LETS TALK BITCOIN

Episode 86 Virtual Worlds, Real Money

Participants:

Adam B. Levine (AL) Host
Richard Garriott (RG) Video game developer and entrepreneur




RG: Its interesting that when virtual currency began to be discussed, those of us in the
gaming world already had stumbled into it, with little microcosms of virtual assets in our
virtual worlds and so when things like Bitcoin and other digital currencies started being
proposed and utilized in the real world, I think, those of us from the gaming world had a
level of comfort and understanding about how it might work and what the pitfalls might be.
Most importantly, how it was inevitable. (Laughter) [0:35]

The following program is for informational purposes only. Cryptocurrency is a new
science so do your homework before putting money on the line.

AL: Today is February 22
nd
2014. Welcome to Episode 86 of Lets Talk Bitcoin, a twice
weekly show about the ideas, people and projects building the digital economy and the
future of money. [1:02]

AL: As humans, we like games. We like to make games, we like to play games and we like
to share our gaming experiences with friends. Games are borderless a company in Poland
can make a game for a Chinese-based platform targeting would-be players all over the
world. The trouble, of course, is that money as we know it isnt borderless and the idea of
seeking full integration with even half the worlds regional currencies is an immense
undertaking, beyond the resources of all but the largest distributors. My name is Adam B.
Levine and Im the editor-in-chief at the LTB network. Sir Richard Garriott is a giant in the
history of gaming and one of the private astronauts to hit space. He published his first
computer game in 1980, transmuted graphical multi-user dimensions into massively multi-
player online role-playing games in 1997. His works include the Ultima series, the Lineage
series, City of Heroes, City of Villains, Tabula Rosa and the upcoming, successfully kick-
started Shroud of the Avatar series. I think its going to be a series, right? Richard, thank
you for joining us on Lets Talk Bitcoin today. [1:56]

RG: Yes indeed, yes. Absolutely, my pleasure. Obviously, very excited to be with you here
today as a Bitcoin enthusiast myself. Im not just pleased; Im honestly excited to be talking
about Bitcoin. [2:11]

AL: Before we get into the Bitcoin side of it, I want to go back and talk a little bit about your
experience with the gaming industry because you have a really long history here. There are
a lot of things that you could kind of choose to do with your life. What was it, in particular,
about computer games that eventually became video games that made this an area that you
chose to focus on? [2:28]

RG: For me, as with so many, still, who get into the games industry it often happens at a
young age, I just happened to be amongst the people who were in that very first generation
who had that possibility. There are very few, if any, people, especially still making games,
who predate me in the games industry. I wouldnt say that it was a plan. I sort of stumbled
into it. It is interesting that in those earliest days, there were so few people making games
that those few of us who dug in and figured out how to make a game on these primitive,
early computers did pretty well but then it became much harder, over time, as games
became more sophisticated, as more people came in to compete, as the machines became
more sophisticated to turn from literally, childs play into obviously, one of the biggest, most
competitive industries in the world right now. Ive been very fortunate as you noted, Ive
had a long career, Ive had a number of strong hits and can claim credit for a few things, like
the invention of the term avatar that everybody uses now as a standard for their character
in a game and the invention of a class of game the massively multi-player online gaming
genre, Im often credited with bringing that to the forefront. I hope I can still produce
games and carry that on into the future. [3:52]

AL: In Bitcoin, were in early days now. In the beginning, when you got into gaming, there
wasnt much competition and all the fruit was low hanging fruit so you just kind of started
and it just kind of happened. [4:02]

RG: No, thats exactly right. In fact, now that you mention it, I do think there are some
parallels on that same front too. I was a relative... in the short tenure of Bitcoin, I only came
in half way through the total history now that we have but even I hear fondly of the tales of
the first pizza transaction and other things and these very earliest days as people were kind
of figuring it out. What I find fascinating personally is how much that figuring it out has
gone, and continues to go, very parallel to what we uncovered in massively multi-player
games. When we launched Ultima online, we were all shocked and amazed and pleased but
a bit mystified at the same time when the first digital objects started going up for sale on
Ebay. We had to sit back and look at that and go Wow, heres a magic sword that
somebody could play the game for ten hours and get for free, that theyre willing to pay
$100 to buy from somebody else who has played ten hours and have gotten it for free.
Then, you had to sit down and thought about it and went Wait a minute, of course, its
actually worth $100 because it took somebody ten hours to go earn it and ten hours of your
time at $10/hr is worth about $100. Thats actually not an unfair price. We began to
immediately shift our thinking away from the concept of something being virtual to the
concept of its rarity value and how difficult it was to go and acquire in the first place. As you
may know about the history of, not just Ultima, but all online games now, this same thing
has manifested to a much greater extent. We, at peak, had lots of land, plots of land in
Ultima online that sold for as much as $10,000 a plot, largely because those particular
pieces of real estate, like real estate in the real world location, location, location really
matters. A plot of land next to a city center where you could run a business that could sell
those swords at $100 a piece, was actually profitable, even when you paid $10,000 for this
piece of virtual property. We sort of worked out, because we had to... there was no way to
resist the truth of the fact that even virtual items that are limited edition, in the sense of
digitally serialized or in some way known to be unique, that someone has to take effort and
or time, and or expense to acquire (as in mining in the case of Bitcoin). As demand rises to
have access to those objects which are rare, like the real estate land in Ultima online, of
course, the value of that, still virtual but limited, item rises. Not only did we work through
these things, I think it was truly inevitable. There was literally no way to resist it. It is a fact
that these things, though virtual, have absolutely quantifiable real world value. [7:14]

AL: The majority of your work has been in these MMOs, at a high level for the few listeners
who probably arent familiar with them these games basically, function as self-contained
eco-systems where players interact with the environment but also with each other and
other peoples avatars, gaining more power and experience and, as they go through, the
game essentially, becomes more difficult and scales up. That, in a lot of ways, is very similar
to the money systems that we have in real life, except that you have a lot more control over
it as a game company. In what ways, in your experience, was it different? What parallels do
you think there were between the types of systems you were creating and the types of
systems that national governments were operating? [7:55]

