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Signpost Says: "Welcome to the 21st Century" - scribbles and lies

Apr. 8th, 2009

12:55 am - Signpost Says: "Welcome to the 21st Century"

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I am going to assume that you haven't been encased in a solid block of ice for the last year and have therefore heard that there is a pretty significant global economic crisis in full swing at the moment. And probably for a great many future moments as well.

If you've been reading up on the whole mess instead of hiding your face from the news in shock and horror - and I'm not judging you if you've taken the latter route because frankly I don't think it's any less valid a response - you may have also heard about Iceland and how it's sort of turned out to be a poster child for the whole financial catastrophe. You may have read somewhere that the country more or less reinvented itself a few years ago as an investment banking juggernaut; unrestrained by rules and regulations and economic theories of history, they were the shining example of just how fast and far the Totally Free Market could take people who were ambitious, smart, and unafraid of risk. You may have known that Icelanders were making themselves insanely wealthy engaging in a sort of spiraling money-speculation trade involving their own currency, the ISK (Icelandic króna), and foreign currencies. If so, you are probably also aware that on the 10th of October last year, the ISK collapsed so completely (as the last of the Icelandic banks was put under government control) that it was suspended from world currency trade and effectively ceased to be recognized as valid money anymore. The country now owes something like nine times as much money as it - the whole population and government and all the nation's resources - are capable of producing, and it has nothing to pay that debt with except fish.

Unless you are a computer nerd type, you may not have heard of a thing called EVE Online. It is, to be perfectly blunt, an internet spaceship game. You have a spaceship. You fight other people's spaceships and take their stuff. You team up with other players so that you can all beat up other people's spaceships more effectively and take more stuff. Or you can try to legitimately accumulate valuable resources and sell them for a profit in other parts of the universe that need them... so long as nobody comes along and beats you up and takes your stuff. In most of the game's universe, the only laws are those that the players make and enforce for themselves and each other. There is nothing preventing a very powerful group of players with very powerful spaceships from taking and controlling the entire supply of a vital in-game resource and driving its price into the ceiling (or the floor) except other players. It is the ultimate expression of the Totally Free Market as a computer game.

It probably won't surprise you to learn, at this point, that the software company that developed EVE Online is Icelandic. That company, CCP hf, continues to draw in revenue of several tens of millions of dollars annually from a subscriber base that is almost entirely outside of Iceland. Which means they are paying to play the game in almost any and every currency on the planet that is not the ISK. It would not surprise me if CCP hf, at this point, is the single largest influx of actual hard, usable currency into the Icelandic economy.

EVE Online has its own in-game currency. Virtually all such games do. And with in-game currency comes real-world speculation - because if there's one thing every multiplayer internet game develops, it's a market in which people with real-world money can acquire whatever they want in the game by simply paying someone else for it. Warcraft has "gold farmers", players who play the game for no other reason than to amass wealth that is then sold in huge batches for cash through eBay-like channels. It's their job - quite literally in many cases, especially in China, where entire facilities are staffed around the clock with game-players who play all day and all night to earn the rare items and mountains of money, so that their boss can then sell it all to Westerners who just want to win without actually playing first.

The in-game currency of EVE Online is the ISK. That's right, the Icelandic króna. And where most multiplayer games have attempted to ban the translation of in-game assets to and from real-world money, EVE Online has not only permitted it but actively embraced it - so much so that daily speculation on world/game financial leverage is conducted openly on the official game web boards. As a result, the EVE Online ISK has remained fairly stable against virtually all the real currencies of the world for a few years now, fluctuating but not spiking, not crashing. There are people out there making an income, a real-life income, just handling the trades on the "floor".

All of which is to say: Iceland has collapsed so thoroughly that at this point, its only economically viable export may very well be an internet spaceship game, and that internet spaceship game's króna is for all intents and purposes a more real and valid and valuable currency than the actual country's actual money.

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For consideration: You may have also heard of Second Life, a multiplayer game that lets people turn themselves into a six-breasted moose and build their own private dungeon where hairy flying penises shoot fire at them all day and all night. Second Life's in-game currency is, of course, the dollar.

Comments:

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From:shirtlifterbear
Date:April 8th, 2009 08:49 am (UTC)
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Bjorklandia!

Lesbian Prime Minister!

Geothermal Energy!

Coming soon to an EU near you!
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From:zanate
Date:April 8th, 2009 12:42 pm (UTC)
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Ever read Halting State?

