Thursday, January 6, 2022

"Money in the Metaverse" and "The Fleecing of the Avatars"

Yesterday the Financial Times' Jemima Kelly linked to an interesting article at the New Yorker in FT Alphaville's Further Reading post:

Money in the Metaverse
In a virtual world full of virtual goods, finance could get weird.

Years ago, while on vacation in the Northwest, my husband and I rented a room in the home of a middle-aged couple, one of whom had recently retired. The house was old, beautiful, and cozily laden with objects that signalled domestic inertia. It sat on a lush, wild sprawl of farmland that immediately inspired fantasies of leaving San Francisco and our tech jobs, foraging for mushrooms, administering to septic systems, and turning over soil.

One morning over breakfast, conversation shifted to our host’s retirement. He was glad to have more time at home with his wife and their dog. He was baking a lot. He was spending hours playing FarmVille.

“FarmVille?” I asked, half awake, spreading honey over a slice of toast. Through the picture window, we could see mist rising from the evergreens. The dog nosed around in the vegetable beds. FarmVille, our host confirmed pleasantly—it was a game, a farming simulator, played by tens of millions of people on Facebook—before asking if we might be interested in some eggs. We were. The eggs were fresh. The sun was emerging. Our host seemed very happy with his lot.

It is hard to know what anyone else really wants, and I think of this man often. I thought of him most recently while watching Mark Zuckerberg deliver an hour-long presentation on Facebook’s rebrand—it is now called Meta—and its newfound focus on building the “metaverse”: a vast and integrated virtual world. Watching Zuckerberg stroll through a blandly monied virtual set, appointed, as if from a drop-down menu, with books and trinkets and unused-looking sports equipment, I wondered if there were people who wanted this, or would find this vision exciting. Then I reminded myself: FarmVille. I think it is useful, in attempts to forecast the future, to be humble about the enormous mystery of other people’s desires.

In recent months, the metaverse has been described as a kind of online place, combining virtual reality, augmented reality, the Internet, entertainment experiences, gaming, and remote work. The key idea is that, no matter what you’re doing in the metaverse, or where you are, your identities and assets will be multi-platform and transportable: you’ll be the same “you” at work and at leisure. As the concept of the metaverse has snaked into the discourse, predictions about it have seemed mainly to reflect the desires of the corporations that are setting the terms of the conversation. (The term “metaverse” itself, which has its origins in dystopian science fiction, has been aggressively promoted by companies with worlds to sell.) Reading about the metaverse, I’ve often had the uneasy feeling that I am taking something far too seriously—giving credence to the wrong things, internalizing the wrong logic—simply because a small number of world-historically wealthy people have told me to.

What they are saying is incredible, not least because it is entirely speculative. They suggest that the metaverse will be a “massively scaled and interoperable network of real-time rendered 3D virtual worlds which can be experienced synchronously and persistently by an effectively unlimited number of users” (the venture capitalist Matthew Ball)....
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Dude sounds like a caricature of a venture capitalist. If you gave that “massively scaled and interoperable..." sentence to our readers and asked them the occupation of the speaker, eight out of ten would have guessed some sort of financial pitchman. I love our readers.

The mention of Farmville, to no one's surprise, reminded me of something, in this case a few things:
1) From MIT's Technology Review, January/February 2008 edition:
 
The Fleecing of the Avatars
Recent fraud allegations are ominous for those who see virtual worlds as future centers of e-commerce.

Stephanie Roberts is a 33-year-old parks service employee in a Chicago suburb where she lives with her brother and mother; in the winter, she drives the Zamboni at a public skating rink. But she's also Zania Turner, of glowing skin and impossibly luxuriant black hair, who sashays in silk dresses through the booming virtual world of Second Life, which is run by the San Francisco company Linden Lab. In her life as a 3-D cartoon, Roberts gathers with other avatars to role-play reënactments of obscure Star Trek cartoon episodes, build and buy digital homes and furniture, and hang out on digital beaches.

