This is eve online, a massive multiplayer online spaceship
game which is probably best know for two things.
Making headlines about it’s massive in game conflicts involving tens of thousands of players
and it’s incredibly realistic in game financial system which can make loosing a virtual spaceship
just as consequential as loosing a phone or a car in the real world.
Countless magazines, and even much more successful YouTube channels have talked about these two
factors individually, but where I think they get really interesting is when they merge together.
For a game about spaceships set 21,000 years in the future, EVE is surprisingly realistic, and
that realism extends to these massive wars in the sense that they are expensive.
The in game currency called ISK has an approximate exchange rate of about $6 per billion in game isk.
Although it must be mentioned that trading this in game currency directly back or forth for real
life money is actually against the rules of the game for now at least and will get you banned.
Even still, this shows that in game assets have a very tangible real world value on the grey market,
so when you see headlines about trillions of ISK been lost in these epic battles
it gives you an idea of just how expensive it can be to wage entire wars in EVE Online.
But this all begs a bigger question…
Who or what funds these wars?
With a price tag of hundreds of thousands of real world dollars and nothing but virtual
space pride in return, it doesn’t sound like a very good deal… Right?
Well, it’s time to learn how space money works, if you enjoy this video
please consider liking and subscribing for new video’s like this one made every week.
Ok so there are three really interesting and unique ways these major wars have been
funded over the past 2 decades that this game has existed. But let’s start with the most basic one.
The game is home to a selection of megacorporations that are run entirely
by players, similar in many ways to… guilds in world of warcraft, only on a much larger scale.
Now the largest of these corporations effectively run like nation states, they have defined borders,
a standing military, taxation, industry and of course command structures.
These large institutions will inevitably but heads with other similar entities over resources,
territory, or you know just for fun. At the end of the day it is a video game
so the reasons to go to war can simply be to entertain the members of these corporations.
Now what will normally happen is that the individual participants in these wars will need
to provide their own combat ships, funded out of the money they make in game themselves.
But if these ships are lost in battle the mega corporations will pay to replace them.
They do this because ultimately they will need manpower to win these wars.
Ensuring that people aren’t too afraid of losing their ships will mean that
their players will keep on logging in and yoloing into these devastating space battles.
Now these Ship Replacement Programs, or SRP will most often be funded by the taxes
collected from these corporations during times of relative peace.
The industrialist get given a safe and secure piece of territory to conduct their business
and in turn they need to pay a portion of their profits to a central authority which
will then fund a military program to maintain or potentially even expand this protected territory.
Effectively it’s exactly the same as what happens with every government ever in the real world.
Now this is fine in theory, but often times these industrial entities don’t have the
capacity to wage war themselves. In these circumstances they can call on mercenary
entities that do nothing but wage war on other people’s behalf for a fee.
Again not overly dissimilar to what happens from time to time in the real
world with military contract corporations like academi performing a very similar function.
Now so far we have been looking at relatively minor wars, the ones that might be a big deal
to the players of the game and s___posters on R/EVE (Pronounced AR Slash EVE) but are
not exactly that remarkable to an uninvolved onlooker like you or I.
But this all changed around 5 years ago.
You see EVE’s economy is so realistic and
so diverse that at one point there were virtual casino’s in the game…
these were founded, funded and operated entirely by regular players using the in game currency.
Of course, these casino’s generated massive profits just like most of them do in the real
world. Now these in game profits were great and all but there wasn’t much that they could
do with them on an individual level. That kind of money could buy every spaceship
in the game many times over so they needed something grander to put their money towards.
The logical answer was to sell the in game money for real world money
whether it was allowed or not. Sure they risked getting banned from a video game
but the collective total of ISK that these casino’s generated was worth millions of dollars,
so that was a risk a lot of these casino owners were willing to take.
This was especially convenient given that the thousands of transactions the
casino’s handled daily were the perfect cover from in game money laundering.
It was almost impossible to distinguish between transactions that were legitimate
and those that weren’t. Again very similar to casino’s in the real world
which are continually in the news for being centre’s for money laundering.