RG: A fascinating question. Yes, I actually think that even for a national government,
theres a great deal of learning that can come by observing and perhaps meddling in a
virtual world. Here are some good case studies for that. When it comes to monetary policy,
if youre going to change monetary policy in the real world, well first of all, youre affecting
peoples real lives in a way which they may, or may not like. Also, if you were to literally
increase the number of bills on the street by a factor of two, youd have to go and print an
awful lot of money and dump it somewhere to get it into the system, then it would have, of
course, these ripples that could be profound and permanent. In a virtual world, you can do
the same things much more quickly and if you want to double the amount of currency in the
world, you just push a button and theres twice as much currency in the world. If you want
to change the taxation rate up by 30%, theres no Congress you have to get votes on. We
just do it. As the world responds to that, which is does very... as the virtual world responds
to that, which is does much more quickly than in the real world, if its going to ride some
crazy way that you think Uh oh, that monetary policy change we made is creating a
catastrophe, we can change or avert it instantaneously. As soon as its going out of bounds
for what we hoped, we can instantaneously react and can put it back on track. As a
laboratory, the virtual environment is a great place to have worked out these details. We
ran into all kinds of problems early on because again, since we thought we were making a
game, we didnt realize we were creating this deep intrusion into monetary policy. When
we thought we were making a game, we just created currency willy nilly and, in the sense
of, if you went into a dungeon and you fought some monsters and there was a chest at the
end of the corridor, we just spawned some gold pieces, some virtual gold pieces out of the
chest, which means the more people there were in the world, the more those chests were
opened, the more gold was generated into the world and so, suddenly, we had rampant
inflation in these virtual worlds because we were not controlling the monetary policy.
People were gaming, slowly but surely, infinite wealth and therefore, the price of a sword or
a house, by necessity, had to go up and in some level of pace with the rate of wealth gain of
the average person in the world. We kind of stumbled into this monetary policy experiment
accidentally but then, very quickly, realized we needed the same kind of command and
control that nations need on monetary policy as well. It took us a few years to do that and I
think that games actually, by the way, still are imperfect by all means but again, games are
solving a slightly different problem than the real world in that, in the case of a game, you are
trying to make everyone have the feeling of winning and theres an arc to their existence.
We want everyone to start poor and we want everyone to end rich and powerful and then,
when people finish, they no longer exist when they leave this world. We have a very
different set of conditions than again, the real world. Since were solving a somewhat
different problem, the end games and total policies arent identical but as an experiment to
watch what happens when you change these variables and watch the results change quickly,
and be able to respond quickly, a virtual world is a great experiment bed. [11:45]

AL: One of the things thats distinctly different between what you do with a virtual world in
an MMO and say a regional currency is that you actually have uses of the currency in a
virtual world where the currency goes away under most circumstances. Weve heard these
described before as faucets. Faucets are like when you kill a monster and they drop some
loot. Thats a faucet, right? Then, on the other side of that, youve got sinks. Sinks are
where... it essentially collects the liquidity and then they get spent on things, right? [12:18]

RG: Thats exactly right. For us, the way we manage inflation and monetary policy is by
adjusting up or down those faucets and sinks. Those are the exact terms that... are probably
the most common terms for how we bring value in and out of a virtual world. Interestingly
for the game that Im working on right now, Shroud of the Avatar, were slowly turning
off... theyre not gone but were sort of turning off, to a large degree, both the faucets and
the sinks to have more of a fixed monetary policy, a more fixed level of currency available in
the world. One of the things were doing to do that... one of the side effects of doing that is
that were relying on the players to basically make all things that exist in the world.
Whether I make a sword or Im a person who mints a gold coin, having pulled up gold air or
mined gold ore in a cave, bring it back to town, forge it into a coin or bring back some metal
ore and forge it into a sword, that object has the history of how it was made. If a sword was
made by Richard Garriott, it will always be sword made by Richard Garriott. If I lose or sell
that sword into the world, instead of the world destroying that sword or gold in a sink and a
drain, we actually just store that off to the side. It goes down the drain but instead of going
into nothingness, it gets stored at the bank. If you go deep in the dungeon and you need to
find a sword because you (??) adventure, we go to the bank and we pull out the actual
digital swords that were created by the actual people who created them originally and we
put them back in that chest in real time. As opposed to having the faucets and drains, were
going to more of a steady state total currency pool. We, by no means, have any illusions
that well be able to have it be literally closed, as I just described, we know that well need
to bring more value into the loop but by starting with a closed loop, we think that we get
one more level of true understanding as to how the policy is working versus just trying to
keep the water level about right. [14:29]

AL: With regards to real money trading... by the way, thats fascinating. The mechanism
that youve described there where essentially, youre letting all of the players make their
own market based decisions on literally every economic activity they do and giving them
value for all those things thats fascinating. Has that been done before? [14:47]

RG: Not to my knowledge. I think that virtual items have fairly universally been exactly the
way originally described faucets and drains. I think were making the first run at pushing
nearly this far into a closed system. [15:05]


__________________________________________


ADVERT:

KryptoKit is the worlds first Chrome browser Bitcoin wallet. Its the easiest, fastest Bitcoin
wallet payment system with a simple one click install, it takes just seconds to get your wallet
set up and because KryptoKit finds the address and payment for you, theres no more
fussing around or tab switching. KryptoKit is more than just a wallet. It comes with a pre-
loaded PGP encrypted social network, newsfeeds from Reddit and Google and up to date
charts from exchanges. Finally, KryptoKit directory allows you to make two click payments
with any of the BitPay merchants. Once you install KryptoKit, you wont need anything else.
For more information, or to download KryptoKit, visit www.KryptoKit.com. [15:56]


ADVERT:

