On March 30, a Shanghai courtroom heard a murder case in which Qiu Chengwai, 41, was alleged to have killed Zhu Chaoyan because he had sold a £500 “dragon sabre” lent to him by Qiu. This tale of envy and death comes with a twist, however, because the weapon in question did not actually exist. It was nothing more than a string of data in an online game.

The idea of killing someone over a nonexistent sword seems ridiculous — except, perhaps, in the context of massive multiplayer online games (MMOGs) and the compulsions they trigger. The most demanding games place real-world cash value on key characters, treasure and weapons. Each player creates an on-screen avatar who explores a Tolkienesque fantasy world in search of glory. Players also pay real money in exchange for the virtual currency of the game world, with which they buy horses and clothes, or levy rents and hunting rights, aiming to amass a fortune.

Collecting the most prized magical trove in games such as EverQuest and World of Warcraft takes days, but after a winning streak, you can extract your character’s virtual hoard from the game and turn it into real-world profit. On this black market, virtual battle-axes with powerful properties might fetch prices as high as £1,000, and in some games, it’s even possible to trade real estate. It might sound crazy, but, last year, a 22-year-old Australian paid nearly £14,000 for a virtual island in the game Project Entropia.

The economist Edward Castranova has calculated that if you took the real dollars spent within EverQuest as an index, its game world, called Norrath, would be the 77th richest nation on the planet, while annual player earnings surpass those of citizens of Bulgaria, India or China.

Estimates put the real-life market for online gaming assets at £464m a year.

The typical online gamer will commit between 12 and 25 hours per week, but the scale of these MMOGs, where more than 100,000 players might interact, and the sheer diversity of the audience mean there are plenty of cash-rich, time-poor players willing to buy your virtual stash to gain a quick in-game advantage.

All this may sound like pure escapism, but to their audiences and the developers of MMOGs, the social fabric of these games is many times more immersive — addictive, even — than most video games. Events in these artificially generated worlds continue unfolding in real time, while story lines actively encourage co-operation and competition: progress becomes easier and more rewarding once players ally themselves with like-minded friends in a guild, alliance or corporation. As relationships and rivalries develop, sophisticated social orders inevitably emerge.

For Mark Davies, professor of psychology at Nottingham Trent University, this is crucial. “The MMOG world is like any other that involves a human social context,” he says. “It is one of image, status and self-esteem. One element of the social milieu is material wealth — symbols of prestige and success. Just as in real life, most people will use legitimate means to obtain these trappings, but there are some who choose non- legitimate means.”

That can involve buying your way to the top. Go to eBay and under Internet Games, you will find more than 20,000 online gaming items for sale, from identities to magic potions. A strong avatar, for example, is the ultimate status symbol in most MMOGs. The standard way to obtain one is through “levelling”. Players earn experience points — gathered by slaying monsters and completing quests — then invest these to “level up” (boost) their avatar’s abilities, develop combat skills or learn special powers. The trouble is that levelling takes weeks and can feel like a chore. Not surprisingly, such characters, which are much more powerful than those allocated to beginners, can sell for up to £600.

One American writer and online gamer, Julian Dibbell, last year set himself the challenge of reporting to the taxman “that my primary source of income is the sale of imaginary goods — and that I earn more from it than I have ever earned as a professional writer”. At the end of the experiment, he had sold cyber-gems aplenty, but narrowly failed to meet his target. “In the last month, I turned a profit of $3,917 (£2,070),” he says. “Annually, that ’s a $47,000 gig — nothing to sneeze at, but nothing I haven’t achieved as a professional writer.”

Such is the growth in demand that this virtual industry has become dominated by Far Eastern groups such as South Korea’s ItemBay, which boasts 1.5m customers and a turnover of nearly £10m per month. These retailers specialise in a practice known as “gold farming” or “mining”. By employing cheap labour or automated tools, they pay players to gather gold and magic items within the game for little cost, then auction them in the real world at a healthy profit.

“It’s not a sweatshop industry, it’s a cottage industry,” Castranova says. “These sites act as a clearing house for hundreds of thousands of tiny, independent gold farmers. We could call them kulaks. Peasants. Sharecroppers. But not sweatshop workers.”

Games developers regard such trading, though widely practised, as cheating. In March this year, Blizzard, the developer of the successful World of Warcraft, removed more than 800 players from its servers on the suspicion that they were employed in mining.

Explore Tech & Web

• Personal Tech

• The Web

• Gadgets & Gaming