VentureBeat: The universal currency wars are coming
Shannon John Clark
· 6 months ago
At the Google IO conference yesterday in a panel on Making Money with Social Apps, virtual currency was discussed a great deal. With stats shown that indicated a large portion of many social application developers (i.e. games on facebook, myspace, hi5, opensocial etc) make some 40% of their income on average from virtual currencies and another 30% from offers (often tied to a virtual currency).
And hi5 in particular was noted as having just rolled out a sitewide virtual currency which all developers can plug into and use - so instead of asking a user to trust that app developer with payment details, users can buy from hi5 but use the currency inside of various applications (and it was implied revenue flows to those applications)
Casual Gamer
· 6 months ago
Nice thoughts. It will be interesting to see how quickly this market is attacked by the big players. While paypal seems like the obvious brand to own the virtual currency market, Facebook's seeming ubiquity among heavy internet users places it in an interesting position to make a strong play, and perhaps create a surprisingly significant diversified revenue stream for itself.
An optimistic viewpoint could envision a facebook currency being the defacto for all 'intra' internet transactions. In that case, years from now, FB could end up with a significant piece of revenue being derived from a type of currency clearinghouse function - something that certainly seems more suited for a Paypal type entity.
Regardless, if one believes in the market generally, there certainly seems to be a huge first mover opportunity for one of the big players on your list. FB's direct contact with the consumers (vs. PP's perhaps more secondary relationship) gives it an opportunity to corner the market fast and early and effectively eliminate the competition (particularly since I'm sure profits would be slim with the market in its infancy).
Alex
· 6 months ago
I understand how fascinated the VC people are with the idea of 'world domination' and 'war', but it just won't happen. The jurisdictional problems make it impossible to make a money system 'universal'.
Also, read at least a little bit of the story of e-gold and you will know more what you are talking about.
Eric Eldon
· 6 months ago
This is a pretty condescending comment. Can you explain how "jurisdictional problems" and "the story of e-gold" make further discussion of universal virtual currencies irrelevant?
Rutherford
· 6 months ago
I don't see any reason to move to a virtual currency over and above a virtual wallet like Paypal unless it provides for the actual properties of a real currency i.e. a variable exchange rate and an open market.
In that sense, WoW gold has a headstart on these mainstream players and I'm not sure that Facebook or the like have a universal currency, and all that comes with it, as a goal.
Paypal with them as the middleman and the illusion of an online currency then?
Mark Herpel
· 6 months ago
I think there was a small 'digital currency' battle a number of years back with start ups like Flooz and Beenz, PayPal won that hands down. However this new "virtual digital currency war" will be global it seems because the virtual currencies are just that, created on one server they are virtual not integrated with a one state banking system. Each web business can have their own brand of 'zips' 'blobs' or 'VCUN' currency units and handle their exchange from user's bank dollars into their own brand. Want to fund PayPal? You must send your $$'s directly to PayPal. The success or failure line now (who will win this current war) seems to be at the point of converting national currency to digital virtual units. If Facebook has F-money, their web alone will exchange their virtual units to national currency. If HI-5 coins wants an exchange to a USD player, they handle it at their web. What Lisa has discussed here, Optimal Virtual Currency Area, is a central exchange for multiple currencies if I am understanding it correctly. I agree that would be awesome, one base unit, multiple brand names. In this scenario, players from one 'world' who have currency could instantly swap it for another VC to play in the other world. That's great, we used to have an exchange from e-gold to Pecunix to Webmoney to Liberty Reserve to 1mdc (all digital currencies), the exchanges were automatic and the online connection to do this was easily provided by the issuer, free and super for business. The problem occurs because each of these virtual currencies which is convertible to cash, now has value. If one web gaming world is in Europe, one in UK and one in the US, you will have trouble with users moving 'value' or money through multiple jurisdictions in a matter of seconds. It's real money that is moving so a crook in the Czech Republic on a proxy pretending to be in the UK, moves his stolen/carded funds (proceeds of a crime) though multiple virtual currencies in multiple jurisdiction and probably multiple names in a matter of only seconds. You have created the perfect Internet money laundering tool. This creates a MASSIVE problem for law enforcement to track bad money through multiple jurisdictions and currencies. The rule now is, if your organization issues the virtual or digital money, YOUR organization is solely responsible for exchanging it into and from national currency to meet KYC rules and prevent money laundering. I can suggest you take a quick look at our August 2008 issue http://www.dgcmagazine.com/BackIssue-html-pages... I reprinted the basic report from the Department of Justice, "Money Laundering in Digital Currencies, June 2008" where they address some of these issues. After that report came out the digital currency companies had to stop providing that automatic ability to exchange currencies. I believe the same may apply to any future open currency area, as long as the digital units have real value. If you can't exchange them for money that is a moot point. We believe, that digital currency should NOT be controlled by any one government in a specific jurisdiction (USA) however, I don't make the rules and as you can see with the UIGEA for online gambling the DOJ can muscle any web they want, Ref. Second Life closing their casinos. I think this is what Alex is referring too... Mark Herpel
GiordanoContestabile
· 6 months ago
Very insightful article, and I absolutely agree that a unified currency can only come from a trusted source, and moreover from a player with enough reach and captive audience to make the deployment scale.
