Contents

• The importance of locality: choice, market forces and open sourcing
• Griefing, due process and security
• Contract enforcement, IP and commerce
• Financial services regulation
• Land enforcement
• Group organisation and asset sharing
• Self-regulation discourages external regulation
• Social experimentation and publicity
• The relevance of identity verification

The importance of locality: choice, market forces and open sourcing

Government has been a perennially controversial issue for virtual worlds. A seizable number of those who wish to participate in virtual worlds do not want to have imposed on them by the creators of that virtual world, and without them having any choice in the matter, a system of government that restricts their behaviour on pain of sanctions executed in that virtual world: people fear, perhaps understandably, that the powers of such a universal government, once divorced from the market forces that drives the original creator to make any interventions minimal and at least passably fair, would be likely to be used either capriciously or for illegitimate financial gain.

The corollary of that, however, is that there are a substantial number of governance functions, whose nature and importance are addressed below, which need, in order to be performed effectively, frequent and carefully discriminating human intervention, of the sort that is beyond the practical capability of the organisation behind the virtual world's technology to resource effectively as the virtual world expands rapidly. If the only choices are between universal resident government or no resident government, a virtual world finds itself either missing important governance functions, or under the control of those who might act irresponsibly or maliciously, both of which are singularly unsatisfactory states of affairs.

A system of local governance, however, where specific territories (made up of sets of units of virtual land), and perhaps even specific sets of citizens defined other than by territory, are governed, to a greater or lesser extent, by governments specific to those territories, has none of those drawbacks. Governance functions can effectively be crowdsourced to residents without giving any set of people the universal powers of the sort that can enable abuses of those powers. A system where those who, as virtual landowners, control particular geographical regions can decide for themselves, either at the time of purchase if the land is already governed, or after purchase if it is not, what, if any user-run government (including one that the landowner may choose to create for her or himself) should exercise the valuable governance functions described below in relation to that territory is a system that enables competition and market forces to act as an important check against potential abuses of governmental power, and simultaneously to promote the emergence of the best governments, in accordance with the usual rules of crowdsourcing, whereby the best quickly becomes the most popular.

Additionally, local governance prevents a state of affairs that can arise in a universal governance model in which individual virtual landowners, the paying customers of the technology providers, consider themselves, by forces beyond their control, to have been done out of the freedom of action on their own virtual land which constituted the motivation for the purchase of that land in the first place. Furthermore, unlike a universal model, local governance provides an environment in which the benefits of government per se are market-tested, since governments would not merely be competing for popularity among existing or putative landowners with other governments, but with the absence of government, which ought to be the default position for all new land, and all existing land immediately after the implementation of governance tools. Given the diversity of purposes for which people use virtual worlds, it is highly likely that different levels of governance, including in many cases the absence of governance, will turn out to be appropriate for different functions. For example, a large corporation buying a series of islands as a showcase for its products or services might want a system whereby misbehaviour on its lands can be punished by banishment without it having to do any of the hard work, but where it retains ultimate control; a commercial landlord might want a full-fledged system of civil law, including contract and covenant enforcement to entice serious businesses and consumers at once; a group of aspiring businesspeople and artisans wishing to start their own community and share resources might want a democratically elected local council; and an individual who wants an island for creating whimsical artistic follies might want no government at all. Some landowners might want to run their own governments; some might want to participate in governments of territories larger than their individual landholdings; and some might want others to do all the governance hard work for them. Only in a model of local governance are all such things simultaneously possible.

Furthermore, there will always be great controversy over which means of running and structuring a government are best; the only effective way of preventing such controversies from causing damaging conflicts is to permit multiple models of government to emerge simultaneously, such that people can choose to be a part of whatever government structure most closely aligns with her or his own views on how governments ought to be run. People will be infinitely more productive when the conflicts about how government ought to be run are between different governments (which creates healthy competition), rather than within the same government (which creates stultifying in-fighting and destructive acrimony).

