Does Crypto Have Value? A Bitcoin Pioneer Spelled It Out Years Ago.

Illustration by Lan Truong

Illustration by Lan Truong

To many investors, it is still inconceivable that anyone would pay cash for code. Here’s how it happened — and why crypto is likely here to stay. (Part of the crypto column series.)

In May 2012, Autumn Radtke, chief executive of the fledgling virtual currency exchange, First Meta, gave a remarkable talk on how otherwise intelligent people began reaching for their wallets to shell out for code.

The event where she spoke had nothing to do with Wall Street or investing. Rather, it was a game industry summit in Suntec City, Singapore. Walking the audience through what she warned would, for most, be an “exotic” journey, Radtke explained how the trading of virtual assets didn’t spring from a garage in Silicon Valley or a basement on the East Coast, but from one of the earliest metaverses: online games played by thousands, even millions, of people — known as “massively multiplayer online games.” She described how trading virtual assets began in the 1990s with players’ game accounts as they competed for “wealth, access, credentials, status inside a game.”

What was fascinating, Radtke said, is that as in-game economies rapidly evolved, so did the first type of “real money trading” for virtual assets. How did this work? Players would pay cash outside the game in bilateral transactions, in exchange for digital objects inside the game, such as gold, or a plot of land, or a magic sword.

But as soon as multiplayer games took off, something else happened. “The black market arose almost immediately,” Radtke said. “Literally, there was no lag. As soon as there were virtual currencies, there were people trading them.”

This is the origin story of Bitcoin — and the hundreds of other cryptocurrencies, nonfungible tokens, and other digital assets that came after it. Understanding how in-game, centralized virtual currencies morphed into real-world, decentralized cryptocurrencies is the key to demystifying cryptocurrency for a still-skeptical institutional investing crowd, according to Raghu Yarlagadda, chief executive of FalconX, a $3.75 billion crypto institutional brokerage firm in San Mateo, California, that serves hedge funds, asset managers, retail aggregators, and crypto-native funds.

“Once you understand something better — and its history — it increases the propensity to invest,” he says. “For me, the core excitement is that a lot of the world’s value is going to be tokenized. Bitcoin was one of the first-use cases, but now we see it happening with music, the arts, and culture.”


The spark that lit the virtual currency bonfire can be traced back to 1997 and a computer game called Ultima Online, the world’s first large-scale massively multiplayer online game. It was created by Richard Garriott, a British-American game designer who began working on it when he was 13 years old. Arriving two years after the launch of eBay, Ultima drew more than a million players worldwide within just months, leading to challenges previously unimaginable. What happened next in many ways laid the foundation for decentralized cryptocurrencies.

Very rapidly, auctions for in-game virtual currencies and goods exploded in venues across the web, opening the door to secondary markets, but also fraud, money laundering, and seriously thorny legal questions about who really owns the virtual assets inside a game. “This became such big business and such a pain for the game companies,” Radtke said in her 2012 talk, because game companies were being exploited and mined for their digital assets but weren’t sharing in the revenue. They eventually prevailed on eBay to shut down all virtual goods auctions in 2001 — but it didn’t work. People kept on trading virtual assets. “The only thing that happened is people just went other places to buy them and other places to sell them,” Radtke explained.

Soon game companies were offering multiplayer games that encouraged real money trading and also gave them a cut of the profits. But players still broke the rules and tried to arbitrage their virtual currencies over online platforms and markets. Legal debates raged over the ownership and value of in-game virtual goods. For instance, if a player spent time mining iron ore from a mountain in-game, then went to a blacksmith’s shop to forge that iron into steel to make a sword, then discovered a magic spell to make it enchanted, who would own the sword — the player or the gaming company? No one could agree.

The secondary marketplaces were completely unintended, says game maker Garriott, now based in New York and semiretired, in an interview with Institutional Investor. What he learned back then holds lessons for crypto investors today. As Ultima became one of the fastest-selling personal computer games in history, he recalls, sales of virtual goods from his game dwarfed sales of the game itself. “We thought, how is this possible, that anyone is willing to pay thousands of dollars to acquire a sword?” What Garriott says he didn’t realize at the time was what he now characterizes as the “time value” of a sword, or any other coveted virtual asset. Because players could not get virtual assets inside a game without putting in long hours of playing time, many were willing to purchase those goods outside instead. “In a game, it can take dozens of players and hundreds of hours to make a top-value magical sword,” Garriott says. “Some people found it easier to just buy one on eBay.”

