Contracting in Virtual Worlds

In my last post, I discussed inworld “property rights,” which (to prove that yes, I can learn) I am now going to call “permissions.”  Every virtual world grants or withholds a variety of permissions to players, including permissions to transfer, copy or modify inworld objects, to know the attributes and properties of those objects, to enter land and buildings, etc. 

In this post, I want to ask readers about the state of contracting in virtual worlds.  What worlds have gone beyond the plain-vanilla simultaneous transfer, in which one player gives up a permission in exchange for another (like paying cash for a weapon)?

In the real world, even exchanges of cash for goods can be pretty complex.  Consider the following examples:

• Credit sales:  I give up permissions today for the promise of permissions later on (I give you a weapon today, you promise to pay me $10 next week).
• Puts and Calls:  I promise that if you give me $10 in the next month, I will immediately give you my weapon (in finance parlance, I have written a “call option” on the weapon).  I promise that if you give me a weapon in the next month, I will immediately give you $10 (I have written a put option).
• Futures Contracts:  I promise to give you a weapon in 10 days, and you promise to give me $10.  (This is different from a put or call because neither of us has the option to cancel the looming trade).

Cash-for-goods exchanges are only one form of contract.  Employment contracts exchange permissions (usually cash) for effort, which is not a permission at all.  Equity-investment contracts allow people to exchange cash now for a claim on another party’s future income. 

To the extent the contract is governing the exchange of permissions, contracts like the ones above can be objects (either programmed by the developer or scripted by a user) that automatically enforce contract terms, dramatically reducing the need for dispute resolution for routine commerce.  The auction houses in World of Warcraft and the “pay bot” terminals in Second Life serve this function for simultaneous transfers.

So here is my question to Terra Novans:  what are the most sophisticated programmed/scripted contract-enforcement tools in the metaverse?  Have you seen credit contracts, puts, calls or futures?  What about equity/profit-sharing contracts.   If not, why not?

Comments

[whomever]

1.

Wwhat are the most sophisticated programmed/scripted contract-enforcement tools in the metaverse.

I call it vista.

As far as permission systems, look at EJB (enterprise java beans) where the define roles/activities along with authentication.

But permissions are exactly as you describe, they allow someone to do something, i.e. access a file on the hard drive. There is nothing there that says I must update that file everyday, nor enforces that. The only thing that comes to mind in that regard are password systems.

After all in the real world we have lots of permissions, but we only act on some of them at a given time. I have permission to go to a meeting, but I don't have to go. I have permission to go to Las Vegas and gamble all my money away.

I don't understand why come up with your own terminology when basically talking about property rights, and those have been hammered over the past few centuries.

[Kimberly Rufer-Bach]

2.

Ron Blechner (aka Hiro Pendragon) coded a gadget in Second Life that required folks to agree to a NDA by clicking I Agree or I Disagree (or something like that) in order to view a notecard.

Also in Second Life, Zarf Vantongerloo coded a system that works as an automated Creative Commons notary.

Moopf Murray, another Second Life developer, sells vending machines that will automatically split and distribute income among multiple avatars.

Adam Zaius and Nexus Nash created the Gigas Rental System, which is used to automate administration of rental properties in Second Life.

My own company, The Magicians, developed a parcel access control system in conjunction with a quiz machine -- visitors must correctly answer multiple-choice questions in order to enter a certain area for a limited period of time. Beyond its original use as part of a Global Kids educational quest game, it's useful for TOS agreements. Yep, this was another Second Life project, along with the system my company developed that only logs chat of those who click to agree to it, the one that maintains and allows administration of chat queues during meetings and classes, the gadget that doesn't allow someone without access to a parcel to click interactive objects within it, the anonymous survey system, the sim use statistics tracking system that distributes a privacy policy statement upon each avatar's first visit, etc.

There's a lot of this sort of thing going on in Second Life, and it gets more sophisticated month after month, quickly. In part this is driven by in-world business owners who want to operate more profitably and less painfully, but what's really speeding it up now are demands of real-life businesses that require their usual NDAs, TOSs, privacy policies, etc. as part of their virtual presences.

[Grokk]

3.

The terminology Robert is using (puts and calls, etc.) is standard terminology in the financial and business arenas. It has been around at least as long as the stock market, which has been around quite a bit longer than EJB. He isn't inventing his own terminology, he is using the standard terminology.

[greglas]

4.