Would you like to buy Bitcoin? Cash Into Coins provides the fastest, easiest and safest way
to buy Bitcoin in the United States. Simply place an order online, deposit cash at any
supported bank and relax. Cash Into Coins will verify your deposit and send out your Bitcoin
within 24 hours. Join tens of thousands of people who have purchased from Cash Into
Coins. What are you waiting for? Buy your Bitcoin today. Go to www.cashintocoins.com.
[16:34]


__________________________________________


AL: Earlier, we talked about how, even in your earliest experiences, you discovered that
that sword, if it was valuable, was going to wind up on Ebay. Are you disallowing that in this
new version? Do you think thats possible? Tell me what youre doing? [16:52]

RG: Im assuming these will still be on Ebay. In fact, we have a group that just joined the
game recently called the Britannia Mining Company, that for fifteen years has already been
mining value out of Ultima online and theyve just now set their sights on Shroud of the
Avatar and said Hey, wed like to come over here and start doing similar things. We had
lots of discussions internally as to what we thought about that. In the long run, were going
like Well, the objects have real value a virtual object that took time and effort for
somebody to acquire, even in a game, has, by definition, value. Theres really no way we
can stop people from trading those for value wherever they want. As long as we allow, in
the game, where somebody can walk up to somebody else and hand them their sword, that
means they could have made a side deal in conversation or Ebay or wherever else to have
traded some cash or bitcoins before handing that sword back and forth. It is absolutely
inevitable and we do, and will, support it. The thing that cant happen in our case, unlike in
Bitcoin which can travel from country to country, the sword, in our case, can never leave
Shroud of the Avatar. Thats the real difference. Thats the lock that part of the economy;
one half of the transaction always must be inside of our world. Our gold coins and/or our
virtual swords cant really be used, very effectively anyway, for trade in the real world but
the reverse is not only possible, it is going to be very common, we hope and think that
people will use currencies from the real world in order to value the exchanges of these
virtual goods. [18:36]

AL: Isnt there a danger in that? Youve identified this correctly but the thing that hops out
at me on this is that if you restrict the supply within your eco-system, within your economy,
of all of these different things but the one thing that isnt constrained by you is the amount
of outside value coming in. Doesnt that mean that if the game becomes wildly popular that
the prices of everything within the economy should go up? Oh wait; its a self-balancing
system, right? [19:03]

RG: Yeah, well dont forget though that the trade that happened from player to player is
not value that ends up coming into the game because from inside the game, all that
happened was the sword went from Player A to Player B so there was no delta in the value
inside the game. The place where currency gets dumped into our game... if you think about
contrasting Bitcoin to our virtual world, if you take a limited... take the maximum number of
bitcoins in the world that exist and then if everyone had one bitcoin each and suddenly
twice as many people wanted one, the only that it would work is if we each now had half a
bitcoin each and presumably those half a bitcoins would be worth what the old bitcoins
used to be worth. In our world, there might only have a hundred people on the game, then
were going to go to a thousand, then we might go to a million and so, more like the early
days of Bitcoin, where the rate of change is so high, we dont want to see a rapid inflation of
the price, so what well do, in those early days, is when new players join, well actually bring
in new gold. Thats why I actually said its not a fully closed loop because at least during a
ramp up period, well be bringing gold value directly into the game to get it off and running.
After its up to a relatively steady state population, hopefully we wont need to have much
more of that money policy. Again, the way I kind of relate that back to Bitcoin, I think one of
the brilliant parts of Bitcoin is that early coins were easy to mine and late coins are harder to
mine. No one will bother mining the later coins unless the price of the coin is high enough
to bother needing to mine it. It has sort of a very elegantly self-balancing system that is
what were going to do manually. Again, its because were managing a different problem,
were managing it in a game, not a true currency. There are times when we might
purposefully create inflation or deflation because I think it makes the game more fun, which
you dont want anybody doing that if youre talking about a real currency. [21:15]

AL: With regards to the games both that youve made in the past and that you are making
now and that you think youll make in the future, how do you feel about game company
sponsored real money trading? This has been kind of a contentious issue and if you look at
places like China, they actually dont allow it. There, the company is not allowed to make a
market in their own goods essentially, it has to be done by third parties. That, actually, has
created kind of a competitive market but in the United States, that isnt really the case.
[21:42]

RG: Yeah, its a very complicated problem and different companies are, so far, falling in
different sides of this issue but let me see if I can, at least, frame our early opinion, almost
as an industry really... but how that is changing. Early on, before we realized we were
creating virtual items with real value, what we thought we were selling to people was
entertainment. We still, fundamentally, think were selling people entertainment. You pay
$50, or whatever the price of the game is, and now you can log on and we hope you have
fun while youre in the game. Thats all we were selling, was entertainment. Then, when
people would start trading things back and forth between them, wed be fascinated by it but
then, of course, the amount of money that began to be traded through places, like Ebay,
often is substantially greater than the amount of money traded directly with the company
for that entertainment. The motivation is Well, gee. We should get a piece of that action.
We would like to partake in that. The problem is that when you switch from selling
entertainment, access to an entertainment service to selling the sword, the virtual sword,
you become a party to the safety and ownership of the sword. In a virtual world, sort of like
the real world, there are things like theft and there are also glitches and bugs in the product.
If I had sold you a sword for... you play the game for $50 but I sold you a sword for, lets say,
$1,000 and we, the company, were party to selling you that sword for $1,000. Once you
had it, someone else in the game, either stole it, or you were using the sword and it broke,
or there was a glitch in the game and you lost your sword. Your beef is now going to be
with us, not with whoever sold you the sword and we didnt build these games to be in the
banking business. We didnt build them to have the security of transactions to make sure
that even the history of the swords ownership was kept so perfectly that we could always
make sure that we got the correct sword back to the correct owner. Because its a game,
we actually sort of want people to be able to fight over the swords and steal the swords
from each other and break them now and then, more than they would in the real world
because its a game. We think that that adds fun into the game. A lot of companies, most
companies in fact, have opted not to be the market maker in their own gold, or in their own
virtual items. Mostly, to avoid either needing to create the banking level of tracking of all
those things, as well as though to not be the target of the potential law suits that might
come up as people would argue about ownership or maintaining that virtual object. Now,
the reason why thats changing slowly is because these games are just getting better at it, in
the sense of were gaining confidence over time in our ability to manage those mistakes,
manage when an object is lost, we think we have data trails now to get the truth out. Did
you give your sword away? Did you really sell it to somebody and are now trying to claim it
back because youre unhappy with the transaction? We think we have good enough data
records to begin to have confidence we can, at least, not muck it up from our side. There is
still the side that says were making a game. We want there to be able to be theft in the
world at some deep level and so if we are party to selling $1,000 rare item, that then
someone else in the game steals from you, thats still one of the more challenging hurdles to
get past before we would really fully adopt it. [25:36]

