But like all things we tend to oversimplify them in order to make some sense out of the situation. Buy high, sell low. Low supply? High price. High supply? Low price. Higher risk? Higher interest rates! Lower risk? Lower reward.
Economies are everywhere, and they exist to fill a need. That need is simple: facilitating a transfer from one person to another. Unfortunately, how this is actually accomplished is anything but trivial; the devil is in the details.
I personally have extensive experience within gaming economies. Legitimate academic papers have been written on it, with one of the most prominent economies arising from the MMO World of Warcraft. From there several other games created similarly complex economics, ranging from titles like Eve Online (sci-fi space economics) to Runescape.
The one common thread in all the most complex game economies is that they are all massively multiplayer. Why is this? Because economies depend on people. Without people there are no economies. The more people the better. The more diverse the better. If everyone could make everything they needed themselves there would never be a need for economies or currencies. Humanity itself is a hive of activity in which we depend on each other, even if we don't personally know those people.
On a basic fundamental level, currency is a language that everyone can understand. Because it is based in mathematics and on the ledger it translates across all cultures and ideologies without much friction or overhead cost.
If I give a dollar to someone who doesn't speak English: it does not matter, they know exactly what it is, even if they've never seen that exact type of paper money before. If someone hands me Nigerian Naira I know it's money even though I've never seen it before. I might not know the unit of account (what it can actually buy), but I know it can buy something, or at least a piece of something (divisibility).
Humans (users) are the gods of the digital landscape. Gaming economies are artificial in nature because the scarcity of the assets in question is programmed by design. In the physical world this is not the case. We can't click a button and 3D print corn on a whim (yet). However, if we wanted to we could print more Bitcorn out of thin air. All we'd have to do is change the code and it would be so.
Ironically this makes gaming economies even more difficult to create balance than "real" economies. Why? Because If players can play the game and earn actual value, then there becomes a financial incentive to exploit the economy with targeted strategy, glitches, bots, and AI for a profit. None of these issue are present within non-artificial economies.
This is ironic because the ultimate goal of crypto, technology, and humanity at large is to create abundance. Wouldn't it be nice if food was free and nobody ever went hungry? Wouldn't it be nice if rent was free and we could all just pursue whatever artistic desire we could think of? Yes, that would be great for people, but absolutely terrible for the economy. The economy depends on the fact that resources are scarce and there isn't enough to go around.
This makes gaming economies particularly weird and fascinating. We make the game difficult and the resource scarce... on purpose... for fun. It wouldn't be any fun if everyone could just have everything they wanted in the game the second they logged in (even though it would be very easy to program). That would be boring as hell and the game would be over before it even started. Rather it is the progression of our character and associated account that makes the MMO fun to play. Players love to compare their progress to their previous self and to other players as well.
The best gaming economies are going to have specialties, professions, and custom affinities that force (or at least incentivize) players to work together rather than trying to go it alone. Maybe my character is a tailor and very good at killing fire elementals, while someone else's character is an enchanter that's very good at killing frost elementals.
One of the big problems with MMO economics is that the Internet has no borders and it is a permissionless system. Sound familiar? Crypto has these exact same setbacks, so crypto gaming is doubly difficult to navigate, as there is exponentially more financial incentive to cheat.
What this means is that I might be willing to pay $20 for an item in a game as an American, but because the entire world can see that demand on the free market players might flood in from countries like China and India and actually be able to earn a living wage off that demand for a while due to the value of a dollar within that country.
This dynamic creates a toxic feedback loop in which casual players with 9-5 jobs in developed nations might be paying someone in Bangladesh $1 an hour to farm those fire essences for them instead of engaging within the intended economy where everyone is both a producer and a consumer. Players with access to more currency (both in-game and fiat) tend to stop being producers because competition and supply of the potentially infinite digital asset keeps getting driven down by borderless economics.
In fact this happens in the real world as well as we have seen many times over. For evidence of this look no further than the city of Detroit. Once the automobile industry migrated overseas for cheaper manufacturing that city was doomed to decay. Many of these economic issues apply to both in game and real world economies equally, which is what makes them so interesting.
The first rule of mitigation is always to catch and ban cheaters caught in the act. However, on a centralized system this means the company in charge has to pay a GM (game master not good morning) to hunt them down. What if the corporation decides that paying to find cheaters and remove them from the ecosystem is more expensive than just letting the ecosystem be exploited? Capitalism hard at work, that.
I believe that WEB3 will have a unique opportunity to sidestep this setback by allowing the community to police itself rather than the centralized entity that would normally lord over it. Gamers are more zealous and determined than some random guy being paid to perform a monotonous task day in and day out. This enthusiasm could pay for itself a thousand times over. Volunteers and even contractors have a tendency to be more effective than those being paid by the hour.
Another extremely ironic way to prevent cheating would be would be to take away the permissionless nature of crypto by design. If a crypto MMO node is balanced for an average of 1000 daily players... well that's not very many people, is it? The ability to play on a private server like this could be invite-only and based on reputation.
I know if I created a game on Hive it would not be that difficult to find a few dozen people I could trust to seed the node. Then those people bring in their friends and so on and so forth until we have 1000 people and a system in which we can police ourselves to keep the economy honest. If someone else wants to play the game they can boot up their own node instance with their own rules and/or invite list.
Regardless of whether the assets in question are artificially scarce or not, one thing is certain. Communities create economies. Where supply meets demand: markets are made. People need each other, and we create these systems to smooth out the rough edges of being forced to trust people we have never met before.
How are you reading these words right now? I guarantee you it's on a device that required some amount of work from millions of unique people. You ever think about who mined the gold that's in your smartphone? Nobody does. Economies are like a beating heart: you don't really think about it until it stops working properly.