However the more “honourable” casino owners, decided to use their space dollars to buy
something not available on the public market… Influence.
2016 kicked off the so called Casino Wars, as the “I Want ISK”
Online Casino funded a coalition of player corporations to wage war on the single most
powerful player corporation in the game which had wronged the casino in a previous business deal.
In reality all of these other player run organisations were looking for
any excuse to go to war in an attempt to bring the “imperium” as it is known in check. They
simply lacked the financial backing to undertake such a significant challenge.
But with the casino’s writing the cheques (as a way to prove a point as to what happens when you
dishonour a business deal) one of the most devastating wars in the game’s history was
enabled which in turn gave us the PC gamer articles about spectacular space battles.
And yes, the finances behind it might be a little bit less spectacular,
but that does not mean they are any less interesting.
Now shortly following this war the developers
of EVE online decided to put an end to these player run Casino’s.
Now they said they had their own reasons but most players speculate it was a combination
of wanting to cut down on the trade of in game money for real money, and also
as a response to player backlash over these entities having too much power over the game.
What this meant was that in 2020 there was a new funding model required.
The old belligerents from the casino war were ready to go at it again,
only this time a few things were different.
For starters the casino’s were no more, which meant that no side would have
limitless funding given to them. What’s more is that 2020 was a year of working from home
with no options for entertainment besides sitting in front of a computer playing video games.
This was all shaping up to create potentially the largest conflict in the game’s history,
a conflict that would also be the most costly.
The most crucial battles during this conflict were inevitably going
to be decided by who could bring more of the largest ships in the game to bear, the titans.
These ships are extremely powerful, and were at least up until recently extremely rare,
but changes in the game in recent years had meant that the industrial powerhouses
could produce these once legendary ship’s as if they were ford model t’s.
This didn’t mean they were any less expensive however,
it just meant the powers that be had to bring more of them to keep up with their opposition.
The side that had previously been funded by the casino’s were happy to just fund
this war in the traditional way, using the tax money they had collected over
the years of peace and prosperity to foot the bill for these battles.
But the imperium had a better idea, they had seen how finance had decided their fate in 2016,
and were keen to ensure they were economically dominant going into
the war of 2020. So they once again looked to reality for inspiration.
War bonds are often issued by governments during periods of all out conflict.
This is because modern wars are expensive, and raising taxes
is often impossible if the entire economy has been dedicated towards the war effort.
So government bonds are issued so that people can invest in their own nation’s victory.
The imperium did exactly this, they sold off a series of bonds,
that would pay interest to their own members.
This was obviously great for the imperium itself because it got the
much needed injection of capital it needed to go off and fight the war,
but it was also great for the members of the group as well.
Scams, and financial fraud are commonplace in eve
and there is no regulation around taking someone’s stuff and never giving it back.
In fact these types of swindles are probably the thing that eve is third best known for.
But while having a totally unregulated financial system is
great for cool stories it’s terrible for investing,
because well anything you invest can and likely will just be stolen off you, so why bother.
These war bonds presented an opportunity for players to
invest in an asset that didn’t have quiet the same risk of being stolen.
For clarity, the imperium would be fully within their right’s to turn around and
tell these investors to get stuffed, but the hit to their entities reputation would likely
not be worth it, especially if they ever wanted to sell war bonds again to fund future wars.
Now that doesn’t mean that these in game financial instruments are totally without risk, if the
imperium get’s destroyed in this ongoing war, well then, these bonds aren’t going to get paid.
In the real world analysts call this sovereign risk,
and it’s no less important here as it is in the land of internet spaceships.
But for now at least this war is still ongoing and is likely to provide gaming magazines and
aspiring youtube channels alike many more things to talk about, like the fact that
this games financial market predicted the short squeeze on Gamestop, so make sure to like and
subscribe if you want to see us make a video on that, and in the meantime go and watch our video
to find out if the world bank is really an evil empire. Thanks for learning, How Money Works.