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 entrepreneurs and 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 to establish 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.
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.
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 banks are 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.
The Chinese government has banned using virtual currency to purchase real products. Game players and anyone else using virtual currency may use it only for virtual products, but not to buy goods or exchange it for cash.
In the past, using virtual currency to purchase real goods has been a big business in China.
CNN published an article about virtual currency, and a professor of telecommunications at Indiana University says at least $1 billion is transferred to virtual currency, although the exact amount is difficult to determine.
The article covers much of what I wrote, including the "black market" for buying and selling of World of Warcraft gold, fraud and the potential for virtual currencies affecting real currencies.
Cellular operators in the U.S. have data caps of 5 GB, and would get paid for transmissions above that. There are all sorts of games on cellular phones, and the operators don't receive any recurring revenues.
When the Internet was just beginning, I used to say to people that we'd really know it was becoming a mass market technology when advertisers would include URLs in their ads. Well, that certainly has occurred. Perhaps virtual money will become a mass market currency when cellular operators or other service providers or retailers begin to accept it as payment on a wide scale.
I wonder if mobile carriers have anything to say about that - Imagine the traffic sent over their networks so that users can play a game that they aren't getting any revenue from.
Radfar is correct, especially as phones become more powerful, wireless networks become faster and game companies begin to recognize the value of a cellular phone component -- which they are.
Although cellular phones are unlikely to come close to providing the experience of the most advanced games which often can be slow on a mediocre computer, there are ways to continue the games experience on a phone, but without the more bandwidth- and processor-destroying aspects.
Powerful cloud servers could, of course, do much of the heavy lifting, but you still need a phone that provides a good enough experience. But I agree that games on cellular phones are becoming a much bigger business as the iPhone has shown what can be done, and other handset vendors and developers want to get a piece of the action.
Buying and selling via a cellular phone isn't that much different, if at all, from buying and selling on a computer.
A couple of weeks ago I went to a talk by Hooman Radfar, CEO and founder of Clearspring Technologies. He mentioned how gaming was bound to hit the mobile world even harder as cloud computing continues to increase. Lets see how far games go, games are looking very sharp on the iPhone.
We've already seen the beginnings of major virtual worlds: World of Warcraft and Entropia Universe as well as Second Life. As computers become more powerful, with better graphics chips and microprocessors, online worlds will become much more interesting because much more can be accomplished. A 20 GHz deca-core processor combined with a 5GB graphics card, plus improved software would offer superior online experiences.
So, the future is much better more sophisticated virtual worlds that could, in turn, result in more frequent use of virtual currency.
Credit and debit cards for virtual worlds already are being issued.
Entropia Universe had offered a debit card, via a third party, that could be used at ATMs. However, I think that card has been discontinued, at least based on a post in 2007.
In addition, a company that creates debit cards for corporations had thought about creating a debit card for "Second Life," although I don't know if it was ever available.
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Forget about Apple Inc. (Nasdaq: AAPL)’s announcements of the new Apple TV, iPods, and Ping. It's kid stuff compared to what Apple has in store for you.
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