The Real World and cldwrld
Here’s the photo illustration for the blog, showing two worlds side by side. One world is the Real World. The other is cldwrld.
What I’ve said is that there is a physical connection between the two which is the cable carrying the electricity.
As far as I can see, the most important logical connection is the money cable – an imaginary cable that ferries money between the Real World and cldwrld. Like this:
Let’s assume for a moment that I want to buy something produced in cldwrld – i.e. something that is purely digital, something that would not exist without electricity. These products sit on the infinite digital shelves of cldwrld – a WordPress template or a Facebook gift or an ebook that will download to my Kindle.
In order to do that I have to pay. Likely as not I will use a credit card. At the moment I can enter a merchant’s shop, enter all my credit card details, pay and log out or use PayPal. But eventually the money passes through a Real World bank, which is subject to Real World banking regulation.
Can we get rid of that cable?
That is – can we have have a virtual monetary system, a monetary system that doesn’t need any connection with the Real World? And, if so, what would be the consequences of that? I am going to try and work that out in the next few posts.
Let’s start with the possibility of virtual banks. Let’s take a look at a time-line through this year:
In March of this year, MySpace issued its own branded credit card.
In June, Facebook launched its pay-with-Facebook-credits system. Chris Dannon at Fast Company wrote on June 2 2009:
“Facebook has begun testing a proprietary payment system with three of its applications, according to TechCrunch. As of this week, you can now use these apps–which include GroupCard, PackRat, Birthday Calendar and Facebook’s own icon gift shop–to purchase things using Facebook “credits,” which you can add to your account with an major credit or debit card.”
On July 1st this article appeared in The Atlantic (July 1/Daniel Indiviglio): Is Virtual Currency a Real Problem? inspired by the setting of limits by China on trading of virtual currencies – via this article in NYT, (June 30/David Barboza). Mr. Indiviglio’s article asks the question ” … whether virtual currency could really be a threat to money supply, in general.” Read the article for the answer by a former Governor of the Federal Reserve System, Randall S. Kroszner.
In the comments. “ajmcguire” writes:
One other potential problem I can imagine is that some games offer ways to invest virtual currency and pay an interest rate on that. If there is an easy way to transfer real money for in-game money this would work sort of like an unregulated IRA.
Let’s move beyond games.
Since I like the Shorter OED (5th) I turn to it and find it has five different definitions for the word “bank,” each with different sub-definitions. “Bank” as a noun to do with money has a third definition for “bank,” like this:
3. An establishment for the custody, deposit, loan, exchange, or issue of money, which it pays out on the customer’s order; …
The first virtual world banking licenses were issued in May of 2007 to participants in an auction by MindArk, creators of the collection of virtual worlds forming “Entropia Universe.”
[Update 1/28/10: And in March of 2009 Entropia Universe got a Real Bank. This press release announced it:
"The Swedish Financial Supervisory Authority (Finansinspektionen) has granted a license to conduct banking activities to virtual universe developer MindArk PE AB's wholly owned subsidiary Mind Bank AB."]
Facebook (where Facebook is the leader in social networks and therefore stands in for all of them) could become a virtual “bank,” simply taking all the tools from the gaming world.
It can issue money – creating digital money is as simple as distributing Facebook Credits for free.
It is already accepting deposits – Facebook Credits sit in that User’s (inhabitant of facebook) Facebook Credit account. At the moment, the only way of getting them there is to buy them.
It could offer loans in Facebook credits to be repaid in Facebook Credits, which are in turn are backed by Real World dollars – via several links starting with a great article by Alan Reiter, over at internet evolution (04/14/09), one of the winners of that original virtual bank license said he intended to specialize in “short-term bridging loans” in the virtual world.
It could exchange money by setting up a virtual money exchange – set next post for some thoughts on that. (And Facebook credits can already be purchased in 15 Real World currencies).
Interestingly I can find no information in the Facebook Help Center on what happens to Facebook Credits if a user closes an account.
It could issue a branded credit card, like MySpace. Or even its own – but that’s for another post.
I think the moment at which it would start to attract the attention of U.S. regulators would be the point at which it started to offer Facebook Loans – but even then I am not sure if it would slip under the radar.
So there are virtual banks that are anchored in the virtual worlds (because they started with avatars) and now Facebook (and other social networks) could become virtual banks anchored in the Real World with a greater impact simply because they have as their base Real People. They will attract more attention as well. And as a nice little ending I found this post three days ago.
Update 11/03/10: @juliettepowell has a recent presentation on “The Future of Financial Transactions” which includes, among other things, thoughts about “Facebank” (ooh, I wish I had thought of that) — go here.
