That wouldn’t work. There were already games available for sale. What was missing was a means of buying them.
The only one I can think of would be for the website to have bought up games from people. This would have injected points into the system.
Yes, that would be a danger. Let’s say, I ran the website and saw a game I wanted being put on the market for 300 points. I could conceivably buy 300 points at whatever the current rate was. Or I could sell off some of my games to earn 300 points. Or I could just pull 300 points out of the air and give it to myself and then buy the game. I even pay my tokens to cover the sale.
Nobody immediately loses in this transaction. The seller got 300 points, which is what he wanted and he can now use those points to buy other games. The company collected the same tokens as a fee it would have received in a normal sale. The only negative is the inflationary effect that 300 points has on the system as a whole.
Alright, I give up. I have no idea what you’re trying to explain.
To me, it’s just a website that invented a point system. The points are digital fabrications. This type of thing has been done thousands of times. For example, the owners of the website could post their own video games on the website as assets and price them with points instead of USA dollars. Voila, the system has been seeded with points without selling or buying.
Amercan Airlines, Delta Airlines, etc have awards called frequent flyer (FF) miles. American Airlines has a system in place where you can buy extra FF miles. You can even transfer points from one account holder to another. Why in the world would I ask, "where did these frequent flyer miles “come from?” Hmmm… maybe they were fabricated by American Airlines?!
Hilton Hotels, Marriott Hotels offer points that can be redeemed for future stays. Do travelers commonly get perplexed as to where these hotel points come from?
My American Express card has platinum points. To me, it doesn’t seem like a mystery where those platinums points originated? Is it really a mystery?
audible.com is the popular audiobooks website. They have a system of “credits” to purchase & download books. The “credits” would be similar concept to “points” or “tokens” of other businesses. Are you saying it’s unfathomable how audible.com created the “credits”?
I think it’s just one of those obvious “slap your head once you get it” things.
The OP described how the website worked. People go there and offer games for sale for points. They can also use points to buy games that are on sale. The site now allows you to buy points for money but this was not the case when they started out - you could only obtain points by selling games.
So it’s day one. The site has just started up. But thanks to pre-publicity, several of us have heard about it and are joining up right away.
Little Nemo: Great idea for a site. I’ve been meaning to sell my old copy of Mario. Anyone want to buy it for 300 points.
Ruminator: I’ve got a copy of Zelda I’m selling for 400 points.
Wesley Clark: I’ve got Donkey Kong on sale for 350.
Saint Cad: And I’ve got a copy of Kirby that I’m selling for the bargain price of 250.
Little Nemo: Wow, that’s great. I’ve been looking for Kirby.
Saint Cad: 250 points and it’s all yours.
Little Nemo: Well, I don’t have any points yet but as soon as I sell Mario, I’ll get back to you.
Ruminator: No problem, Nemo, I want to buy your Mario.
Little Nemo: Do you have the 300 points?
Ruminator: No, not yet, I just got here.
Wesley Clark: I think I priced my Donkey Kong too high. I’m reducing the price to 200 points.
Saint Cad: That’s a bargain but I don’t have 200 points.
Little Nemo: I already said I don’t have anything yet.
Ruminator: Me neither.
Little Nemo: Does anyone here have any points?
Wesley Clark: I don’t.
Saint Cad: I’ve got nothing.
Ruminator: I’ve still at zero.
Little Nemo: And I don’t have any points either.
I still don’t get what you’re saying. I’m not sure why you’re thinking of it as a mysterious chicken-or-egg paradox.
American Airlines has been around since 1930. They started their awards program (Frequent Flyer Miles) in 1981. For 51 years, there were no frequent flyer awards. Today, I can buy, transfer, and redeem frequent flyer miles. Exactly where did those frequent flyer miles come from? Is that also a mystery? When the FF program first came out, you could only accumulate them by flying – you couldn’t buy them. So… we assume the first traveler in 1981 accumulated 1000 FF miles. But how could he get those miles if nobody working at the airline had 1000 miles to transfer to him? Did the Wright Brothers who invented the airplane have those 1000 miles? Or was it somebody before them? Are people really wondering where those 1000 miles magically came from?