Great book, even if its author bemoans/brags that it's been obsoleted by real world events about a decade earlier than expected.
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From:squidb0i
Date:April 8th, 2009 03:06 pm (UTC)
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Beat me to it.
Every time I see one of these stories I immediately think of that book.
Stross = win.
=]
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From:crisper
Date:April 8th, 2009 03:25 pm (UTC)
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Have not, as yet, read any Stross.
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From:sheramil
Date:April 8th, 2009 01:38 pm (UTC)
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CCP have been insisting that trading ISKs for dollars is strictly forbidden on the login screens for at least two years (although it is possible, i've heard - about ten dollars american for one hundred million ISK).

also, the ISK actually crashed six months BEFORE the credit crunch. i can remember when an Alloyed Tritanium Bar cost half a million. mind you, that was back when a Navy Raven was worth just shy of a billion, but that's more of a cruise-missile-nerf issue than anything.
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From:crisper
Date:April 8th, 2009 02:47 pm (UTC)
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Well, strictly forbidden anywhere "outside the CCP created systems" maybe. But the GTC trade is the same thing.
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From:crisper
Date:April 8th, 2009 03:25 pm (UTC)
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(And, of course, if you google on "trading isk" you'll see more "outside the system" EVE Online black market houses than you'll see actual financial institutions trading the actual currency.)
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From:bryant
Date:July 17th, 2009 12:23 pm (UTC)
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I find that login screen note to be kind of cute. You can buy time cards in-game for ISK, and it's certainly legal to resell the time cards. So, hey, there's a one step remove...
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From:tensegritydan
Date:April 8th, 2009 04:23 pm (UTC)
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Here's a very nice graphical summary of the Icelandic meltdown.
http://www.theatlantic.com/doc/200812/map-iceland

Also, you forgot the (now banned) part of Second Life where people could park their six-breasted moose in front of a virtual slot machine and virtually gamble semi-real money for many real hours.
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From:carpe_noir
Date:April 8th, 2009 04:32 pm (UTC)
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Vanity Fair had a great article about the Icelandic financial crisis: http://www.vanityfair.com/politics/features/2009/04/iceland200904?printable=true¤tPage=all
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From:crisper
Date:April 8th, 2009 05:57 pm (UTC)
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Indeed! It was reading that article that crystallized these thoughts in my head on Monday, and it's the second link out in my post. :-)
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From:cindy_dutra
Date:April 8th, 2009 04:57 pm (UTC)
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Dude, you forgot bauxite. Iceland has vast quantities of bauxite.

J and I spent a week last December in a tiny London flat with an Icelandic economics MA student. (She wrote a paper two years ago predicting exactly what happened to the financial markets.) Going to the ATM was an emotionally draining experience, as the quantity of beer her life savings would buy kept dropping.

But really, I have no worries about Iceland long term. They have a 99% literacy rate. The dumbest yahoo on the block is only *tri*-lingual. They don't have hot water heaters - every house is piped into geothermal springs. So they're smart, don't have heating bills, catch more fish than they can eat, and can keep selling the world aluminum ore. And apparently they make awesome starship combat games, the only reliable indicator of cultural sophistication. TTTTTTTTt
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From:askesis
Date:April 8th, 2009 05:56 pm (UTC)
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This is not the cyberpunk dystopia I ordered.

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From:crisper
Date:April 8th, 2009 05:57 pm (UTC)
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If there is someplace where you can order a cyberpunk dystopia, please link me up because I will pay overnight shipping on that!
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From:crisper
Date:April 8th, 2009 09:42 pm (UTC)
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If you're interested in just how things get done in a deeply libertarian space-faring civilization, I highly recommend the ongoing article series at http://www.tentonhammer.com/features/mittani - the one titled "Bad Crazy in Internet Space" specifically touches on some of the ways in which the holographic interplay of Internet Spaceship Game and Actual People in Meatspace has jumped beyond the boundaries of what you and I would probably consider rational.
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From:kavavita
Date:April 9th, 2009 01:04 am (UTC)
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"Back in 2001, as the Internet boom turned into a bust, M.I.T.’s Quarterly Journal of Economics published an intriguing paper called “Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment.” The authors, Brad Barber and Terrance Odean, gained access to the trading activity in over 35,000 households, and used it to compare the habits of men and women. What they found, in a nutshell, is that men not only trade more often than women but do so from a false faith in their own financial judgment. Single men traded less sensibly than married men, and married men traded less sensibly than single women: the less the female presence, the less rational the approach to trading in the markets."
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From:ikkyu2
Date:April 9th, 2009 02:21 am (UTC)
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It's too bad about DCGN (deCode Genetics). There was some real science being done there.
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From:stanleylieber
Date:April 9th, 2009 05:07 am (UTC)
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You team up with other players so that you can all beat up other people's spaceships more effectively and take more stuff. Or you can try to legitimately accumulate valuable resources and sell them for a profit in other parts of the universe that need them... so long as nobody comes along and beats you up and takes your stuff. In most of the game's universe, the only laws are those that the players make and enforce for themselves and each other. There is nothing preventing a very powerful group of players with very powerful spaceships from taking and controlling the entire supply of a vital in-game resource and driving its price into the ceiling (or the floor) except other players.

