We are witnessing a revolutionary financial trend: Virtual money. "Fake" online currency of gold, points, etc. -- is becoming real. Differences between real and virtual currency are diminishing. Currency "exchanges" have been established. Multiplayer virtual worlds will soon host government-licensed banks.
And the sins of real money, such as bank robberies and currency laundering, are infecting virtual money as well. Government taxing agencies, including the U.S. Internal Revenue Service, are exploring laws for virtual income. At least one government is concerned that virtual money could actually devalue "legitimate" money. I predict we will eventually consider some online currency at least as useful as traditional currency.
In computer games of yore (i.e., the early 1980s), I entered commands on a text-only monochrome monitor to explore the Colossal Cave. Searching for clues, solving puzzles, becoming more powerful, and finding my way out of the Cave were the rewards. But today there's a new way to gain capabilities without using your wits: buying them.
New businesses employ freelance gamers to win weapons, capabilities, etc., which are sold for hard cash to other players to enhance their game characters. Some individual entrepreneursand business owners become wealthy selling virtual products. One of the most famous virtual worlds, Second Life, offers "Linden Dollars," which have an exchange value of about 250 LDs for US$1.00. Although much has been written about Second Life's problems, more than $100 million worth of LDs were transferred last year. A few people have made more than $1 million in real money.
At least as interesting as Linden Dollars is the multiplayer science fiction game Entropia Universe, which has been authorized by the Swedish Financial Supervisory Authority toestablish a bank within the game. Players will be able to deposit checks into interest-bearing accounts for use within the game, receive loans, and pay bills. Sweden will guarantee bank deposits for $60,000 -- just as the U.S. Federal Deposit Insurance Corp. guarantees deposits in the U.S. Currently, 10 PED (Project Entropia Dollars) are worth US$1.00. This game has a history in virtual currency: A few years ago, a Project Entropia player mortgaged his house to pay $100,000 for a virtual asteroid, but says he has made a profit by selling licenses to hunt monsters and mine resources.
All of this raises many questions: What is "legitimate" currency? After all, some real cities areprinting their own money. Would you -- or your children -- trust corrupt bank officials or countries with skyrocketing inflation rates and brutal dictators more than virtual currencies of online, profitable banks with millions of subscribers?
A bank licensed to a virtual world could be as reliable as, or perhaps more reliable than, a "regular" bank. MindArk, which owns Entropia Universe, says player-to-player transactions generated about $420 million in 2008. Perhaps your next mortgage loan will be issued by the Entropia Universe Bank, and I'm only being semi-facetious. Virtual currency is becoming more powerful.
China has been concerned that Tencent, which hosts the largest instant messaging service and Web portal in the country, could actually destabilize the yuan. Tencent offered its own currency, QQ Coins, which could even be purchased at newstands. After a government investigation, Tencent tightened its control of QQ. Billions of yuans-worth of various virtual currencies are traded in China, and the government has begun taxing it.
And the virtual economy is spawning the same ills as the real economy. Criminals are using virtual banks to launder funds, and sometimes they even prefer virtual currency. Virtual banksare being robbed and their currency turned into cash. One woman had sex with a man in exchange for World of Warcraft gold, for which there is an enormous market. Consider today's economy and speculate: Will global financial disasters spawn Snow Crash-like countries governed by a multiplicity of corporations printing "legitimate" currency, while the weak national governments’ money is so hyper-inflated that the standard "small" denomination bill is $1 quadrillion?
Virtual currency might gain more legitimacy than you'd ever imagine.
click here for more