AL: You said that youre making a game and I agree with that, you are making a game but
these games that were talking about, its not like youre making the next iteration of Call of
Duty. Its not like these are round based, its not like this is something that doesnt matter.
These are actually things where people put in ten hours continuously, not because they
want to play a bunch of matches in a row but because theyre trying to accomplish
something and that does have value. On the one hand, that kind of sets the stage for
players who dont necessarily... who have more time than money to want to spend money
on this but you do have that other side of the equation too where, for a lot of people, this is
a low level skill that they can kind of do and in a way that adds value to other people, to
other peoples experience, earn an income from that. What do you think of the idea or the
practice frankly, of people actually doing games professionally? Playing games
professionally and farming for other people. Do you think that thats a good thing or a bad
thing, generally speaking? [26:32]

RG: In the overall picture, I think its a good thing. I think you framed it exactly correctly.
Let me give you another little anecdote on the side of how this can go badly and how it can
go well. The bad side is what are often referred to in games these days as gold farmers.
These are often sweatshop like businesses that pop up in China; they either employ people
at a very low wage or even create scripts and bots that perform repetitive action in the
games in order to maximize gaining gold. As those bots have become more sophisticated,
they even will kill or block other real players from being able to have access to the places in
the game that are the most valuable. Thats the bad side because it, not only, directly
blocks other players from going into some of the most fun and most fruitful places to be but
it also means that these are people extracting value from the game, selling those things
back to our players and inflating our economy without us, in order to suck some money out
for themselves. While its understandable why that happened, its not good for our
company, its not good for our player base, its not more fun for any people involved etc.
Thats the bad side that we try to resist. The good side is more complicated because its
more like the real world. As you said, people who... the time versus money paradigm and
how you wish to choose your time and money, is exactly it. The best examples I give is that
in Ultima online, we had people who had banded together to put on a play. We had actually
put some theaters in the game. We didnt really put any mechanics around the theaters, we
just put them in there in case groups wanted to get together and perform a wedding
amongst their friends or put on a play for their friends etc. but the puppeteering wasnt very
good and you couldnt really charge people at the door etc. Lets suppose, in the Shroud of
the Avatar as a case study, we make a much nicer theater and the theater, in this case, can
be rented by a theater company or a playwright. They can now give access to backstage to
all their actors and charge people a fee to come in the front door and sit in the seats to
watch a play. If they can do that, if they charge money for a play and earn money on it, well
now theyre going to want to put on a good play because if they put on a really good play,
people will come and if you put on bad plays, people wont bother paying $1 at the door to
come in and see that play. Since you dont want to go see a bad play yourself, youre going
to want to know if that play is any good before you pay your $1. That means its probably
worth it for you to go read a review of that play which means that the job of a reviewer of
virtual plays suddenly becomes also valuable. What our goal is, is to create tools in the
game to let people, who are good at content creators, to create content and get rewarded
for their content in a way that does let them make a living at it because one of the things
that we found out early on in virtual worlds is, we the company... we number tens of
people. Our tens of people cannot create content fast enough to even come close to
staying in front of the rate of consumption of all the players in the world and yet, if you
dont give economic benefit to the people who do good work and, therefore, non-economic
benefit to the people who do bad work, as in bad plays in my example, then most of the
content that most people create will be bad content. You need to give direct real world
reward to the people who go out of their way to spend time to add richness and depth into
the virtual world, just like you do in the real world. Thats why the monetary policy issues
are exactly parallel; theyre exactly the same foundational issues. [30:36]

AL: Thats, again, fascinating. The idea of the reviewer job being suddenly relevant because
there is something that needs to be reviewed that has an economic cost because youre
right, I was just thinking to myself while you were talking about the play, that Im not sure
that I would go to a play in a game that would be worth my time on blind faith. I might do it
once or twice for novelty but, youre totally right, if there was a reviewer, if this was actually
a community and it was something that people participated in, then that sort of changes the
dynamic quite substantially. [31:06]

RG: In fact, even though Shroud of the Avatar is still in progress, were seeing this happen
right now that were trying to keep up with. Its happening faster than we can keep up with
it, yet again. For example, we need music in Shroud of the Avatar and, of course, were
doing this game with funds provided by the community so its on a much more modest
budget than many of the games Ive done in the past. Any time anybody can help us out in
ways that are not monetary, were happy to take that help too. It saves us from having to
spend the money we got from the others. A lot of people, again, in our community, have
more time or more skill opportunities than money. A lot of people said Well, I would love
to make my contribution to the game be, instead of money, give me some game credit if I
can contribute some music. I was like Well, of course, wed love that. Conceptually, it was
an immediately good choice but then, what happened is that all kinds of people who were
making their own music put music up in a folder and sent it to us in (??) forums and then,
for me as the creative leader of the project, I sat back and said Wait a minute, 90% of this
music being contributed is not exactly what I need for the game because its either modern
or its fully orchestrated and there was this tavern music, whatever it might be and I was
thinking Oh, now I have this way of... and, of course, some of the music just wasnt as
good. You have the full pantheon. People are just contributing music they think is
interesting and special but its not curated in the way that I need it for the game. Im going
well Now, Ive just given myself a huge problem. Compared to going out and hiring a
composer that I know I like, which means most of the work Ill get back is what Im hoping
for, now Ive got lots of work coming in but... a lot of people have done a lot of work but
now its going to take me a lot of work to even go figure it out. The community then
jumped up again and said Well, just tell us what youre really looking for and well build a
little barge circle and well self curate. I said Great! I gave them feedback on the first few
dozen pieces that came across my door. They started communicating amongst each other,
they do their own pre-sort and were now at a point where the community gets it
completely and has completely self-organized in order to create very high quality results, far
better than I would have ever predicted we could get to, at this stage. Basically, every piece
theyre now putting up is a piece that Im more than happy to drop directly into the game
and all those people, theyre really doing it out of heart and passion but now, we sort of feel
the reverse obligation. Were going to be giving them virtual advancement in the world
because of their amazing contributions theyve been making in kind, so to speak. [33:55]