Although Garriott came to appreciate why Ultima players were willing to exchange fiat for digital objects from his game, he was thoroughly unprepared for the number of players seeking to profit off that fact, as well as for the vicissitudes of running a robust in-game economy. “When you come into something cold turkey like that, it is shocking and overwhelming, but the lessons come quickly,” he says. “You fail quickly and you fail often, but you learn fast.”

Ultima didn’t have a way to fully support its burgeoning virtual economy. There was no bank or clearinghouse to back up the trading of its virtual goods for cash. “We never wrote a code base that would work as a bank, and we couldn’t guarantee digital sales,” Garriott says. “The game also was extremely unstable when it launched, so if it crashed, your digital goods could revert back to an earlier time and you could lose them.” He grappled with in-game prices, taxes, inflation, deflation — and gold. “In the game, you have to kill monsters to collect gold,” he explains. “In the beginning, we discovered we did not have enough monsters, because people would kill them immediately and we’d run out of monster gold. We had to calibrate the number of monsters, so we’d step on the gas and then the economy would inflate.” It was complicated balancing the monsters and the gold. And it was made much worse by the killer bots, Garriott says, mostly from China, which swarmed the game, bumping off legitimate players and swiping their digital gold to sell on eBay or elsewhere. “It made the game less fun for other players,” he says. “We ended up in a kind of endless war.”

A precursor to Bitcoin miners, these “gold farmers” consisted of organized teams of players gaming at all hours to accumulate digital gold, which they would then sell online for real cash. Garriott estimates gold farmers generated roughly half a billion dollars a year, not just from Ultima, but also from games like World of Warcraft (which he also played). “We had players earning virtual gold in one game, then taking it to another game,” he recalls, “or getting a sword in one game and turning it into a pistol in another game. It’s hard enough to balance the economy in one virtual world, but when digital objects are passing from one virtual world to another, it gets extremely challenging. What if one world has a deflationary economy and the other world is inflationary?”

Game companies did all they could to combat the exuberant virtual goods trading — “relatively unsuccessfully,” as Radtke noted. A landmark decision came down from the South Korean Supreme Court in 2009. “Korea is probably the most sophisticated virtual goods market,” Radtke observed in her 2012 presentation. “The supreme court essentially said that if a user puts time, energy, effort, and money into earning this virtual wealth that it actually belongs to them, like their real property. And the Korean government recognizes virtual assets as real property. So if it belongs to you, you can sell it. Just like if you buy shoes and you want to sell those shoes to your friend — that is exactly how it is recognized in Korea.”

(South Korea doesn’t charge capital gains taxes on digital currencies because it doesn’t see them as legal tender, whereas the U.S. views a cryptocurrency like Bitcoin as all-encompassing: The Securities and Exchange Commission says it’s a security, the Commodity Futures Trading Commission says it’s a commodity, and the U.S. Treasury sees it as — you guessed it — a currency. The American regulatory framework hasn’t quite been worked out yet.)

By the time South Korea handed down its ruling, the virtual goods market tied to online gaming, social media, and mobile networks was attracting third-party financial services companies like Radtke’s. An entrepreneur from Muskego, Wisconsin, Radtke was one of the earliest millennial crypto CEOs. Her company, First Meta, was founded in Singapore in 2007, one year before the white paper launching Bitcoin was published. It offered a virtual currency trading platform where users could buy and sell online currencies for cash or other virtual currencies, such as Linden dollars from the game Second Life. As the market for digital assets grew, Radtke said it was inevitable that global authorities would step in to regulate virtual currency exchanges like hers, “which I think is fair, because this isn’t a gaming company, right? This is a financial services company, even though it’s a peripheral of the gaming industry.”

The virtual marketplace drew behemoth investors throughout the aughts, including venture capital firms and Fortune 500 companies. In 2010, Visa plunked down $2 billion for e-payment company CyberSource. In 2011, it splashed out $190 million in cash for PlaySpan, another trading platform for in-game digital goods (which, by the way, was founded in a Silicon Valley garage, by 12-year-old Arjun Mehta, backed by a phalanx of top-tier venture capital firms). Radtke estimated that, by 2012, the size of the global virtual goods market was about $4 billion, with most transactions taking place inside virtual worlds.