I'm a lot more comfortable with this terminology than with a terminology of property rights. I think Kimberly's examples from SL demonstrate that in order to code these kinds of things, it helps -- quite a bit -- to have a world that supports extensive scripting capabilities, so that if users want this, they can build it in.

Most game MMOs I know of don't support future contracts or puts & calls in their dev-developed auction houses (if they have them) but other readers and authors here know much more about the landscape than me. Did SWG have something like this? My sense is that most MMOs don't want to build that kind of depth into think the economic game just because they think there wouldn't be that much demand for it.

I *imagine* you could have something like a futures contract made *outside the game* in a larger MMO guild. Certainly, people place "orders" within guilds for crafting items. I don't know what the upper limits are for sophistication in that kind of thing, though, or if it has been coded by any group.

[Nate Randall]

5.

Entropia Universe recently sold a very limited number of "banking" licenses. As the functionality of the "banks" is not yet operational I do not know exactly how they will operate. However, according to thier website:

"Each virtual Banking License will allow its owner to:

Lend money to Entropia Universe Participants and collect interest for the service.

All loans will be secured against virtual items from the Entropia Universe. The license holder may determine the loan amount, the loan term, and the interest rate. The borrower will receive a loan voucher detailing the loan conditions.

Virtual items will be stored in a secure vault - inaccessible to even the license holder. The license holder may view items, but will not be able use any item while in the vault. In the case of a defaulted loan, the virtual item is automatically transferred to the license holder's inventory, allowing the license holder total access to, and ownership of the item in question. The license holder may then for example, trade the item in the Entropia Universe Auction system."

Additionally, I do they they have an order system in the auction.

[patrick]

6.

Puzzle Pirates has something a bit like a futures market, I think. Different people have different crafting times for the same object, so you can buy a black hat for Friday or a black hat for Wednesday. You pay today, but I think once you pay it's a done deal, so the tailor cant cancel it on you if the price of black hats suddenly goes through the roof.

[Stephanie Gerson]

7.

Fascinating work, Robert.

Regarding your question about contracts, I thought you might be interested in LL’s introduction of an estate-level mechanism for addressing contract disputes: http://blog.secondlife.com/2007/04/20/introducing-estate-level-governance/.

Also, you recently wrote “…because discussions of inworld legal issues are so rare. I find that rarity surprising, because simplistic inworld authorities hobble inworld economies” (http://terranova.blogs.com/terra_nova/2007/06/property_rights.html#c72818560). Such discussions may not be as rare as you think; I recommend checking out the work of James Grimmelmann (on Terra Nova’s ‘Research Resource Rolodex), e.g. “Virtual Worlds as Comparative Law” (http://www.nyls.edu/pdfs/v49n1p147-184.pdf), and Jack Balkin, just to name two.

Finally, I’d Love to access your “Worlds for Study – Invitation” paper, but am unable to do so at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=988984. Can you please provide access some other way?

Thanks.

[Prokofy Neva]

8.

Zarf Vantongerloo's Public Notary essentially makes a hash mark on a notecard that "even the Lindens can't break" and therefore "notarizes" a signature, i.e. validates that the signature wasn't forged -- that was an important milestone in a world where chatlogs and notecards and "signatures" were constantly tampered with and forged and misrepresented. There are problems with this ultimately as I've explained on NWN's blogging about this system and my own blog.

Any notary, as in RL, can't really address the *content* of a contract, like any sort of robust RL contractual system with laws, courts, lawyers, judges, etc.

It would be good if SL had a function that could make a "true copy" of a notecard, i.e. once it is made, to lock it in so the text cannot be tampered with -- also true copies of chat logs and true copies -- and exportable copies -- of the Linden transaction record. There would still be a number of problems with this mandated machine-made veracity -- truthiness can actually get in the way of robust interpretation when a flat chat log, even if verified as true, may not get at all the facts of the situation and its all-important context. For that, you need a Law of Discovery -- and what's vital there is an acceptance that the right of discovery, and the ultimate truth, do not belong only to the servers and the server-side and the server owners (as is the case now) but there is a client-side adversarial defense to the server-side version of the truth that can be accepted in the court of law. Otherwise, you have only the brutal magisterial system we have now, which is why business is hobbled and why disputes are so difficult in virtuality.