Finally, if the architecture of the virtual world becomes open-sourced, then no form of governance other than local governance is practicable. If the creator of the virtual world becomes in effect like those who invented the technology behind the internet, and the virtual world, like the world wide web, becomes a platform, then the governance of activities in virtual worlds can ultimately be determined only by those who run the servers upon which the virtual world operates. Centralisation of control is impossible. The operators of devolved servers might well, of course, wish to let them on a commercial basis, and let their lessors choose how, if at all, and by whom their virtual land is to be governed, but universalisation of control is not possible. If a virtual world is to become open-sourced, then the governance tools need to be built into the basic code, and have time to bed in and become used, long before the server source code is released, in order to enable the practice of local governments to become well established before the control of the source code is fragmented.

Ultimately, a system of local governments is a system where government becomes a useful and valued additional feature of the virtual world about which residents of that virtual world have choice, rather than a source of conflict and suspicion, and is the only practical system of governance in an open-sourced environment.


Griefing, due process and security

One of the important features of local governance in a virtual world is dealing both effectively and fairly with those users of the virtual world who, through their behaviour, make the use of the virtual world around them by other users substantially less pleasant than it ought to be. Such conduct is colloquially known as “griefing”, and its perpetrators “griefers”. Some acts of griefing affect the entire virtual world (such as attempts to hack into its database servers, or compromise password security), and such acts ought always be dealt with by the creator and/or maintainer of the virtual world itself, partly because such people have the most effective means to do so, and partly because such people have a strong interest in doing so. Most griefing, however, occurs on a smaller scale, creating substantial, albeit usually relatively short-lived, annoyance to those around the griefer. It is griefing of this kind that is a problem best suited to be solved by local governments.

Responses to griefing need to be both effective in preventing occurrence or recurrence of the misconduct, and steadfastly fair to those who find themselves accused of being griefers themselves. That is no easy task: the number of instances of griefing multiplied by the amount of work required fairly to investigate and adjudicate upon both sides of the story in each case is considerable. Not only does such a task require time and effort: it requires skill, and a sound temperament. The organisation that creates and/or operates a virtual world is not, at least when the virtual world in question reaches an appreciable size, likely to have anywhere near the resources available necessary to deal with such issues.

Local governments, however, can distribute the workload effectively by localising investigation, adjudication and enforcement. The resource-motive comes from the desire of those with an interest in the success of the government in question, whether directly or indirectly, to ensure that both griefing and false or unfounded accusations of griefing are properly controlled within their jurisdiction. Because the system of local governance creates the potential significant competition between governments, those local governments that most fairly and effectively deal with griefing will tend to be amongst the most successful, and will tend to control the greatest proportion of territories. The efficiency with which information can be communicated over electronic media makes discovering true instances, and debunking false claims of instances, of the capricious or otherwise unfair imposition of sanctions easy. There is already a large and growing contingent of people seriously interested in the operation of law in virtual worlds, so the pool from which skilled adjudicators (and, no doubt, in time, advocates) can be drawn is large and growing.

Enforcement, although localised, can be effective: banishing those found guilty of wrongdoing from the territory that a government controls prevents the wrongdoing recurring on that territory for the duration of the banishment, and, in so far as the person in question derives enjoyment from visiting the place in question, can prove an effective deterrence. The preventative and deterrent effect can be multiplied when various governments have reciprocal banishment agreements with each other, or are part of a federation in which, once a person is banished from one state of the federation, one is banned from all. The importance of due process not forgotten, however, it is important to note that a government that associates itself by treaty with a government known for capricious or unfair banishments is likely to acquire such a reputation itself, and risk losing substantial popularity and therefore control as a result thereof. Market forces always act in the background to prevent undue caprice.


Contract enforcement, IP and commerce

Once considered merely an idle game, virtual worlds are now a hotbed of virtual commerce, with substantial sums of money, with real life value, traded every day. The trade in virtual goods can be lucrative for those particularly skilled at producing what is in great demand, and the lure of being able to earn money by doing something that feels like playing a computer game is powerful for many.

The commercial success of virtual worlds is not, however, without its problems. Wherever there is money to be made, there are those who seek to line their pockets with little work by defrauding others. Furthermore, since virtual goods are, by their very nature, intangible, a myriad disputes about intellectual property violations arise every day, from the mundane, involving low-value items made only in the virtual world, to the very serious, involving the improper use of real life intellectual property such as trademarks, and everything in between.