i really don't see how this differs from any form of human organization, past or future, no matter what name is put on it.
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From:crisper
Date:April 9th, 2009 05:47 am (UTC)
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It differs because there's spaceships!!!
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From:stanleylieber
Date:April 9th, 2009 06:05 am (UTC)
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laws just legitimize specific forms of gangsterism
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From:crisper
Date:April 9th, 2009 06:20 am (UTC)
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When smart mouths like yours are outlawed, only etc. etc.
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From:drangnon
Date:April 9th, 2009 05:51 am (UTC)
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I thought Second Life's currency was the linden. do you mean it's actually tied to the dollar? or did they change it?
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From:crisper
Date:April 9th, 2009 06:19 am (UTC)
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Eh, it's the Linden Dollar to be precise. It's not tied to $US any more than the EVE ISK was tied to the krona.
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From:(Anonymous)
Date:April 10th, 2009 03:40 pm (UTC)
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You can directly cash out the L$ for $US. I make a part-time jobs worth of money or greater at the moment in SL, and do contract work creating content for in-world corps/universities on a bi-yearly basis. Those pay well too.

And no, I don't sell dog dicks or moose breasts. SL's image is warped by the media, it's not really that bad.

Although...it can be at times.
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From:ext_138991
Date:May 4th, 2009 09:06 am (UTC)

A very interesting theory :)

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Thanks for blogging about this intriguing concept. I'm not a EVE player myself, and wrongly assumed that the company behind it was... well, not Icelandic in any case.

Do you have any idea how much revenue they collect monthly? Iceland has a small population, I wonder if EVE's income is something that actually shows as single-digit percentages of the GBP. If so, it would be incredibly interesting!

And, granted, although Iceland might recover much faster than the pessimists believe (some good arguments on the comments were literacy and alminium, both quite exportable goods!), the concept that a small country might sustain itself through virtual worlds/games is definitely *very* intriguing. Then again, Iceland's major financial activity was... trading on the world-wide economy, which, as we all know, is the largest virtual world we humans ever devised, and unless a crisis sets in, we like to pretend that money is "real". The phrase "real money", used by so many gamers and critics of MMOGs, is nonsense. The world-wide economy is purely virtual these days — specially because what *makes* a currency strong is *mostly* what *resources* a country has: both human and natural.

I wonder if this wil encourage a lot of Icelanders to start developing more virtual worlds :)

As a side note, and to add to some of the comments, Second Life has indeed a virtual currency of its own (Linden Dollar, L$) that is freely traded on several currency exchanges, the biggest being the LindeX, under control of the company behind the VW platform, Linden Lab. It's not the *only* currency exchange, and anyone is allowed to create their own (in fact, the LindeX was not even the *first* currency exchange). It boasts transactions of some half a billion US$ (yes, US$) per year. It's not that much compared to a real country — about the level of the poorest countries in Africa — but it's still incredible, when you consider the very low cost of digital content (most items are sold for around US$1).
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From:manicdee
Date:June 5th, 2009 03:52 am (UTC)

Re: A very interesting theory :)

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300,000 active subscribers, subscription is about €20/month, depending on who you pay, in what currency, on what day.

I feel compelled to mention that "meatspace ISK" is "Icelandinc Kronor", while "EVE ISK" is "Interstellar Kronor". They are not the same currency by any measure.

One can buy GTC or PLEX (GTC is Game Time Code, a "meatspace" thing, PLEX is Pilot's Licence EXtension, an in-game item) for about 680M ISK (GTC, 60 days) or about 380M ISK (PLEX, 30 days). The way this trade works is that some chump pays real money (€35 or thereabouts) for a GTC from a shop, then either uses the Timecode Bazaar (linked to in the article) to trade for in-game currency, or converts the GTC to two in-game PLEX items, which are then sold using the existing market system in the game. Thus "trading" is one-way - someone can convert meatspace money to in-game money, but you can't extract meatspace money from the system.

Anyway, I'm off to randomly comment on someone else's article, hope I've been of some assistance.

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