In fact, what's remarkable about Second Life is that even without mechanics, people make scrappy notecards saying "IOU" and promise to buy back land or pay for it at a future date, etc. and it works very well. I've had many good experiences with mere "handshake" agreements on a notecard or on the strength of a reputation.

[Prokofy Neva]

9.

On the Internet, nobody knows you're a dog.

In the Metaverse, everybody knows you're a dog.

[Vint Falken]

10.

Also in Second Life: SLBoutique allows you to distribute the LS earns from the sale of a certain product / product range over various different accounts.

[Vint Falken]

11.

Also in Second Life: SLBoutique allows you to distribute the LS earns from the sale of a certain product / product range over various different accounts.

[csven]

12.

No "Eve: Online" examples?

[Ola Fosheim Grøstad]

13.

Prokofy nailed it. (Smart) designers want to encourage gift giving and informal contracts because of the social benefits to the system as a whole.

I give you a weapon today, you promise to pay me $10 next week.

This has serious design implications. What if the sword breaks and the player never logs back on? So you need to make the sword unbreakable, and auto-return it. Some MUDs supposedly allows that.

(btw, cash would be a resource and not permissions in a programmer's conceptualization. I associate the term "permission" with very simplistic no-strings-attached file access-control systems.)

[Nobody Fugazi]

14.

Yes, I know you're all dogs.

Seriously, all examples here are pretty weak. A split vendor system is easy enough to write and it doesn't really apply - it's a simple sales commission.

The multigadget, by Timeless Prototype, has a weird system where things are bought for resale in a very disconcerting and confusing way.

The reason why you don't see more: real life copyright law. Most people are armchair lawyers, few will pony up over virtual goods... yet. Plenty of threats and shaking of sticks, but nothing real yet.

[Robert Bloomfield]

15.

Thanks to everyone for such great examples. (The Puzzle Pirates futures market is new to me, and The Magicians are doing quite a few things I will need to study further). A couple of quick responses.

Prokofy makes a very interesting point about the server having exclusive ownership of raw data. I agree that allowing users to have direct access to data (without the ability to corrupt it) would make much of contracting/commerce easier, but at the cost of losing privacy (which businesses probably value even more). Does anyone see a practical solution to this issue?

Nobody Fugazi also has a point that most of the examples show that worlds still have a long way to go to support code-based sophisticated contracts. To elaborate on the "split vendor" system, it allocates revenues, but has no way to allocate costs, so it can't actually arrange profit-sharing.

Along similar lines, the banking licenses in Entropia (@Nate) seem to rely very heavily on escrow, putting collateral in a vault out of the control of both borrower and lender. This is a sledgehammer solution--imagine borrowing against your house, and being required to put the house in a vault, rather than living in it.

In the real world, banking relies heavily on "covenants"--events that trigger a call of the loan under certain conditions, like a firm lacking cash or cash flow, or a house dropping too far in value.

It seems to me that covenants could be implemented in virtual worlds. For example, @Ola, a promise to give a weapon in the future could be accompanied by a covenant that tracks the condition of the weapon, and automatically retrieves it (or puts it in escrow) if its condition falls to a predetermined level.

Is anyone aware of examples of covenants in virtual worlds?

[Peter Clay]

16.

OK, the EVE system supports, in addition to buy orders and sell orders on the regular market, various types of contract:

- auction
- item exchange (A for B immediately, one of those is usually money (ISK))
- loans, with collateral
- courier contracts (again with collateral)
- "freeform" (no mechanics of enforcement)

All of those may be issued to the general public to whoever wishes to accept them, or to specific people, or to your corporation/alliance. Public ones are subject to charges to limit spam.

You can't resell your half of the contract, so futures and options aren't really implementable. However, lots of trade goes on the nod; for example, I've recently been doing consulting for large amounts of ISK with no mechanics of enforcement possible.

The biggest ships - titans and motherships - can't dock, so have to be sold on the handshake.

Here's a station for sale, again unsupported by the mechanics: http://myeve.eve-online.com/ingameboard.asp?a=topic&threadID=541268

That deal requires lots of trust in the word of the Mercenary Coalition.

[csven]

17.

Thanks, Peter. Every time I consider giving Eve a try I either find something else to occupy me or read about some other issue going on in it (though the new expansion is inviting).

Okay, so what about Weblo?

[Ola Fosheim Grøstad]

18.

