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Tuesday, December 9, 2008

The Emergence Of A Universal Virtual Currency

Call me crazy but is this already well on its way to being realized!!! Perhaps I am a bit off the chart. However, my experience in the online game area makes me believe that this is certainly within the realm of possibility.

So what is virtual currency? It is a currency that is used exclusively to buy and sell products and services over the internet. In the gaming world "points" are frequently used to obtain access to game play and to win prices. In some cases the points are obtained by purchasing them with traditional currency. Essentially, a traditional currency is exchanged for the virtual currency. This exchange establishes a value and exchange rate for the virtual currency.

Virtual currency is also being used to purchase virtual goods in the video game and MMOG world. There are sites that cater specifically to this kind of transaction. A price of say $20 is placed on a single virtual item. A deposit is made in a traditional currency into an account. This account is used to purchase virtual items. These virtual items can then be sold and exhanged for virtual or traditional currencies.

There are trading sites where the virtual currency value of a real or virtual good can fluctuate based on its trade value and market price.

There are sites that allow you to exchange your virtual points for real items such as a Starbucks, Costco, Crate and Barrel coupon.

Today the value of virtual currency is set by the trading within each site. Each site has its own exchange rate. Essentially, each site is acting as its own country with its own virtual currency. I do not know of sites allowing people to exchange virtual currencies between sites. However, I suspect that this is not far off. It is certianly something my game site is going to do.

All of this activity begs the question: Is it possible to create a currency that acts as a virtual common denominator currency? How would the currency be managed and who would manage it? How would it relate to traditional currencies? Are we already organically on our way to this state?


Yolto.com said...

There's an easier (and more logical) solution, namely: allow instant purchases of everything for Real Money, be in on web-sites, in-game in retail... wherever.
All these 'portal currencies' serve only one purpose: there's always a term in TOS allowing game company to expropriate them "...for any reason or without reason in it's sole discretion". Why is it being done so? Because of the fraud (there are some stories published in the group). Basically, you can not catch 100% of fraudulent real money transactions UNLESS there will be a completely different payment transaction. We are working on just that, one of the products - the Yolto Card is available on our web-site already, another (simpler) one is under the development right now. Stay in touch.


Kevin Flood said...

Well I will certainly take a look at yolto and get back to you. I am not implying that virtual currency will be the only transaction method on the web. Many more can be supported and it is recommended. If virtual currency did emerge as a viable transaction vehicle it would only work if there was some policing mechanism to support it.

Kspier said...

Quite an interesting post.

Our product, Nitro, (check it out at www.bunchball.com) enables companies to create virtual currencies as well as avatars, leaderboards, levels, trophies, and virtual rooms for users on their websites.

Companies are finding these tools invaluable as their customers become more invested in the respective site(s) and return visits, engagement, and revenue all improve.

Great tool for customer loyalty and to incent user behaviors on a site.

Lots of cool things going on in this arena.