We just got back from walking on Avenida Balboa, the concrete boardwalk next to the bay. My stomach is still queasy; every time I inhale through my nose I still get a soupçon of the overpowering smell of sewage present there. It's amazing to me that this area of Punta Paitilla is one of the most fashionable place to live in Panama City. Still, people must get used to it; there were several joggers huffing and puffing away on the sidewalk, presumably absorbing the rich aroma deep into their cardiovascular systems. Maybe that's the trick, becoming one with the fragrance.

I was reading an article in Wired News entitled "When Play Money Becomes Real", about the virtual economies created by Internet-based multi-player games. Since writing some initial thoughts on music, file sharing, and money, I've been thinking more about this and will share some further musings.

There were two important developments that brought about music file sharing: the development of the mp3 compression algorithm, which allowed audio files to be compressed to about 10% of their raw size, and the development of The Napster file sharing application. The desire to share files was already there, it just couldn't happen on a large scale without these tools. Now perhaps we are seeing the same development in the monetary arena: the development of an exchange system which is outside the normal banking system. And as was the case with file sharing and the music industry, this alternate system will catch the established status quo power structure by surprise. As the Wired article notes, this is not even on most people's radar. I personally did not know about it until today.

Here is a page on the IGE/Everquest site where you can sell platinum to IGE. Payment is effected through PayPal. Here is a page on eBay where you can buy platinum. I have this page saved, so if this page disappears (as the seller him/herself predicts), I will post the information. Someone let me know if this happens and they're interested.

Please note a couple of interesting things about what's going on here. First, somehow there's enough interest to make this viable commercially. IGE says they're currently hiring five people a week to keep up with demand. Second, the bid/ask spread seems reasonable. In fact, there is a possible arbitrage at the moment, as one can purchase platinum for USD 650 per million and sell it for up to USD 750 per million.

Now, IGE is taking this very seriously. From the Wired article:

But it is impossible to ignore that, percolating within many 
of the MMORPGs in operation today, including EverQuest, are 
economies that straddle the real and virtual worlds. This 
has led IGE to bring on Ken Selden, a Hollywood screenwriter
and leading peddler of virtual goods, as its chief economist. 
"There's a relationship between real-life economies and a virtual 
economy," says Selden. "I happen to believe that these virtual 
economies are very real, serious economies." Selden says the 
strength of a virtual economy is determined largely by how stable 
its currency is. And because IGE is the largest secondary market 
for the currencies of games like EverQuest, it has a lot of 
influence over the stability of the exchange rates between the 
game currencies and U.S. dollars. "Everything circulates around 
the exchange rate between a real and virtual-world economy," 
explains Selden. "We set the rates that we buy and sell at, and 
those are divined by supply and demand. The amount of currency in 
circulation at any point is extremely important to the out-of-game 
exchange rate." He also explains that real-world events often have 
an impact on what people pay for the virtual currencies. "Bubbles in 
the economy, they'll also impact the exchange rate between the two 
economies, because by and large the buying and selling of 
virtual-world economies are something I would consider to be a 
luxury," says Selden. At "tax refund time, demand goes up, because 
there's more money. The consumer wants to spend (and) he has more 
discretionary income." 

This Internet based currency is just like any other modern fiat currency: it has value because people say it has value, and they use it. The name of the currency, platinum, is especially interesting. Have a look at the five-year chart for platinum, from Kitco.com:

As is typical with commodities in a time of falling currency values, platinum is at least keeping pace with the dollar's devaluation. This is psychologically important to establishing the value of a currency. For example, Vietnam's currency is called the Dong; I'm afriad it's going to be a long uphill road to get people to use dongs in the West, no matter how much Vietnam's economy may improve.

Is this one of the killer apps that will eventually change our current monetary system? It's a little too early to tell. I think it's at the very least a pre-echo. Keep your eye on what happens here, it could be very significant. And as with what happened in the music industry, maybe no one will notice until it's too late to stop it. As I and others have said before, the Internet has a great levelling effect, breaking monopolies and allowing a democratic process of searching out the true value of things. The monetary system is another example of a monopoly which is controlled by a powerful elite. It may be just as susceptible to being dismantled and restructured by the 'net.