I don't have any example of "covenants", but anything that can be expressed as transactions, triggers and symbols/entities and relations between them is usually relatively easy to build since those are the high-level buildingblocks of database engines (which are designed to support what businesses need, so you are indeed in luck on the technical level! ;-)

The stumbling-stones is more that there are certain basic design-constraints that makes the virtual different from your physical setting. E.g. newcomers don't have anything to offer unless you charge them for real money, and they also don't have any reputation to defend. I assume charging money is ethically difficult in a research setting. If you make the game invite-only-we-know-your-real-identity then what you can do in regards to new players will change favourably. (i.e. it prevents a single player from creating 1000 characters and hoarding loans which are never paid back).

The design really has to be evaluated as a whole, so what is/is not implemented in terms of individual features might be misleading. For instance, if retaliation is a real possibility breaking an informal contract becomes risky (but most broad games are designed to prevent retaliation/harrasment).

[Anca]

19.

Do check out Puzzle Pirates - they've implemented a system of bidding for commodities (that I don't completely understand). You can read about it here: http://www.puzzlepirates.com/Economy.xhtml

There are also some interesting aspects of permissions implemented in this game. For example, pirates can sail ships. Ships have individual owners, who can do certain things to the ship - sail it, put things in/out of the hold, paint it, rename it, etc. Owners then grant permission to their crew mates to do some of these things. For example, I can allow my crew to sail the "Happy Guppy", but not paint it.

What type of social research are you interested in doing with these economy implementations? I'm curious as to the kinds of questions that you could answer in a world where, for example, credit contracts were enforceable through code, vs. worlds where they are not.

[Tim]

20.

Nate,

If Congress starts to tax RMT and ingame items, then Entropia is going to find itself (along with many others) subject to regulations like other real financial instutions.

[Prokofy Neva]

21.

Nobody, I haven't tried Timeless' vending system but it seems to work for a lot of people. Not sure what you mean by the "disconcerting" part but perhaps you mean that scary drop-down blue menu that says "Will you allow this object to take money from you?" That sounds confusing because it feels like it might drain your account -- what it means is that in the event of a refund or a bounced incorrect payment, you can give the box permission to refund or bounce a payment. It can't access your funds otherwise.

Bill Stirling has a vendor that you rez out as your own object and it asks you to take money for the purpose of that bounce/refund, but it also enables you to *get* money as it has profit sharing on each sale. And the magazine PixelPulse has the same kind of vendor. They're all over, and they all do have that question that indeed can be off-putting at first.

The groups system with its permissions could, in theory, be a budding contract and revenue-sharing device. One avatar can be the owner with the rights to everything, then other avatars are granulated with different powers. You deed a group-shared money-receiving device and it distributes the proceeds equally to all those you've designated in the group to get the proceeds (a reform I and others lobbied for as the original hippie edition distributed all proceeds of everything regardless of whether the land sold, for example, had been paid for by everyone).

Why I don't use this anymore: if you have an open group, due to several bugs and exploits known, the basic membership of the group also enables access to those group-deeded objects that in theory, if the tools work properly, can't be accessed except by those roles that have that power. The problem with that mass access in open groups is that griefers then are enabled to drop malicious scripts in the group-deeded object and deluge a sim with particle attacks, etc.

As for costs, so far, you can only distribute the cost of ads in search, because there's no way to designate a group or granulated debit (but there could be some day I suppose).

[Prokofy Neva]

22.

>Prokofy makes a very interesting point about the server having exclusive ownership of raw data. I agree that allowing users to have direct access to data (without the ability to corrupt it) would make much of contracting/commerce easier, but at the cost of losing privacy (which businesses probably value even more). Does anyone see a practical solution to this issue?

Robert, this point has profound social, political, and economic implications, and I wish there would be a lot more discussion of this.

The core idea of an open society is that no one has exclusive access to the truth. There might be, in some belief systems, the One True God, or One Right Way to Code Something but those same belief systems can also admit that there might be different paths to those truths.

Yet the core idea of a game or virtual world is that there is only one truth, and that truth resides server-side and is in possession of the coders. It's the deepest flaw in virtual worlds, because it means that everything from a customer's objective problems with a technological issue gets written off as "client-side problems" to the fact that in every abuse report and dispute, only the chat=logs, impression of those interpreting server data, etc. gets accepted as "the one true version".