The difficulty faced by many virtual entrepreneurs is that, because the value of goods and services in virtual worlds is so much less than their real-world equivalent (although economies of scale often mean that the overall profits from such activity can nonetheless be considerable), because virtual worlds are inherently international in nature, and because it is an important feature of virtual worlds for many that their real life identity not be imparted to anybody who knows them only through the virtual world, resolving commercial disputes that, in real life, would relatively easily be solved by a stiff letter from a lawyer, or, eventually, litigation, becomes vastly cost-inefficient. If people make a contract with each other in a virtual world, knowing only each other's avatar names, the contract is not performed, and one side accuses the other of breaking it, that party has, in practical terms, no redress: he or she will almost certainly not be able to find the counterparty to a contract, let alone find that person's local court, and be able to instruct a lawyer who knows what the law is there, even assuming that the intractable problem of which law applies can sensibly be resolved (agreements with the provider of the virtual world service that disputes are to be resolved according to the law local to the virtual world provider do not govern (and, in many jurisdictions, could not even if they tried) what law should govern disputes between two or more independent people).

Such a difficulty is, fortunately for the success of virtual worlds, not as serious as it would be if it arose in a real-life country because virtual worlds have technological means of making many sorts of transactions difficult or impossible to exploit: virtual items can be set so that they automatically dispatch themselves once the seller has been paid the correct amount of money, and so forth. Furthermore, the ability to communicate effectively through electronic means makes it easy to disseminate information about those who deliberately and obviously defraud others. With such means, simple and straightforward transactions (usually of the nature of the sale/purchase of virtual goods) can be carried out in a virtual world with a considerable degree of confidence, even absent human-intervention based enforcement mechanisms.

However, any attempt to engage in more sophisticated transactions, for example, contracts of employment, or construction contracts, or contracts for all manner of services, meets with the often impenetrable problem that, if one cannot be sure that the person with whom one is entering into the agreement is trustworthy, the agreement is worth no more than the paper that it is not written on. Although undoubtedly some people can and do build relationships of trust, either by revealing their real-life identity and transacting in real-life currencies, or by having amassed a formidable reputation of trustworthiness over a significant period of time, having to go to such lengths in order to engage in what would in real life be considered positively prosaic transactions makes the economy substantially less efficient than it could be. Furthermore, although obvious frauds (such as scripted items that take money but refuse to dispense the objects that they purportedly sell) can easily be foiled, at least in part, by mere communication, complicated contractual disputes in which both parties, apparently plausibly to an uninitiated outside observer, claim to be in the right, are not susceptible to such simplistic means of resolution.

If, however, a system (or, more accurately, a series of systems) of civil justice, run by those who inhabit the virtual world, rather than by those who create it, with all of the advantages of the local model of governance described above, were to come into existence, then such problems could be greatly diminished: it would be easy for governments to establish rules as to whose law applied in what circumstances (which, in any event, would be limited in practice by their powers of enforcement and likely desire not to waste resources attempting to resolve disputes that have no bearing on their citizens, those whose continued support would be necessary for their continued success), in-world legal systems could operate effectively, using the powers of enforcement described above, without knowing the people's real-life identities, and would be subject to the same deflated pricing that applies to the rest of the virtual world, removing the issue of expense non-proportionality.

The same applies to intellectual property disputes: these most intractable of problems could be diminished non-trivially if those who were found by official adjudicators of specific governments to have violated others' IP rights could, ultimately, be banished from the territory controlled by those governments, and such enforcement would come at a cost far less than the equivalent action in a real-life court. Even larger-scale disputes, involving intellectual property outside the virtual world, could be resolved by combined approach of litigation in in-world courts to provide a speedy, cheap immediate interim remedy against the perpetrator, with the threat (or actuality) of real-life litigation if that proves inadequate. Large corporations may realise that all but the most professional or persistent of, for example, trademark infringers, can be deterred by the threat, or actuality, of being banished from wherever it is they own their virtual land or do their virtual business, which option would be considerably cheaper than litigating in real-world courts where it proves effective.