But even with players furiously trading them, virtual currencies struggled to cross into the real world — until the advent of decentralization.

“Decentralization was the missing component of this universe,” says FalconX’s Yarlagadda. “For the longest time, the game economies were siloed by the game developers and the users could never truly own their digital assets, because they could not take them outside their games or bring their assets from point A to point B. Once it decentralized, it made accretion possible. Now you can own it, you can take it with you.”

That changed everything. With the launch of Bitcoin trading in 2009 — Radtke referred to it in her talk as “the Bitcoin project” — virtual currencies finally broke free of strictly centralized, in-game environments. “To me, how I interpret it is Bitcoin is the coming to fruition of a real virtual currency,” she said. “It kind of sounds like an oxymoron, a ‘real’ virtual currency, but it’s very real in the sense that you can buy things with it.” She meant real things in the physical world, not just digital assets. The main difference between Bitcoin and other virtual currencies, Radtke explained, was that “there is no central bank of Bitcoin. . . . If you issue a virtual currency in your game, or World of Warcraft issues WoW gold or the U.S. government issues the U.S. dollar, there’s a central bank that issues this currency. With Bitcoin, there’s no central bank. So it actually has to be mined, and it gets mined using computing resources.”

Cuy Sheffield, head of crypto at Visa, says before he joined the company he also worked in the social and mobile gaming industry. “What you find is there are people who know everything about payments and not crypto,” he notes, and vice versa, although one tends to be a natural extension of the other. Global trends that Visa is following include the “play-to-earn” gaming market and skyrocketing demand for nonfungible tokens. “Gaming is a major new-use case for crypto and NFTs, so it’s really exciting to see some of the new products being built,” Sheffield says.

Only in recent years have financial services companies like Visa really started looking closely at how gamers and consumers might link gaming or crypto accounts to their regular bank accounts or credit cards, he says, so they might spend wherever they choose. “If you’re earning an income by playing a game and being paid in cryptocurrency, well, you need a way to use that to buy groceries,” Sheffield explains. “So we want to offer easy on-ramps and off-ramps where a consumer can earn and spend that balance of cryptocurrency at any merchant without that merchant having to understand what crypto is.” By partnering with cryptocurrency companies like Coinbase, Visa offers cards that allow users to pay in fiat or crypto.

After witnessing the rise of in-game virtual currencies, Garriott still finds it slightly humorous when people ask, “What is crypto based on?” or “Why should crypto have any value?” At 60, he is now an investor in crypto and is considering adding NFTs to his personal portfolio, he says. Garriott also counts among his friends crypto enthusiasts such as Tesla founder and chief executive Elon Musk. “I am incredibly pro-crypto,” he insists, “although whether you should be buying NFTs, or mining gold, or selling shovels is an interesting debate still.” Though Ultima remains online and Garriott makes the occasional appearance in it as the character “Lord British,” his main focus these days is on his role as president of The Explorers Club in New York, which supports scientific expeditions around the world.

Autumn Radtke died on February 26, 2014, at age 28. Her fall from a high-rise in Singapore left the crypto community devastated and deeply disillusioned. Initially, the case was classified as an “unnatural” death by local police. Following an inquest, the Singapore coroner’s court ruled out foul play, concluding it was a suicide. Even so, some in the crypto community have not accepted the results of the investigation. Radtke never got to see the multitrillion-dollar market she helped to build, but her contributions to the earliest stages of crypto and her ability to recognize and speak out about virtual currencies as, in her words, “a force for change” are evident to this day. From the beginning, she intuitively grasped the promise of Bitcoin, predicting it would bring “a major paradigm shift in how people buy and spend because there’s the formation of these new, nontraditional, and essentially nonpolitical currencies.”

The paradigm shift doesn’t have to be about just building wealth, says Garriott, who took great pains to build a code of ethics into Ultima, which, in later versions, observed players’ behavior and even issued personality tests to reward them when they put key values of truth, love, and courage above cheating, killing, and stealing.

Would it be possible to embed such a values-based system in cryptocurrencies — perhaps a values-based token? “Yes, I think it can be done and therefore should be done,” Garriott says. “But I don’t think it will be trivial. The difference between a game and reality is that in a game, you have the ability to precisely measure an action and provide an outcome. Real life is less precise.”