Facebook is a natural for this, but we'll have to see how much flexibility is built into the system: if you look at social games (excluding the most basic ones, what I call the 1st generation of social games, which happen to be mostly Mafia Wars-style, with not much in terms of game mechanics), game design informs heavily how currency is managed and used. To start with, there is often a dual currency system, one of which can be bought, and one that can only be earned by playing, and using wisely the two is key to balanced game design. Moreover, more complex games use currency both in the context of the game itself, often linking it to game mechanics (e.g. resource management), and sometimes in the context of a metagame.
As such, to be able to use an external currency in a given game you need either a whole lot of customization to make it fit the game mechanics, or you can leave everything on the dev's side, and provide a solid exchange system that allows for a myriad of variables to be set by the developer.
If FB will provide that, it has a shot to becoming the dominant currency for social gaming... in the West: don't forget that China has a 3B+ USD online gaming market, built on microtransactions, on which local players are dominant. The US has still a long way to go to even approach that.
I would go further and say that FB has a great shot at being not only the currency provider of the social gaming ecosystem, but also the data clearinghouse, which would make ts role even more powerful. I wrote something about it for Casualgaming.biz a few weeks ago... linking it, in case it's of interest: http://www.casualgaming.biz/blog/209/The-case-f...
Guillaume Lebleu
· 6 months ago
I don't expect that people will stick to a single universe. What does a universal currency means if there are thousands of online universes?
ernie yacub
· 6 months ago
As Michael Linton, designer of first virtual currency (LETSystem) says, "why settle for a one-room house when you can one with many, including bathroom and kitchen? who wants just one other colour to add to their black and white tv? or one big universal egroup (yahoo or google)?" Given that "thousands of online universes" are emerging, any and all can use their own internal recirculating currencies. Why ever not?
yolo
· 6 months ago
I read this article twice, and I'm wondering if you really understand the Second Life virtual currency. You mention Gingko, which really had nothing to do with the Linden dollar currency. That particular currency is run by Linden Lab and is exactly what you are describing in the rest of your article.
nuance_intelligence
· 5 months ago
Hi Lisa,
Thanks for the thoughtful piece. It has taken be a bit to form my thoughts, which turned into a pretty long report, which became a blog post here:
Briefly, I think you are on the right track, but think these virtual currencies miss some key aspects of social capital that affect the design and relevance of virtual currencies.
If used only as a proxy for dollars and saving the transaction costs of Visa et al, then, yes -- there's a good opportunity here to move a market.
But when virtual currencies move out of the realm of things and into the realm of social interactions, it's important to realize the different between the qualitative and quantitative measures of a person's reputation and role in community. Currency designs that conflate those two will, at the least, become irrelevant, and, at worst, sink the platform upon which they sit.
I'm excited about this intersection between gaming currencies, social currencies and proxy currencies. It's going to be very interesting to watch it play out.
Patrick Moore
· 5 months ago
Greg, I think you are absolutely correct. The social aspect is more important than the universalness. I actually think that "universalness" is an "anti" feature. I have a post talking in greater depth about this.
All Comments
And hi5 in particular was noted as having just rolled out a sitewide virtual currency which all developers can plug into and use - so instead of asking a user to trust that app developer with payment details, users can buy from hi5 but use the currency inside of various applications (and it was implied revenue flows to those applications)
An optimistic viewpoint could envision a facebook currency being the defacto for all 'intra' internet transactions. In that case, years from now, FB could end up with a significant piece of revenue being derived from a type of currency clearinghouse function - something that certainly seems more suited for a Paypal type entity.
Regardless, if one believes in the market generally, there certainly seems to be a huge first mover opportunity for one of the big players on your list. FB's direct contact with the consumers (vs. PP's perhaps more secondary relationship) gives it an opportunity to corner the market fast and early and effectively eliminate the competition (particularly since I'm sure profits would be slim with the market in its infancy).
Also, read at least a little bit of the story of e-gold and you will know more what you are talking about.
