As governments continue to wrestle with the question of how to regulate virtual worlds, a new report out of the UK is urging the government to regulate in-game finances as it would regulate transactions in the real world. In particular, the group is concerned that virtual worlds like Second Life will be used for tax evasion and money laundering. This actually sounds like a reasonable concern since the increasing size and sophistication of these virtual economies should make it easier to move large amounts of money between various parties in a way that can't easily be tracked. Given the growth of these economies, a certain level of government regulation is simply inevitable. The question, then, is how should the government frame this regulation. It would not be surprising to see governments treat Second Life (and its ilk) as quasi-banks, and require them to keep some information about who is "depositing" assets. There will be some objections to this based on privacy grounds, but then these objections could just as easily apply to the government's oversight of the broader financial sector. What would be unreasonable is if the government actually starts to intervene in the gameplay itself. For example, something like in-game theft, whereby one avatar steals assets from another, may look untoward, but it would be a mistake for the government to treat such actions as actual theft. Ideally, those issues would be left up to the virtual world itself. Again, there's little to no chance that governments around the world won't, over time, step up their regulation of virtual worlds. Knowing how government operates, these regulations will almost certainly produce negative unintended consequences. The best hope is that the governments gain a fairly good understanding of the issues so as to minimize the harm caused.
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