But Second Life is more than a game or a social-networking site; it's also a venue for financial transactions. The currency used within the virtual world, called Linden dollars, can be converted to U.S. dollars at a rate of roughly 270 to 1. More than $13 million worth of Lindens are in circulation, and 318,742 residents of Second Life--including Roberts--participate in its internal economy. "It's a fascinating and exciting place, because people are doing business in the absence of a lot of legal and regulatory structures," says Robert Bloomfield, a Cornell University accounting professor who studies virtual economies--and coined the term "metanomics" to describe the field.

But life on the lawless frontier means risks as well as opportunities, as Stephanie Roberts found out last summer. And what happened to her is a bit ominous for those who expect to see 3-D immersive environments become centers for e-commerce.

Trouble started at the Ice Dragon's Playpen, a recreational island in Second Life. With her movie-star looks--Roberts chose an avatar modeled after Catherine Zeta-Jones--Zania Turner had no trouble landing a job hosting a game of Slingo, which is something like bingo. She made 100 Lindens (37 cents) an hour, plus tips. And while steering Zania through various Second Life venues --such as the Moonshine Casino, where residents gambled, and FurNation, where they frolicked in the guise of animals (she was a white tiger at one stage)--Roberts saw places to deposit her money. "There were these machines. They said 'Bank,' " she says. The machines handed out notes to passing avatars, promoting account signups at something called Ginko Financial, which advertised high interest rates. "With Second Life, you need money to get land and stuff that other people build," she says. "So I thought, 'I might as well put something in there, especially with the good interest rate, and pull it out when I need to, and help get me some stuff in-world.' " A few mouse clicks later, she was an account holder. She enjoyed watching her money grow. Eventually she had amassed 39,000 Lindens, worth $144.

Ginko--operated by an avatar called Nicholas Portocarrero, whose real identity is not clear--persuaded hundreds of people to deposit their Linden dollars. The reasons for what happened next are murky, but the results were clear enough: the "bank" vanished, and depositors say their money did, too. In July 2007, residents began clustering around machines to try to recover their money after Ginko began restricting withdrawal amounts. Then Ginko announced that deposits were now in "Ginko perpetual bonds" rather than Linden dollars. Those bonds soon plunged in value, and in October, they ceased to exist. The reported losses may have totaled $700,000, according to Ben Duranske, a lawyer based in Idaho who writes a blog on virtual legal issues.

Some Second Lifers have reported losing thousands of dollars in Ginko. Roberts is among the luckier ones: she says she lost only her $144 in savings. But the point isn't just that somebody other than Roberts ended up with her money. What may be most significant is that nothing happened to whoever may have taken it. Her money disappeared into the 3-D ether....

....MUCH MORE

2) Which led to this from Canada's Public Interest Advocacy Centre in 2011:

A Virtual Fortune:
Consumer Protection for Banking and Consumer Fraud in Virtual Worlds 

(67 page PDF)

3) And finally, Big Law discussing some of the issues at Columbia Law School's CLS Blue Sky blog, November 3, 2021:

Davis Polk Discusses Financial Action Task Force’s New Guidance for Virtual Assets

One of the funnier sights of 2008 were the Second Life avatars protesting when the creator of the game decided to shut down the virtual banks to try to address the frauds. From November 2021's "Barbados to become 1st country globally with an embassy in the metaverse":

Ummm, this is beginning to sound like Second Life. I hope we don't see a repeat of 2008's "BANK RUN: 'Second Life Closes Banks'":

From MIT's Technology Review:

http://s3.amazonaws.com/files.technologyreview.com/p/pub/legacy/2ndlife_bank_x220.jpg

Bank run: After Linden Lab’s Tuesday announcement that it was banning virtual banks in Second Life, some residents rushed to withdraw their virtual Linden dollars, while others (above) protested the company’s decision.
Credit: Prokofy Neva (a.k.a. Catherine Fitzpatrick)