AL: Sure. This takes me right to where I want to go with this conversation. You did just do
a successful Kickstarter. It actually wasnt that recent. It was last year, right? [34:05]

RG: Almost two months (??) a year. In fact, we not only did this successful one, we did a
very successful one in the sense of it was one of the top five or ten of, not only the year, but
(??) a dozen or so of all time. [34:21]

AL: Right, I saw that. You almost doubled your million dollar goal, as you said which is more
modest than a modern game budget, in a lot of senses, but still was a pretty decent amount
to raise on Kickstarter, at that point. [34:32]

RG: Exactly and, in fact, the community continues to grow and grow. Weve tripled the
number of people that are following us now. Were up to $3m of backing at this stage and,
in fact, each month that has gone by, the flow of revenue from backers has increased
month, to month, to month. We really just couldnt be happier. [34:54]

AL: One of the most interesting things for me about Bitcoin is that its actually not the only
cryptocurrency out there. Its one of the first cryptocurrencies out there and its the biggest
right now but its not the only one. One of the interesting things about it is that, as an open
source technology, its something that anyone, for any project, can essentially create their
own iteration of, based on the most current version of the software, or one of the other
three or four software suites - one of the other three or four software technologies that are
out there doing, basically, the same thing as Bitcoin now. One of the things that Ive been
doing with cryptocurrency, for my particular project... I think its similar so I would really like
your opinion on this. Basically, with cryptocurrency, you are rewarding people through the
initial distribution of the currency for whatever adds value to the network. In the case of
Bitcoin, Bitcoin is a purely transactional network so, mining in that case, processing
transactions and making sure that theyre not invalid, is adding as much value to the Bitcoin
network as possible in a way that can be rewarded. You also add value to it by using it, of
course, and also add value to it by accepting it but the primary thing thats rewarded is the
mining. With what Im creating, we have essentially a content network. We release now,
eight shows per week and lots of written content too but its been a mostly volunteer affair
on my side, so I kind of have a very similar problem to what youve had with your curation
problem, right? You have all of this stuff and you need the community to self-organize in
order to do that but once youve done it, you need a way to feel like you can actually reward
them because youre not going to pay them real money, you dont have the budget for that
but yet, theyve put in work that is valuable to you and you have nothing that you can give
them in return. What were doing is weve actually created a custom cryptocurrency that
will be launching at the beginning of next month that were going to, instead of giving it out
through mining, were actually going to give it out to content creators and then, were going
to accept it back in for advertising on our website and our network and a variety of other
things. Essentially, you start off with something that has no value and then, the people that
create the value in it are the people who receive the currency first, in the same way that
Bitcoin mining works. Does this make sense to you? [36:58]

RG: Totally. I think that as long as your eco-system is sufficiently diverse, and I have to go
back to the gaming term with faucets and drains, then this should work just fine. If I was a
candle maker, I might not have a sufficiently deep and breadth, enough breadth within my
eco-system of clients and suppliers to make that work. You have to have a sufficiently large
pool but the way you described I think is just right. You have contributors who you want to
give value to and you want them to be able to cash out that value, still within the same eco-
system of the universe youre creating. As long as youve got the people contributing as
volunteers, all the people that you want to be able to support through advertising or other
kinds of activities with your sites, then that makes a perfect match. [37:52]

AL: One of the interesting things that I think is different here is that, in doing this, you do
have to give up quite a bit of control. You can have some things because you can set value
by saying Ill accept my token at this rate or rely on the market but you dont have the
same sort of control in games that you... you wouldnt have the same sort of control as is
desirable for you to have in games. What do you think of this idea as a way to fundraise in
the future because this is really where Im going with this? You just raised about $2m from
22,000 people and if instead of giving those people... and obviously, at the time, this didnt
exist, but if instead of giving those people back... heres your $70 thing and you get a copy of
the game and a signed thing. What if, instead of that, you just gave them this currency that
wasnt valuable for anything but that they could choose to sell on the market if they wanted
to or they could choose to hold, knowing that later on, when its no longer available because
your Kickstarter campaign ended and, at that point, everything immediately becomes more
valuable that youve done, since its no longer available broadly. Doesnt that mean that...
you see where Im going with this? This is obviously too leading to be a question but...
[38:55]

RG: I see the question in there. Yes and had we had a better understanding of
cryptocurrencies, we might have considered doing that from the get go. Were sort of
backing our way into that by giving out gold, which isnt a true cryptocurrency because it
doesnt have a forced, finite quantity but we are giving people (??) [39:17]

AL: Its not tradable right? You cant trade this before the game is launched? [39:19]