The “points” are an invention of the video game website. #1 They could simply seed the first points from the owners’ inventory of games – no 1st sale had to take place. This is one way to solve the chicken-vs-egg scenario. (Actually, the owners don’t even have to “back” their points with any real assets but it does help “legitimize” the points.) #2 Or… the first points were not brought into existence by selling them for cash (instead video games.) This is another way to solve the chicken-or-egg paradox.
All we’re missing is the exact day-by-day-blow-by-blow account of the website. But really, we don’t actually have to know it to that granularity. I know that somewhere in that website’s timeline, points were created out of thin air — either seeded by cash sales, video games (owned by owners not the subsequent members), or some other method.
The OP already hinted that this was possibility by hypothesizing, " but where did the points to buy those games originally come from? Were they all sold by the house?"
So, that sounds like he didn’t necessarily monitor the website day-by-day-hour-by-hour to notice the exact point-in-time-event the points came into existence. Therefore, positing “Were they all sold by the house?” is a very reasonable guess. Mystery is solved.
You keep talking about frequent flyer programs. They’re not the same. You have money. The airline has tickets and frequent flyer miles. You give the airline money and they give you tickets and frequent flyer miles. It’s a simple exchange.
The website didn’t work like that. It had all the points that existed. And it did not exchange points for money when it started out. (“I remember when the website first started I don’t think you could even buy points.”)
Perhaps we are simply parsing Wesley Clark’s words differently. When he says, “I remember when the website first started I don’t think you could even buy points” I emphasize the “I don’t think” portion. The OP simply wasn’t there every moment in time of the website’s existence to definitively say exactly how the points came about. However, that particular aspect is academic.
Also, you say, “And it did not exchange points for money when it started out.”
You’re adding a constraint that even the OP is not even sure of. (Unless you happen to visit the exact same website that the OP is talking about, therefore, you both have information I don’t have.)
Is it really a chicken-and-egg paradox to you? It’s not to me.
Maybe the points were given away (created) as part of a promotion or sweepstakes: * “The first 100 members to sign up get 10,000 points added to their account!!! Sign up now before it’s too late!!!” *
There are dozens of ways for these points to come about. I don’t have to know the EXACT method to resolve the chicken-egg mystery. Why would we care how exactly the first people got the first points? It’s academic to me. If one really wants to know, just email the website owners with that question. I’m sure their answer will ultimately jive with any of our imagined (but reasonable) guesses.
Anybody can start up a new website and create a marketplace with virtual points. If you’re stuck as to how to make the virtual points legitimate, all you have to do is think about it for 10 minutes and you’ll inevitably go down a similar path that the video game website owners took.
Yes, I’m still not getting it – what exactly is the mystery?
IANAEorFW (I Am Not An Economist or Financial Whiz…)
Airlines and other “points” rewards systems often sell points. The “Air Miles” program (do you have that where you are?) charges merchants when it creates the points.
Where airlines etc. differ from this videogame trade system is that their points are not real currency. They are created when you do something (buy a ticket) and deleted - exchanged for cash by the other merchant - when you redeem.
The videogame points system is different. Points are only created by the site - either arbitrarily, or for sale.
inflation can go both ways. You can have deflation, too. If too many points are flaoting around, someone may bid up a game to a huge number of points if it’s desirable. Or, people will stop trading games - it’s not worth it - creating a shortage of goods. OTOH, if there are not enough points, you get deflation - nobody can afford your asking price, they don’t have the points, so you drop the number of points asked to sell your game.
This is the problem of “money supply” we used to hear a lot about 10 or 20 years ago. If the supply does not increase with the rate of economic growth, money will be in short supply - deflation. If it grows too fast, there is too much - inflation. It’s a fine balance.