Financial services regulation

As with the enforcement of contracts, the design, institution and enforcement of regulations pertaining to financial service institutions operating solely within virtual worlds is a task that can only practically be compassed by local governments. Although, unlike their real life counterparts, governments in virtual worlds, especially open-sourced ones, cannot stop financial institutions buying their own fresh land, unbeholden to any government, and conducting their unregulated financial business there, governments can at least publicise an approved list of financial service operators who do operate within the rules, adjudicate effectively any disputes about whether they have broken any of the rules, and prevent those who operate outside the rules from operating within that government's territory, or even banish those who run such institutions from their territories.

Such uses of government are of potentially considerable interest given the recent concern that has arisen about a number of banks who operate only in the virtual world. However, if one pauses to consider the possibility that real-life banking corporations may one day want to open banks in virtual worlds, too, answering the otherwise intractable problem of to which, if any, set of real-life national regulations that such accounts should be subject, it will become apparent that the issue extends beyond concerned about the fiscal prudence (or legitimacy) shoestring amateur organisations.


Land enforcement

Virtual land is the most basic of commodities in a virtual world, and, as virtual worlds have proved in their operation, disputes over land have the potential to cause substantial acrimony and wasted economic effort and potential. Disputes can arise about intrusive objects or buildings on neighbouring land, resource utilisation where neighbouring lands share resources, such as a limited number of people able to access a region, or about the purchase and sale of land.

Although, in many respects, disputes relating to land can be resolved in a similar fashion to disputes relating to contracts, intellectual property or alleged griefing, an additional element of complexity arises in the local government model because the jurisdiction of a local government is tied to a particular virtual-geographical territory. Disputes within that territory could readily be resolved, but disputes between landowners in different governments, or even between different governments, might pose greater problems.

However, such potential for difficulty must be put in perspective. Firstly, it is inherently no greater than the problems that can arise between landowners in the absence of government. Secondly, economic factors have a good chance of maximising the number of disputes of this nature that can effectively be resolved.

The economic pressures that have a good chance of resulting in local governments having a good success rate in solving land disputes arise from the premise that units of land that share a government with all or most other units of land with which resource and other such disputes are likely to arise are likely, for that reason, to be more valuable than units of land that do not so share, because there is a substantial advantage to potential purchasers of land in having potential disputes resolved effectively. That will, in turn, create an economic incentive for governments and owners of land to cause land to be configured such that it maximises dispute resolution possibilities.

Within land controlled by a single government, planning rules (as prescriptive or open-ended as market forces demand) could help to prevent land blight, and an equivalent of what is in some real-life common law jurisdictions called the tort of nuisance could deal with residual disputes about the effect of allegedly undesirable activities upon neighbouring landowers. Such capacity for dispute resolution has, in turn, the potential to create communities and landscapes of sorts not previously seen in virtual worlds: something between the unrelentingly eclectic (and often downright clashing) and the starkly uniform (of the sort that results from the entire design being created or overseen by one person, or a small group of people).


Group organisation and asset sharing

Many people in virtual worlds like to go it alone, but many others desire to engage in group activity. Much of that group activity requires shared, group land, but, in a system whereby any unit of land can only be owned by either a single individual, or all members of a group equally, many desirable configurations are impossible. A group, for example, that wants to set itself up as a community of producers of goods with a certain theme, and also let small residences that share that theme to outsiders, needs a system in which the overall control of land is centralised (to ensure that the theme is maintained, for example), but where individual plots of land can be individually controlled to a considerable extent by individual owners thereof. A local government could enable such groups effectively to form local councils to oversee the management of their land, whilst enabling the individual members of that group to retain substantial personal control over their individual parcels of land.

Similarly, where land is sold by the creator of the virtual world (or, when open-sourced, by its server vendors) only in bulk units corresponding. for example, to whole servers, which are substantially beyond the price range of most, many people might be motivated to form groups to buy a part of a new such unit of virtual land, on the understanding that the whole unit will be run in a particular way. Without relying on specific trustworthy individuals, capable of handling large quantities of money on behalf of other people both honestly and diligently, such an arrangement is impossible without local government. The ability of such arrangements to emerge has the potential to increase demand for virtual land, as the number of permutations of use possibilities increase: such arrangements would undoubtedly have the capability to make purchases of new land substantially less uncertain than they might otherwise be. For this head of benefit, flexibility is key.