RG: Yeah, at the moment, you cannot trade gold before the game is launched, although we
now are finally trading pledges. We literally just turned on this last cycle, the ability for
people to trade pledges. Were sort of letting people trade these digital objects starting
right now, even though the game is not finished. Were sort of migrating in the direction
youre describing but theres something else you said too, that was very interesting about
price setting. The thing to watch out for, I would imagine, in your case study that youve
described for your own use of a custom cryptocurrency is that, since its a closed eco-system
of exchange... even though people might take the currency to the other side of the world or
universe and back and hold it well outside of your eco-system, if the primary trading value,
the primary use of the currency, not trading but use of the currency is still around your field
of play or field of endeavor, then the thing to watch out for is price fixing because when you
try to... the nice thing about buying, for example, advertising on Facebook or Twitter or
many of these other digital advertising areas these days, is its all done as an auction and so
the price of that advertising self-manages and floats up and down based on demand. As
long as you do that with yours, I think youre probably still in good shape. The problem is if
you go Gee, do I really think I need $10,000 for a page of advertising and so, therefore, I
need to somehow force people to pay that or if you realize Well gee, I really want to (??)
my personal exchange rate of dollars to my own cryptocurrency, I need it to be some other
higher number just to make it worth my time, well that might start to close off one of the
places for people to spend your cryptocurrency because they think the price is wrong. They
dont agree with you on the price and so if you control, you can end up with a monopoly on
too many of the pricing structures for their taste. If you make sure you either do it as an
auction, or make sure that there are enough other pieces and enough individuals that cant
be monopolized that are in control of those pieces, then I think it should stay in balance just
fine. [41:43]


__________________________________________


ADVERT:

This is Chris Joseph bringing you news on Nxt, the first true second generation
cryptocurrency for February 21
st
2014. The Nxt community has begun fundraising
campaigns to aid charitable organizations. Until February 27
th
, donations of Nxt are being
accepted in support of Songs of Love, an organization that creates original, personalized
songs for children facing tough medical, physical or emotional challenges. In just a few days,
since the campaign was announced, more than 40,000 Nxt has been raised and an
anonymous donor has pledged to match all community donations to a maximum of 100,000
Nxt, at current market rates. This will provide Songs of Love with $12,000. To donate, visit
www.SongsofLove.org/Nxt. For more information on Nxt, head to www.NxtCrypto.org or
www.MyNxt.org and stay tuned for more news on Nxt in the next Lets Talk Bitcoin
broadcast. [42:52]


__________________________________________



RG: In spite of the fact that my team was arguably some of the people to be exploring the
value of digital objects prior to any cryptocurrencies and so we should, and I think are
amongst the early adopters and believers, we werent, at least I personally was not one of
the first onboard... actually some of my staff were amongst the very first onboard but, I
myself kind of saw it initially as a curiosity, potentially or, at least, hypothetically inevitable
over the long haul but I didnt choose to jump in and need to become a miner or even a
holder or provide a place to spend bitcoins in the first year. Mostly, I just think its because
it wasnt big enough to have hit my radar. Then, it was actually my wife who is in the
finance field who began to be researching it more and began to encourage me to take this
more seriously and weigh in as to what someone who should be able to give it a little more
intuitive understanding than she could, to have an opinion. My first opinion, as I began to
look at it, I began to go Well actually, this can and really should and is working. We can
then convert it to going to Well, if this is all working, we need to find a way to participate.
There are really two or three ways to participate. Of course, you can mine. Of course, you
could hold some coins and, of course, you could accept Bitcoin in your business and things
of this nature. Of course, for me as a business, even though Im the founder of the
company, I really need to sell the team on the importance of accepting Bitcoin as one of the
ways to take value into our game and Im sure well get there. Were just solving other
problems right now. Were just getting the game online first but Im confident well
ultimately take Bitcoin within the game itself. Then, as I said OK, I also would like to buy
some and then I immediately ran into the nightmarish problems of buying my first bitcoins.
The reason why I call it nightmarish is that we were already into the area where anybody
trading in any of the exchanges were concerned about things like money laundering worries
and so they demanded you send them bank statements and bills and your drivers licences
and maybe even videos of yourself to prove who you were. It took me a long time to
actually just buy a bitcoin. I thought OK, well normal humans are never going to get
through that process. The man on the street, woman on the street are not getting through
that and then I said OK, well now Ive got some bitcoins, lets go spend some. I had to go
look at the maps of where I could spend by bitcoins. Here in, where Im talking to you from
right now, is our New York home and theres one bar thats about five or six blocks from
here that takes Bitcoin and Ive had it on my agenda to go over there but Ive still never
been. Ive spent a few bitcoins on some things on purpose but none of them were yet
essential. A lot of my peers have done things like, whether thats Virgin Galactic or Tesla,
selling some seats or cars for bitcoins those are great and Im pleased that many of the
companies have either invested in or helped get started are now also accepting Bitcoin. It
strikes me that are kind of two things that... Ill call it three things that we just need to see
happen in Bitcoin, that I think is going to really open the floodgates to, not just those of us
that are hackers and nerds, but to the common man so to speak. Those three steps one is,
we start to make it much easier to understand and acquire what a bitcoin is and get one in
your pocket, proverbial pocket. Two is, even though once I now have things like CoinJar or
other places to hold a local bitcoin in my phone or other things, now that those work, its
easy but sussing out which one to use and why and whether its safe or not and how to link
it up, took more time than, I think, the casual users are capable of doing. Finally, we really
have to get not just the highly visible transactions of these newsworthy transactions taking
bitcoins but really get it down to taxi cabs in New York and your street corner cafe. To me,
those are all technology issues. Those are all software issues. All those are solvable right
now, today with just good software in front of it. Thats why Im kind of looking at Bitcoin
myself going We are a hairs breadth away from having a user experience that lets me
acquire and hold and spend in a way that the masses can do and once we have that, I think,
Bitcoin will... its already had a pretty meteoric last year but I think we have an even bigger
meteoric year ahead, once we get some of these software problems taken care of. [48:01]

