The popularity of MMORPGs, which seamlessly mix real and unreal worlds, is one of the main factors shaping this digital revolution.
One of the most popular games, World of Warcraft, was created by Blizzard Entertainment of Irvine, California.
Set in a mythical universe complete with elves and orcs, the game allows players to simultaneously combat each other or form strategic alliances (related news: "Video Games Help U.S. Soldiers Learn Arab Language, Culture" [February 21, 2006]).
"Warcraft has about seven million members worldwide, and on any given day there are at least a few million players online," Castronova said.
On an average, users spend about 25 hours a week in such virtual worlds.
Second Life, created by San Francisco, California-based Linden Lab, uses the same concept as MMORPGs to offer a virtual environment where people—as avatars—can interact in real time.
But unlike Warcraft, which focuses mostly on fighting monsters and completing quests, Second Life is built and owned entirely by its nearly 900,000 residents.
According to Castronova, the real impact of virtual worlds is the substantial daily creation and trade of electronic assets.
For instance, a Second Life user can build a functional piano out of virtual building blocks endowed with various physical and behavioral properties.
Some members have painstakingly created their own designer flying vehicles, while others have opened up skydiving operations or built entire airports.
Second Life assigns intellectual property rights for all objects to their creators, meaning that the virtual objects can be sold or traded within the environment.
Avatars earn an in-game currency called Linden Dollars—money that has an exchange rate and can be traded for hard cash in the real world.
Players spend an average of $350,000 (U.S.) a day, or $130 million a year, according to Reuters.
It's a Living
Jerry Paffendorf is a futurist for the Electric Sheep Company. His virtually based firm creates electronic paraphernalia for simulated worlds, including Second Life.
Paffendorf and 25 others in the company all earn their living off virtual worlds, mostly Second Life.
"It's a full-time job," he said. "We're the largest such team in Second Life."
The company also facilitates trade through a Web site called SLBoutique, an Amazon.com-like marketplace for user-created content in Second Life.
A few products and services have already established brand recognition in the game, and it is entirely possible for such virtual brands to someday morph into real-world operations, Paffendorf says.
"Firms could prototype and test products inside a virtual environment," he explained.
And as new members populate Second Life and its geographic boundaries expand, Paffendorf sees an intriguing possibility: a technological pairing with the 3-D globe software Google Earth to develop a video-game version of the planet.
"You could walk down a city street in virtual Manhattan as an avatar with information rising out of tops of buildings, just like in Google Earth," Paffendorf said.
Such an effort's final goal, he notes, would be to have an online network of 3-D environments to which people can add content.
For now, Second Life already boasts regular music concerts, tropical casino resorts, as well as duplicates of grand medieval and modern cities.
But perhaps its greatest contribution—intentional or otherwise—to the real world might be as a learning tool.
One of Second Life's hottest new destinations is the International Spaceport Museum on the island of Spaceport Alpha.
The destination is a virtual exhibit of rockets and space travel in the real world.
Visitors to the museum can attend live seminars and discuss anything from the future of the space shuttle to life on Mars (related news: "Mars's Peroxide Snow Would Kill Any Surface Life" [August 7, 2006]).
Elsewhere, the island of Svarga has its own rich ecosystem, complete with thriving plants and hungry birds (related feature: virtual Antarctica).
Turn off the clouds or wipe out the bees and a chain reaction kills the entire ecosystem, delivering a subtle conservation message.
Rebecca Nesson is an instructor at Harvard University's Extension School in Cambridge, Massachusetts. This fall she is teaching her first class on Internet law—inside Second Life.
The course will look at ways for setting up a structured society, something that virtual worlds currently lack.
Nesson's classroom is a computer-generated model, and everybody in it, including the instructor, is an avatar.
"Compared to the typical distance-learning class, this is a much more connected experience," she said.
This kind of interactivity, she notes, would be great in an architecture class where students could walk others through a design project.
"This is huge for online education," Nesson added, "and we are only at the beginning."
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