Virtual Currency And Gambling

Several of my blogs have addressed the emergence of virtual currency as rival currencies to traditional denominations such as the dollar, yen, euro, etc. The recent reaction by the Chinese government to restrict the inter trade of gaming virtual currency because of its ability to usurp the value of their currency created a stir in the online payment and gaming arena.

I received several responses to my comments on the Chinese government move implying the Chinese government was attempting to stop the proliferation of "gambling" by restricting virtual currency trade. Further investigation of the government's announcement did not reveal any relationship between online gambling and the legislation.

However, the debate made me think more deeply about the way online gaming companies are using virtual currency in their businesses.

Casual gaming, MMOGRPG and online video gaming businesses have evolved from granting virtual currency for game play to allowing players to purchase virtual currency. Virtual currency purchases are used to gain access to different levels of games and to purchase virtual items.

So how does this evolution of virtual currency exchange relate to gambling? There are many definitions of gambling and each jurisdiction has its own notion of gambling. However, a good rule of thumb used by the US government defines gambling as a combination of consideration, chance and prize.

If a gaming activity requires consideration/payment to engage in the gaming activity and there is an element of chance associated with a particular outcome and the outcome has monetary value then the activity is considered gambling.

So let's dissect this in the context of the recent evolution of gaming virtual currency. If I can purchase virtual currency using traditional currency (consideration) to play a game of chance that can lead to a prize of more virtual currency then is this not gambling???

To make thing even more interesting if the prize won is a virtual item which in turn can be sold for traditional currency inside the game or outside the game on e-Bay does this make it even more obvious that we have now entered the realm of true online gambling. If the virtual currency won can be traded outside the game universe for other currencies or traditional currencies is this not considered a prize in the traditional sense?

Subscription models such as World of War Craft also fall into this category. The subscription fee is paid in a traditional currency. The fee provides access to a game where play leads to the granting of prizes in the form of virtual goods which in turn can be sold on e-Bay for real cash.

My point here is that it appears the casual online gaming companies are implicitly or explicitly crossing over into the traditional world of gambling. This is creating an interesting challenge for gaming companies, regulators and consumers.

I suspect we will hear a lot more about this in the near future. Many of the online game companies are now generating "significant" revenue form the sale of virtual currency. In many cases this is becoming their primary source of revenue. When one of these companies attempts to go public or is engaged in a purchase by a public company will this bring this issue to the forefront and be challenged???