AL: I have two things. One, I think that the software problem is an interesting one because
in Bitcoin, the thing that weve had to this point, is a difficult time bringing in talent that can
actually execute on this stuff. Most of the time, what you get is the repurposing of
technology that was already out there. You look at the earliest exchanges, MtGox and that
stands for Magic the Gathering Online Exchange and theyve been having trouble, in this last
couple of weeks, and I kind of like to... people ask me sometimes what the problem with
MtGox is and, as far as I can tell, it doesnt matter sometimes how good or how much
money youve spent on your blender, its just not going to make a good airplane and the
crew probably wouldnt know how to fly it even if it did. It seems like all of these are legacy
issues caused by nobody believing this thing was going to work at first and the players who
had the resources, in order to deliver on the type of experience that youre talking about
here, they were like Why would I want to bother with this? The second point is my first
time I didnt buy Bitcoin, was about three years ago this month, when I didnt send several
hundred dollars worth of cash in an envelope to a guy in Washington DC, named Bitcoin
Morpheus (laughter). He then went on to... it turns out he was totally legit but that was the
process at the point that I first got involved with Bitcoin. I totally agree with what youre
saying. Its been a slow rise as far as adoption on the ground has been concerned but I think
a lot of that has been because the critical mass that you need, in order to make money
work, simply hasnt been present in any physical locations, outside of a few places, like
maybe the Kreuzberg district of Germany, for example. Outside of that, the internet really is
the place and so its these first services that are coming online. Wordpress, thats all fine
and stuff but the stuff thats happened in the last six months and, more importantly, the
companies that will come on in the next six months, I think, are opening the door and saying
All of you other companies that dont know whats going on or dont necessarily trust this
thing, we have enough faith in it, weve looked into it and its working for us. I dont know if
you just saw but Overstock just announced that theyre actually going to be giving 1%
discount to all orders paid in Bitcoin indefinitely, starting in four weeks. There are such
advantages to this stacked up that it really feels like its very much a matter of time and
normality. This has to become normal before the average person will use it, much more
than it has to become usable. [50:29]

RG: Yeah, I totally agree and that normality is that... and while I agree that Overstock is a
great, great champion for this and is going to help a lot, I also think that when you describe
the word normal, it has to be normal in the sense of the frequency with which any of us who
are using it, it has to be something we can and do use daily. [50:53]

AL: Right. [50:54]

RG: Thats why Im going the taxi cab or the corner cafe or get it on to... even though
Apple wont like it, get it on to our iTunes store and Amazon and everybody else. Whatever
it is, wherever you spend money daily, the goal should be to make sure that one of the
places you contact every day, it takes Bitcoin. At that point, I think that the dominoes will
start falling on their own. [51:20]

AL: Lets talk about the future for a second. The problems that surround Bitcoin, at this
point, are basically in two categories. They are user experience and they are permission
based, be it from a regulator, or from a country, or from... even the IRS is a good example of
this. There is a lot of uncertainty and because of that uncertainty, its kind of difficult to
know what you should do so people just arent doing anything a lot of the time. What do
you think is a good scenario for Bitcoin moving forward based on as you see things now?
[51:51]

RG: I like the way you outlined it as talking about the two aspects of user experience and
regulatory concerns or permissions. What I find interesting about those is... the reason why
Im so bullish right now on Bitcoin, is that I think both of those are inevitable to be solved. I
dont think it is possible to see either one of them utterly fail and the reason why, even on
the regulatory side where people might say Gee, if all the worlds banks and governments
ban it, they could stop it and Im going I think were almost past that point. Its a hard
thing to stop because it really has... its like why a lot of people put money into gold and
diamonds. Its because the government cant stop you. Clearly, if governments resist it, it
will make adoption slower, it might make it continue to remain more boutique in the long
run but I think, at this point, governments have, since they dont think they can literally
outright stop it, are saying its best to figure out how we can participate in some way or
regulate in some way as opposed to resist. I think they already have that. I think
governments are doing just fine as long as, like with banks, any time you take very large
amounts of money in and out of the system, call it $10,000 in value or greater, as long as
those giant transactions are made aware to governments, which I think they will demand,
then I think you save them most of their money laundering concerns and it will go fine. It
will go slowly but it will go fine. On the adoption side, on the user experience side, because
I think that really is just a software problem then, even with the early creators, their tools
will get better and better over time. Think of another crowd-sourced, heavily used thing
right now like the Linux Operating System. When Linux first came out, maybe 20 years ago
or longer, a lot of serious developers didnt really use it because it was not as well curated
as the professional corporate operating systems and tools but, over time, those tools got
better and now, once the community picked it up and took it on, now those tools are
incredibly superior and theres almost no one in my industry who doesnt use Linux as their
professional operating system. A lot of people still use Windows for the target because we
make games for Windows but what everybody uses on the back side is pretty much always
Linux. Thats a completely crowd-created foundation. I think that... its hard for me to
actually describe about that scenario. That scenario to me just... it will go more slowly than
we might hope. That scenario to me means Yeah, the user experience is not going to get
as good or as fast as I think it could easily and a bad scenario on the other side is
governments, especially big governments like the US or Europe, really make a hard stand
against it. I think those are unlikely. I think the tools are getting better already fast not as
fast as Id like but plenty fast and while China has done a bit of a push/pull on some of their
rulings, I still think in the long run that the major governments of the world will come
onboard. [55:24]

AL: This has been a really great interview. Thank you again for taking the time with us. Ive
one last question kind of taking it back even further from the kind of national government
thing just to the general organizational, across the world level. Ive been really fascinated
with some of the stuff that Gabe Newell has recently been saying, the CEO of Valve. Is he
the CEO? I dont actually know if hes the CEO. Gabe Newell, over at Valve, has been saying
some very interesting things recently about how Valve is actually the biggest bottleneck in
the Valve system and that the amounts of content, as you said, being created by their player
base is actually above and beyond what they can ever even hope to compete with. To that
end, hes trying to take the company, the Valve company and the Valve platform, to a place
where publishing becomes almost more of like a network protocol where there are a set of
rules and a set of network publishing standards but basically, its just a push process where
if you, as a game creator, have something (or even a software creator) that you want to
push through this platform, you can do it. Basically, so long as you follow the rules, Valve
doesnt even need to worry about it. [56:32]