In that sense, WoW gold has a headstart on these mainstream players and I'm not sure that Facebook or the like have a universal currency, and all that comes with it, as a goal.
Paypal with them as the middleman and the illusion of an online currency then?
The success or failure line now (who will win this current war) seems to be at the point of converting national currency to digital virtual units. If Facebook has F-money, their web alone will exchange their virtual units to national currency. If HI-5 coins wants an exchange to a USD player, they handle it at their web. What Lisa has discussed here, Optimal Virtual Currency Area, is a central exchange for multiple currencies if I am understanding it correctly. I agree that would be awesome, one base unit, multiple brand names. In this scenario, players from one 'world' who have currency could instantly swap it for another VC to play in the other world.
That's great, we used to have an exchange from e-gold to Pecunix to Webmoney to Liberty Reserve to 1mdc (all digital currencies), the exchanges were automatic and the online connection to do this was easily provided by the issuer, free and super for business. The problem occurs because each of these virtual currencies which is convertible to cash, now has value. If one web gaming world is in Europe, one in UK and one in the US, you will have trouble with users moving 'value' or money through multiple jurisdictions in a matter of seconds.
It's real money that is moving so a crook in the Czech Republic on a proxy pretending to be in the UK, moves his stolen/carded funds (proceeds of a crime) though multiple virtual currencies in multiple jurisdiction and probably multiple names in a matter of only seconds. You have created the perfect Internet money laundering tool. This creates a MASSIVE problem for law enforcement to track bad money through multiple jurisdictions and currencies. The rule now is, if your organization issues the virtual or digital money, YOUR organization is solely responsible for exchanging it into and from national currency to meet KYC rules and prevent money laundering. I can suggest you take a quick look at our August 2008 issue http://www.dgcmagazine.com/BackIssue-html-pages... I reprinted the basic report from the Department of Justice, "Money Laundering in Digital Currencies, June 2008" where they address some of these issues. After that report came out the digital currency companies had to stop providing that automatic ability to exchange currencies. I believe the same may apply to any future open currency area, as long as the digital units have real value. If you can't exchange them for money that is a moot point.
We believe, that digital currency should NOT be controlled by any one government in a specific jurisdiction (USA) however, I don't make the rules and as you can see with the UIGEA for online gambling the DOJ can muscle any web they want, Ref. Second Life closing their casinos.
I think this is what Alex is referring too...
Mark Herpel
Facebook is a natural for this, but we'll have to see how much flexibility is built into the system: if you look at social games (excluding the most basic ones, what I call the 1st generation of social games, which happen to be mostly Mafia Wars-style, with not much in terms of game mechanics), game design informs heavily how currency is managed and used. To start with, there is often a dual currency system, one of which can be bought, and one that can only be earned by playing, and using wisely the two is key to balanced game design. Moreover, more complex games use currency both in the context of the game itself, often linking it to game mechanics (e.g. resource management), and sometimes in the context of a metagame.
As such, to be able to use an external currency in a given game you need either a whole lot of customization to make it fit the game mechanics, or you can leave everything on the dev's side, and provide a solid exchange system that allows for a myriad of variables to be set by the developer.
If FB will provide that, it has a shot to becoming the dominant currency for social gaming... in the West: don't forget that China has a 3B+ USD online gaming market, built on microtransactions, on which local players are dominant. The US has still a long way to go to even approach that.
I would go further and say that FB has a great shot at being not only the currency provider of the social gaming ecosystem, but also the data clearinghouse, which would make ts role even more powerful. I wrote something about it for Casualgaming.biz a few weeks ago... linking it, in case it's of interest: http://www.casualgaming.biz/blog/209/The-case-f...
Thanks for the thoughtful piece. It has taken be a bit to form my thoughts, which turned into a pretty long report, which became a blog post here:
http://nuanceintelligence.com/virtual-currencie...
Briefly, I think you are on the right track, but think these virtual currencies miss some key aspects of social capital that affect the design and relevance of virtual currencies.
If used only as a proxy for dollars and saving the transaction costs of Visa et al, then, yes -- there's a good opportunity here to move a market.
But when virtual currencies move out of the realm of things and into the realm of social interactions, it's important to realize the different between the qualitative and quantitative measures of a person's reputation and role in community. Currency designs that conflate those two will, at the least, become irrelevant, and, at worst, sink the platform upon which they sit.
I'm excited about this intersection between gaming currencies, social currencies and proxy currencies. It's going to be very interesting to watch it play out.
http://www.sworddance.com/blog/2009/07/03/open-...
You will be successful.