So this is what the initial sale of points does. It grows the “money supply”. The first guys start trading. Joe wants Fred’s World of Mariocraft, but doesn’t have 300 points. 300 points costs $30, let’s say. Is WoMc worth $30 to Joe? Yes. He buys the points, gets the game, the “money supply” is up by 300 points. This then greases the skids for more transactions. Every newbie without a large supply of used games wil start out by buying some points.
Like the central bank, this web site has to monitor their money supply. Too much or too little will cause problems. Maybe they have a half-off sale to increase the supply, enhance liquidity, increase the number of transactions. if they fear the site is getting too many points for the number of customers they can reduce the supply - buy back points, or get a truckload of used games elsewhere and sell them for points, or even “print” points, buy others’ games, and keep the perceived transaction volume high and attract new customers. The best strategies are those that attract new, point-poor and used-game-rich customers to the site to “distribute the wealth”. Of course, points also “disappear” when members stop participating with a balance of points in their account.
Or maybe they are clueless about economics and will run the site like a piggy bank until it falls apart.
It seems like a big casino, really. You don’t bet with cash at a poker table. You go to the cage and give them money. They give you chips. But no one claims that the casino just made a profit by giving you chips. Because we all know that they have to change them back to cash when you leave the casino. So how does the casino make money? From the rake. That’s the token you have to buy to make an exchange.
If everyone that signs up gets 100 points automatically, the house can take the hit. It’s like the casino just gives you chips for walking in the door. They figure they’ll make it back off of you (or someone else) now that you’re playing on the tables.
Alternately, the website can just buy some games and hold a negative balance. They can buy up a few games for, say, 300 points. The house would have -300 points while the outside economy now have 300 in circulation. So a bunch of transactions can take place. They can do this repeatedly, if necessary, to get more and more points out there. Or, they can just inflate the system and start giving away points for free, as I said above.
In the videogame site, they have a separate rake of 2 tokens for each transaction, on top of points.
And unlike the casinos, they don’t automatically redeem points for cash.
So I would bet one of the major methods of shrinking the point volume is disinterested participants walking away from an unused balance of points. I assume at some time they expire from lack of use.
So we’re talking about two different things. I based my posts on the situation Wesley described - that you couldn’t buy points. And I think I’ve been clear about that.
You’re saying “Yeah, but what if you could buy points?” Well then obviously that’s not the same situation. If you could buy points for money then that would make it possible for points to be introduced into the system.
Giving away points would work but we’ve already discussed the inflationary problems of introducing too many points into the system. Giving away free points on the first day would have made this problem immediate and overwhelming. The site wouldn’t have lasted twenty four hours.
Think about it. You have a bunch of people with games. And you have a bunch of people who either don’t have games or don’t want to sell them. And you have a site where you can sell games for points but you can also get points for free just by signing up. What do people do?
Most people are just going to sign up and collect their free points and buy whatever they can. Why not? You got the points for free and the games you buy are real. Even if you don’t particularly want the games you might as well take them because they cost you nothing. So the games will all be sold as quickly as they appear. And then all the people who sign on will be given their free points but there won’t be any games to spend those points on, thereby making the points valueless.
And why would anyone put their games on the market? Sure it’ll be sold immediately but all you’ll get for it are points. And as we just saw the points don’t have any real value. Even if you have games you want to sell, you’re better off selling them to a kid down the street for a nickel. If you want to look for games on the website just sign on and collect free points and hope some other sucker puts his games on the market so you can buy them with your free points.
But an arbitrary website with arbitrary virtual points has more flexibilty than a casino. Gamblers of a casino already have an expectation that the chips can be turned in for cash. On the other hand, the video game website can make accumulation of points a one-way transaction as a condition of membership. You can trade cash for points but you can’t later trade points out for cash.
When you buy “credits” at audible.com, you can’t change your mind later and liquidate your “credits” for cash. A nice arrangment that works in favor of audible.com but not so great for you, the customer.
I think every child in school should participate in an exercise where they create an economy along with the fiat money to transact business. If that happened, the mechanisms of virtual points, tokens, credits, and national central banks wouldn’t be such a mystery. But then again, if the people were actually educated about this, it would destabilize the entire country. Henry Ford’s quote: “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before morning.”
