The future of virtual currency

05 May 2006|Lee Shupp

A very interesting thing is happening in the virtual worlds of online gaming: virtual currency is being exchanged for real dollars as virtual goods and services are bought and sold online. Several good articles on this phenonenon have appeared over the past week: Business Week’s cover article on Second Life, and Cool News’ posting Monday on the first ATM that converts virtual dollars into real money. (Players of Entropia can now covert 10 PEDs, or Project Entropia Dollars, to one US dollar, and that US dollar can be downloaded from an ATM.)

If you earn virtual dollars online, you can now exchange them for cold hard cash! What is going on here?

What is the future of virtual currency?

I first became aware of the economics of Second Life at an Association of Professional Futurists conference on “The Future of Reality” held in Las Vegas in 2004. (What better locale to consider *reality*?) Philip Rosedale of Linden Labs, the founder of Second Life, showed us how the online environment within the game has evolved, and that sparked an interesting afternoon of conversation and speculation. Even then, players were financing purchases in Second Life with “real” money, and a thriving economy was emerging in the game. The Business Week article describes several movers and shakers in Second Life, among them Anshe Chung, a virtual real estate developer who currently has holdings worth around $250,000 (in US dollars, not Linden dollars).

More and more, we will see virtual and real currency being exchanged as virtual and real economies become more intertwined. This raises some interesting questions:

Will we see rapid growth of virtual economies? Will there be a point at which we begin tracking our current trade balance with a virtual world?

Will we see currency speculation in virtual worlds? In the dirt world, trillions of dollars are exchanged in currency trading daily; will we see currency traded in virtual currencies? If we have a recession, will virtual currencies be better investments than real world currencies?

Will we see currency trading between virtual worlds? If the Linden dollar weakens, would I be better off investing in Project Entropia Dollars?

Could we see trade between virtual economies? What if my primary residence is in Second Life, and I want a vacation residence in Entropia? Will we see virtual economies standardize on a single currency, the way that European coountries have adopted the EU?

If virtual economies grow and thrive, I see no reason why many of the sophisticated currency strategies of real worlds will not be adopted, and evolved to better fit, virtual worlds. It should be fun to watch!

prev next