Money in virtual worlds

Stumbled across this excellent interview of David Birch by Mike O’Hara on the Banking 2.0 Podcast. He discusses the fact that it’s easier to make transactions using virtual currency in virtual worlds than using traditional money exchange mechanisms. The difference is that our traditional financial institutions have lots of regulation and verification mechanisms in place. We have centuries of experience with “real world” banks and the benefits of regulating them. So that’s only proper. (And on the podcast, you have to love the British accents and choice of orchestral intro and outro.)

This brings up the use of the words “virtual” and “real world” to describe online worlds versus the physical world. (I prefer “traditional” when referring to our current concept of financial institution.) Are not the vast majority of financial institution transactions, via credit and debit cards, check imaging, EFT transfers, etc. done electronically? What’s physical or “real world” about them? Is not a check image used as transaction method a virtual check? You could very easily describe our current “traditional” banking system as performing mostly “virtual” transactions. So where is the line to be drawn between “real” money and “virtual” money? The moment that Second Life Lindens could be converted back and forth with “real” or “traditional” money, that made Lindens also “real” money. Yes, there is a conversion rate between Lindens and other nationalities’ currencies, so as far as I’m concerned, those Lindens are no less real than American or other dollars. Very clever of the creators of Second Life to develop their own currency.

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One Response to “Money in virtual worlds”

  1. Gene Blishen Says:

    There has always been an element of virtual in banking. No bank has enough cash (traditional) in their vault if everyone came in to take their balance (virtual) out. Money has no intrinsic value. Something must be purchased with it.

    One issue that you touched on was the idea of electronic transactions. I think if you look behind the scenes not everything is done on a real time basis. I think there are a lot of batch systems still in place. The general user might think things are wizzing around in real time but when it comes to settlement issues and the like it still is a batch world.

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