Yes, I’m saying the owner could sell points.
I’m also saying the owner could have seeded the points backed by nothing.
I’m also saying the owner could have given away a limited set of points for promotional purposes.
I’m also saying the EXACT mechanism is academic. Just because we don’t happen to know which of the 3 the website founders used doesn’t make it a mystery in my mind.
I’m not sure why there is a lack of imagination here. You don’t have to give away all points from now until the end of time. You limit them in some way. Perhaps you only give away points to the first 100 new members. Perhaps you only give away points to people with a particular rare video game. Perhaps you give points to members who write good descriptions of how to beat the games at the highest level. Lots of imaginative methods.
Are you saying you’re not exactly sure how you would start up a website with virtual digital currency?
Ruminator, you’ve really wandered off the topic we were discussing. This was Wesley’s question:
You’re the one who keeps saying the solution was for them to sell points when the problem was caused by the fact they weren’t selling points. If they were selling points there would have been no reason to even ask the question.
You’re ignoring that Wesley’s question was already loaded with uncertainty – imperfect memory, or simply not watching the website every day every hour for its evolution from not having points to having points.
No, I also offered 2 other possible methods that did not require selling points. If the points are an invention of the website owners, their existence could have come about many ways that doesn’t require selling them. Why are we hung up on this?
Maybe you don’t understand how a “what if” scenario works. You just assume the premise is true for the sake of discussion, even though the premise might not actually be true. Arguing that the premise is false misses the point.
No, I’m thinking you’re not actually following the thread.
I didn’t argue that the premise is false. I never stuck to a single unchanging theory that the ONLY POSSIBLE way for points to come into existence was to sell them. I never said that. I also put forth other possible methods for seeding the website not dependent on selling points. Did you follow the thread and read them? You yourself offered an alternative method in post #21.
They offer the same service as a currency converters you see at airports and banks. They’ve done this by creating an artificial and frankly silly market. Why would you go to a website where the only currency used is specially for that website? Why can’t you just use money? I am not trying to raise a debate here, but I am reminded of The Simpsons episode where Homer gives $1100 to Itchy and Scratchy land to purchase some of their special money that can only be sepnt at the amusement park.
And that was an answer to a different question. I’m not saying your answer didn’t answer your question. Your answer was a good answer for your question. But Wesley asked a different question.
No idea how it was actually accomplished at the site in question, but here’s how that dialogue should have concluded:
Site Operator 1: Oh, crap, no one can buy anything. Why didn’t we foresee this?
Site Operator 2: No problem, we’ll just create some points and buy Mario from Little Nemo.
Site Operator 1: But both of us already have Mario!
Site Operator 2: Fool of a took! We’ll just put it back up for sale immediately for the same 300 points that we paid! Maybe we’ll even drop the price a bit.
Site Operator 1: What’s the sense in that?
Site Operator 2: Well, then Little Nemo can buy Kirby, and we’ll have injected points into the system.
In short, by buying up some offered games at their listed prices and creating points out of thin air to pay for them, the operators can inject their currency at no cost. By putting the games back up for the same prices, they serve as brokers, and have created a market. They can also contract or expand the money supply by reselling games at a higher or lower prices, respectively – after all, it costs them nothing to lose points on a transaction. It’s the market itself that has value to them.
To simplify:
Little Nemo: I want to sell Mario for 300 points. I want to buy Kirby
Saint Cad: I want to sell Kirby for 300 points. I want to buy Mario
Both: Crap!
IAmNotASock1: I have 600 points. I’ll buy both of your games!
IAmNotASock2: By stunning coincidence, I have both of those games. I’ll sell them for 250 points each.
Little Nemo: Sold! I’ll take Kirby. I still have 50 points, too! I sure am glad I sold my Mario before IAmNotASock2 got here.
Saint Cad: Sold! I’ll take Mario. I too have 50 points left!
Now Little Nemo & Saint Cad both have made exchanges that they’re happy with, and the economy has 100 points in circulation.