Open-sourcing worlds or games doesn't solve this problem, and that's why open-source=closed society for me. Open-sourcing merely transfers what was once a more accountable entity -- the proprietary company with a bottom line and a need for a customer-service ethic - to numerous unaccountable entities known as "coders" who can only be examined by others with the arcane knowledge of coding, who might be inclined to "protect the honour of uniform".

[Candy]

23.

@Tim:

I think the question is “when” and not “if” Congress will start taxing. Technically, gross income is any realized accession to wealth. By that definition, it would seem that a player should be reporting if he is realizing profit.

Your bank regulation comment is interesting because that would bring a host of contract law constructs with it. For example, maximum interest rates, forfeiture and/or foreclosure limitations, etc. In RL, laws protect people from “themselves” and many of the agreements discussed herein would be contracts that implicate public policy concerns/could be voidable as unconscionable or as against public policy in RL.

To use the house example (i.e. putting your house in virtual “lock-up” for the time of the loan)…many state laws protect a mortgagor’s right to remain in his house – even if the mortgage is in foreclosure. Some state laws allow the mortgagor to redeem the title up to six months AFTER a foreclosure sale, for foreclosure price/costs. Why? We, as a society, value the home and protect it. Not really a problem in a VW…but how do we pick and choose what regulations/laws we should apply?

@Robert Bloomfield

With regard to your covenants…doesn’t this diverge from the point of contract? I mean, at least from a legal perspective, contract is about efficiency and money. People always have the option to breach a contract and pay damages rather than perform. Having automatic retrieval defeats that. (I ask because your purpose is to study RL using VWs, yes?)

How are you handling service contracts? Or, are you reducing everything down to an object/good?

@Prokofy Neva:

What is your suggested approach? It seems like a customer will be stuck with a coder one way or another (unless he is, in fact, a coder).

[Hiro Pendragon]

24.

Thanks Kim for the plug, though not much secret to a llDialog box whose listen event triggers the giving of a notecard. :)

I thought Zarf's Nota Bene was cool, though had a learning curve.

Ultimately, any contract of significant value myself or my company has done has been with real documents with real signatures. People aren't generally that accountable via their avatars. Get a real name and address and that changes everything.

[Nate Randall]

25.

@ Candy and Tim

The taxation issue is something that has long been discussed. As Candy says, it is not a matter of "if" but "when". Also, consider that the United States may not be the leader in implementing a system. Great Britian has begun inquiries as well.

Although, the issue of RCE (Real Cash Economy) Virtual World Taxation is worthy of it's own seperate and distinct discussion from the topic Robert has put forth by his post.

[dmx]

26.

Eve online example:

ISS puts out options on the construction of a series of space stations drawing investments worth billions of isk (tens of thousands of real-life dollors) and thousands of man-hours.

Just as major real-life newspapers pick up the story, A surly goon marching band led by a drunken englishman bombards the station, kills the inhabitants, and crushes the plan into rubble, just for the heck of it.

Bold dreams ruined in the unforgiving darkness of space.

This is then applauded by the rest of the game who proceed to invade and destroy the rest of ISS's stations.

I <3 EVE.

[F. Randall Farmer]

27.

Does it really matter if it was "in" a "virtual world?"

I co-designed one of the first user-negotiated online contracting frameworks in the early nineties for AMiX: The American Information Exchange.

See eRights on Smart Contracts, Walker on Information Markets, and Salon

The user manual (which I have a hard-copy of) goes into more depth explaining the multi-stage, multi-branching mechanism of online contracting. In short, it was a asynchronous business oriented state-engine with several steady (agreed-upon) states, including support for side contracts, payments, and bonuses & refunds.

Pretty cool stuff, and often cited/consulted for patent-busting. :-)

If we'd only been a few years later, we would have been eBay. :: sigh ::

Randy

[Peter Clay]

28.

Actually, there's an important lesson in the EVE ISS incident: ISS was to a certain extent reliant on being seen as a neutral by BoB. After the corruption incidents, the players angry at being cheated banded together into a torches-and-pitchforks mob destroying anything seen as BoB-affiliated. If the T20 incident hadn't happened, I think ISS would still be there.

The central outrage of the T20 incident was the breach of the promise of the developers to distribute valuable BPOs by lottery, instead distributing some to favourites. This breached the "implied contract" that everyone entering the lottery understood that they had a fair chance of winning it.

The developers of a game are never going to be bound by its rules. Prokofy Neva beats this drum in relation to SL, but it matters everywhere.

[wow gold]

29.

good site