RG: Fascinating but heres... let me give you another thought to mix in there. I agree that...
weve been looking at Steam for the game were working on. Were debating on how to get
it out to the widest possible audience and so I understand very much what Gabe was saying
about Steam and about Valve and how to further democratize it. Im a huge proponent of
this democratization. Even the crowd-funding were doing, a big part is democratization
and getting people involved early and letting things float to their natural heights. That being
said, that fixes part of distribution, that fixes channel availability but adoption of whether
its a game or a cryptocurrency requires more than just channel availability. Even if you
have, like for example right now... I dont even know all the cryptocurrencies out there but
Im sure many of them make the case that they are technically better for a wide variety of
reasons than Bitcoin. The same thing is true in the game industry. Games, compared to
each other, often claim My game is better than somebody elses for a wide variety of
maybe, real true reasons but just channel availability is not what is required for success.
Thats one of the things Ive learned in the game industry down through these years is that
just making sure that people can download your game, does not mean that they will ever
see it, does not mean they will ever think of it, does not mean theyll ever choose to try to
play it, even if your game is the best. Thats why just the publishing side is one piece but the
marketing side is just as important, if not more. If you look at almost any intellectual
properties, companies that make... whether its Mickey Mouse or Star Wars, you spend
about as much in marketing as you do in the development of the product. A lot of people
look at that and go like Ah, well that wouldnt be true if we had these great democratized
platforms of presenting stuff, to which I go Well, that solves half the problem but you
havent solved the, just as important, half on the marketing side. The way I take it back to
Bitcoin, is I go I have no idea whether Bitcoin is the best cryptocurrency and there might
be places, like the one you were describing for your own internal means, where there are
cryptocurrency technology or specifics that would be great for an eco-system that you were
in control of locally. However, if youre talking about the global, national cryptocurrency,
Bitcoin is already going to be hard to beat. I periodically look over the fence at Litecoin and
Feathercoin and some of these others just to make sure Im not missing something
important and I could be wrong. Maybe one of those will be the ultimate international
standard, however, from a marketing standpoint, Bitcoin already has a huge advantage just
because of all the press that it gets. If you look at the general public, of which... I dont
know what percentage the general public has heard of Bitcoin, but its a lot more than it was
a year ago. If you ask that same group of people, have they heard of any of these other
cryptocurrencies and the ratio goes down fast. Even if a lot of these other currencies are
superior, which they very well may be, I think the marketing lead that Bitcoin has is still
high. Just having... going back to Steam, just having a democratized platform where its
push to publish, thats just the start of the battle. The bigger battle lies ahead, even if you
have the best game, to make sure people know about it. Thats more than just publishing.
[1:00:03]

AL: I totally agree with you. I think that youre completely right there and I guess I should
have shared the rest of his plan with you because I think that it does address this. Youre
right. The other thing that needs to happen is you need curation because if you just have
that incredible amount of content, then youd have all the same problems you were talking
about with your... that you were talking about with the music problem that you were having
with the current game. The solution we already talked about that too. Its the dramatic
play reviewer who, in your game, publishes and sells his reviews, or theres a local
newspaper or what have you, thats what it is. Every venue... by creating this problem and
allowing people to profit from delivering the solution, you create the solution also. You, at
least, create the situation that brings it into existence. What Valve is doing with, again...
once theyve brought all these changes, I dont know if theyve announced a date for them
yet but he gave this talk last year. He, basically, said that anyone should be able to open a
shop that uses and can sell content from the Steam platform. In 2005, my first blog and
podcast was called GamerAndy and we talked about videogames. I was never able to
monetize that. We had 10,000 or so listeners over the course of three years but it was very,
very difficult to monetize it. If Valve had been offering this then, what we would have done
on that site, is it would have just been a Steam page, a Steam store and we would have
published all the same content except then, whenever someone wanted to buy something
that we had chosen to feature, we would have made money from it. Doesnt that solve the
problem? [1:01:30]

RG: No. I like what you said very early on especially well was the... if by allowing people to
solve the... which ones to go visit and profit by it, then you sort of solve it. I would even say
if your virtual reviewers had virtual magazines where you could also place virtual ads,
because as much as people hate advertising... you know theres that old adage that without
advertising, something happens and that is, nothing something terrible happens and that
is, nothing, which is still true because you still need and you often can still win even if the
reviewer doesnt like what you want, sometimes the reviewer is wrong and if you want to
put up your own money to be able to scream into the channel that the reviewer controls, by
putting an ad on the reviewers site, and prove the reviewer wrong then you should have
that opportunity. You just need to make sure that... by the way, I think that those will self-
solve with what you framed there originally which is that, make sure that people who can
help you sort the good from the chaff also can do it profitably. Once you do, then it will
work itself out. [1:02:38]

AL: Sir Richard Garriott, thank you very much for your time. [1:02:43]

RG: My pleasure Adam, really a pleasure to be with you today. A very enjoyable talk about
the current and exciting future we have ahead of us. If anybodys interested in the things
that we were talking about, go to www.ShroudoftheAvatar.com and get involved.


___________________________________________


CREDITS:

Thanks for listening to Episode 86 of Lets Talk Bitcoin.

Virtual Worlds, Real Money with Richard Garriott, was produced by Adam B. Levine
and edited by Denise Levine
Music for this episode was provided by Jared Rubens and General Fuzz

Questions or comments? Email adam@letstalkbitcoin.com.

Have a good one! [1:03:19]


_________________________________________


Lets Talk Bitcoin is transforming into the LTB network over the next few months and, as
part of that transition, were adding many new shows that cover the world of
cryptocurrency from a different perspective or a very specific part of this growing and
vibrant community. From Paul Boyers Mad Money Machine, to Bitcoins and Gravy, to
The Sex & Science Hour youll get them all on the same LTB podcast feed as always,
without changing a thing. That said, weve expanded from two hours per week to six hours
per week and next month it will be even more. You can now subscribe to just your favorites
at www.letstalkbitcoin.com. Click the shows button for all full subscription options and, of
course, please rate the shows. However, you listen whether on Stitcher, iTunes or
somewhere else entirely, your reviews help others find our show. Thanks for listening.
[1:04:06]


_________________________________________