Self-regulation discourages external regulation

Many are concerned at the future possibility of real-life governments making virtual worlds far less pleasant places by over-regulating them. However, it is a far harder to claim that something needs regulating if it already regulates itself in an efficient, systematic and professional way than if it is wholly unregulated. Given the potential for a system of local governments, through the market forces of crowd-sourcing and competition, to produce high-quality, professional systems of law, there is a good chance that the existence of systems of local government will help to dissuade real-life governments from overly restricting desirable activity within virtual worlds.

Furthermore, there has recently been discussion of whether virtual assets ought to be taxed, not just when they are converted into real assets, but in their status as virtual assets, too. Such a highly undesirable step could potentially be shown to be even more absurd than it now appears by pointing out that there are already governments in virtual worlds, which would be the appropriate destination for any tax revenue generated solely in virtual worlds, and that what, if any, tax to charge on such assets should be a matter for those governments.


Social experimentation and publicity

Whilst the functions of social experimentation and publicity are necessarily ancillary functions of local governments, they are certainly not trivial functions. A virtual world that can claim to have proven a hitherto untested system of government either successful or unsuccessful, or that can demonstrate, with the extreme swiftness and efficiency possible only in virtual worlds, what aspects of governments are more or less effective at, for example, improving efficiency or preventing abuses of powers, can not only greatly add to human learning on social organisation, but generate substantial publicity for itself in so doing.

A virtual world so socially and economically advanced that it can claim to be host to a slew of serious, well-organised, efficient governments, staffed in many cases by people with real-life expertise in the areas of governance in question is a virtual world that is so far ahead of any virtual world of which that is not true that it would, in all probability, make it substantially harder for a potential competitor to catch up without first doing the same itself.

Furthermore, the personnel needed to staff governments and their attendant institutions creates a whole new class of potential consumers, both for those who sell virtual land, and for those who sell virtual goods, attracting those to the virtual world who might otherwise be uninterested in such frolics. People (who might in real life be impoverished, either by being students or living in poorer countries) could earn virtual salaries working in virtual government posts, and either spend that money on virtual goods, or use it to go a little way towards working themselves out of poverty, or paying for their tuition.

Ultimately, a virtual world that can claim to be, not just a land in which a few people have interesting buildings, but a world, in the truest sense of the term, with a set of independent but often interconnected nations, is a far richer experience for all of its users than one that is not.


The relevance of identity verification

A potential problem arises in relation to many aspects of virtual worlds, but local governance in particular, relating to the ease by which individuals can register multiple accounts such that it is never possible to tell whether any given person is the alter ego of any other given person (other than oneself). Amongst other local government-related problems, it can lead to voter fraud (single real-life people can use multiple accounts to vote many times), the ineffectiveness of banishment (those banished may create new accounts to return to places from which they were banished) and a false appearance of checks and balances within a government that, in reality, is run by a single person or a very few people, posing as a great many more people. Fortunately, that problem has an elegant and ingenious solution.

A third-party identity verification company can create a system of avatar verification, whereby it is possible to show, with a high degree of conclusiveness, that any one verified avatar is not an alternate account of any other verified avatar. The system would work in the following manner: any avatar wishing to become verified would pay a small fee (the equivalent of several US dollars) to the identity verification company, and provide that company with some clear proof of that person's real-life identity. The person would then, using her or his in-world avatar, and using scripted objects in-world, prove to the company that a specific avatar is controlled by that real-life person by, for example, entering a pass-code generated on proof of real-life identity into an in-world kiosk. The third-party company would never release the real-life identity of the avatar in question to anybody, at least without the person's permission, but would class that avatar as a “verified” avatar by entering the avatar name in question into a database of verified avatars, accessible in XML format by scripted objects in the world, or perhaps even directly accessible through the client software. That real-life person would then be unable to register any other avatar name as verified. There is already an organisation in existence with both the wherewithal and inclination to do just this.

If governments prevented non-verified avatars from, for example, voting, or holding certain government posts, then the potential abuses caused by alternate accounts could be much diminished, if not eliminated entirely.

Update: Linden Lab has recently confirmed that it is planning to introduce its own identity verification system into SecondLife.