seoul.”

    I believe that means the game companies can now legally set up a currency exchange, wherein they can trade their virtual currency for real currency at market rates.

  7. Thanks to Ivan for bringing a few economic principles into the equation. But that doesn’t mean Cory is wrong, I think he’s essentially correct. It is a new kind of money creation, through legal convertibility to a sovereign currency. The concept of “value creation” in online gaming is shady at best, and presents none of the (supposed) guarantees of a regulated trading industry. It is highly conducive to all kinds of fraud (database fraud, hacking, automation, “chinese-style” slave goldfarming, etc.) and manipulation. Scarcity is a very fragile notion when talking about a variety of different proprietary systems, all disconnected from any kind of real productive activity (mining in a MMORpg is NOT a productive activity, even it you desperately want it to be. It’s as close as you get to a zero-sum game in reality. Nothing like music creation or else.)

    So far, these trading schemes seem restricted to a “small community” of providers (gatherers-sellers) and buyers (buying cred and prestige – for an enhanced game experience – they won’t earn by themselves through lack of time or commitment). But just wait and see how these new kinds of monetized goods can eventually become securitized, and leveraged for all kinds of “off-gaming” operations. Financial analysts, such as Max Keiser, have announced the move to all kinds of new “monetization vehicles”, as a bogus (and most probably fraudulent) solution to the financial crisis, and the banks’ severe equity troubles.

Comments are closed.