The importance of digital scarcity can be difficult to understand. How can something that does not physically exist have value at all, and who cares if its quantity is limited or not? Nevertheless, it became clear at the end of the 1990s that scarcity is one of the most important factors for the economic value of virtual objects. We know this, among other things, thanks to very expensive digital horse poop.

The first virtual worlds

In the late 1990s, the first large-scale virtual worlds appeared on the Internet in which thousands of people simultaneously shared one and the same virtual world. One of them was Ultima Online, a 1997 computer game from the Ultima series by video game pioneer Richard Garriott.

It was the first true Massively Multiplayer Online Roleplaying Game (MMORPG) . In a medieval fantasy world loosely based on England, players took on the role of knights and other adventurers, as well as lumberjacks, bakers, miners, farriers, and a variety of other supporting trade professions. The game was progressive and had a lot of influence on thinking about virtual worlds and virtual economies.

Besides being a computer game, it was also a kind of socio-economic experiment. No one had ever attempted anything on such a scale before and no one really knew what would happen when the servers went online. For example, none of the game developers could have predicted that the perfectly balanced ecological flora and fauna system of the game world would completely collapse on the first day, as players contrary to expectations not only attacked monsters, but actually simply slaughtered everything they encountered.

More remarkable and unexpected things happened, for example in the virtual economy.

Virtual inflation

It was basically based on gold: digital gold of course – gamers have known that concept for years. Most people earned it by adventuring or trading. In practice, however, that gold had little appeal for most players, because you could earn it unlimitedly by slaying monsters and therefore everyone soon had it in abundance. If you needed it it was pretty easy to make more of it.

As a result of gold inflation, an enormous skew between prices arose. Many items that you could buy in the game by default and that were priced by the game designers at a few gold pieces were of little value to the players, who were almost all millionaires. Players also traded other items among themselves that were not for sale as standard in the game, but they were relatively expensive.

Horse dung

These were mainly rare objects that you could not easily get hold of. For example, a magic sword, which could only be found once in a while on a defeated monster. They were hard to find and slightly better than the normal varieties. The strongest and rarest magical sword was therefore quite precious – so precious that most people rarely used it for fear of losing it. Yet its value paled entirely against the real treasures in the game, such as the coveted ‘horse dung’ .

Above: horse dung

Horse dung, in other words: a black-brown heap of pixels on the screen where, if you hover over it with your mouse arrow, a text appears indicating that it concerns ‘horse dung’. Except that you could take it with you and proudly show others that you owned it, you couldn’t really do anything with it. Those who had the ‘horse dung’ nevertheless belonged to the absolute top of the economic ladder.

This not only applied to horse poop, but also to all kinds of other strange, random and useless objects that you got the idea that they were not really meant for players. Such as a fishing net that didn’t work, a candlestick slightly longer than the normal kind, an unusable horse brush and a pile of hay strewn on the ground. They were the craziest things that were everywhere in the game world, but you couldn’t normally pick them up because they were tied to the game world. Probably because of bugs, these objects happened to be able to do that. Sometimes they appeared only once when a server first started up and then never again.

They were called ‘rares’ and soon marketplaces sprang up where people sometimes paid hard dollars for these digital treasures. A ‘horse dung’ was worth several hundred US dollars at its peak. That was unprecedented at the time and completely incomprehensible to most people: virtual value already requires a considerable leap of thought, but digital horse turd was usually really a station too far.

The phenomenon is sometimes cited as an example in studies and professional literature.

Digital scarcity

It showed something remarkable: that scarcity is very decisive for the economic value of digital objects. Digital horse shit is, of course, eminently interesting and funny, because it’s almost a kind of antithesis of what should normally be wanted. Intrinsic value does not really play a role in this. No one would have thought in advance that players would want horse turds and that is why the game developers had not made them available to players. However, that unavailability made that one turd that you could own a special thing.

Nor was it in the fact that horse turds are funny, because other rares were less spectacular but also very expensive. In addition, there were hundreds of other decorative items that could also be silly or funny, but were of no value to the players at all. Moreover, rares could drop in value considerably if it turned out that there were more of them than was thought. Sometimes they even lost almost all of their economic value when an update of the game made them available in the game world.

Scarcity seemed to be the crucial factor for economic value, and what it was or what it served was secondary. Insights like these have helped game developers make scarcity an integral part of their virtual worlds and economies today.

Bitcoin

Scarcity also plays an essential role in Bitcoin’s virtual economy. That is sometimes underestimated, but fortunately not by the Bitcoin developers. Scarcity is one of the core concepts from which bitcoin derives its value. And it is also why Bitcoin is so complicated, grand and complex: Bitcoin does everything in its power to guarantee that scarcity.

That is why the network must be decentralized and self-sufficient. This means that scarcity can also be guaranteed in the future and then no one can affect the scarcity as the game developers of Ultima Online could. Or as central banks can (and do) through money creation in our current fiat money systems.

There will never be more than 21 million bitcoin in existence and almost everything in Bitcoin’s design is aimed at guaranteeing that as much as possible. Because despite all other interesting properties of Bitcoin; digital scarcity is essential for economic value. We have actually known this for years, partly thanks to the very expensive horse poop from Ultima Online.