Virtual money presents real world challenges
The rise of a cashless society is inexorable. A number of nascent technologies are gaining traction as alternatives to cash including electronic money (‘e-money’) wallets, mobile telephony solutions, account based voucher systems, and more traditional credit and debt cards. The legal and regulatory response to these developing means of payment is advanced.
However, there already exists a society which is wholly cashless, the cyberworld where ‘virtual money’ serves as a medium of exchange predominantly in games and simulations such as World of Warcraft and Second Life, where it can be bought, won or earned. Usually this private virtual currency can be bought with, and converted back into traditional currency (e.g. dollar, renminbi etc). The response of governments to the various legal and regulatory issues that virtual money presents is still in a state of development. Some of the key issues are introduced below with a discussion of how these matters are beginning to be addressed in the European sphere.
‘Real World’ challenges
In June 2009, the Chinese government announced restrictions on the use of virtual currency so that it cannot now be legally traded in China for real goods and services, although it can still be used to purchase virtual goods and services such as items used in online games and simulations. Were these restrictions on the use of virtual money a response to a genuine threat?
The virtual economy is large and growing rapidly. The Chinese government has estimated that trade in virtual currency in China amounted to many hundreds of millions of US dollars last year, growing at a rate of 20% annually. More than US$1.5 million is transacted in a type of digital barter every day in the ‘Linden dollar’ in Second Life, which has a variable exchange rate with the US dollar into which it can be converted. Virtual worlds give rise to virtual crimes and in 2007 criminals stole an estimated US$10,000 in Linden dollars from other Second Life participants. As well as crime and fraud perpetrated within the games and simulations themselves, various real world challenges are presented to governments by the rise of virtual money:
- • • There is now some authority that virtual objects can be ‘owned’. In 2007, a US court accepted in Bragg v Linden Research (before Pennsylvania Eastern District Court) that Mark Bragg had property rights with respect to his ‘ownership’ of virtual land in Second Life. If items in the virtual world can be owned and be considered to have ‘real world’ value then should tax be paid in relation to them and how should it be collected?
- • • The virtual world can facilitate real world crimes in relation to, for instance, child pornography, identity fraud, money laundering and copyright infringement. Also, in jurisdictions where casino gambling is illegal, such as mainland China, the virtual world is an alternative environment—some would say haven—for such activity. The lynchpin for many of these activities is that virtual money can usually be converted back into real world money or, potentially, used as online payment for myriad other real world goods and services. Evidently, cash could, for example, potentially be laundered by way of transactions for ‘virtual world’ goods or services which are subsequently converted into real currency. These challenges are aggravated by the fact that the virtual world is difficult to police effectively, although software developers have been working on technological responses within discrete virtual worlds.
- • • Virtual money can even represent a threat to the macro-economy by moving control of the money supply from central banks to software developers. Given its growth rate, virtual money, for instance the QQ coin in China, represents a potential threat to the integrity of a country’s currency into which it can be converted, inflating the relevant currency and leaving it depreciated.
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