Virtual currency has quietly formed a massive market. In the end, does it open the door to wealth, a curse, or the Pandora's box of monsters? What is the prospect for virtual currency? According to incomplete statistics, there are at least 10 kinds of virtual currencies in circulation (referred to as net currency), such as Q coins, bubble currency, U-currency, Baidu coins, cool coins, Warcraft currency, heaven currency, and grand point coupons. For example, Q coins have over 200 million users. Industry insiders estimate that the domestic Internet virtual currency market size is worth billions of dollars annually, with a growth rate of 15% to 20%. The background for the emergence of virtual currency stems from difficulties in domestic electronic payment. Online game operators charge not cheap channel costs through vouchers originally intended only for RMB-to-net currency exchange but not vice versa. However, with the development of the online gaming industry, private voluntary exchanges between various net currencies have emerged, even allowing net currency to purchase real products or services usually bought with RMB, forming purchasing power similar to money, gradually blurring the boundaries between virtual and real currencies.
In fact, in countries with developed financial environments, virtual currency has long existed for profit purposes. Virtual currency Beenz reached an agreement with MasterCard, enabling consumers to accumulate network beans online, deposit them into smart cards, and use them in traditional stores. This operational model sells virtual network beans at 1 cent each to some websites, which then distribute them to users through various means or allow users to win them. These virtual currencies can be used as cash for consumption in online stores. Beenz repurchases them from website operators at a final price of 0.5 cents each, making a profit. In 2000, about 750 million Beenz net beans were in circulation, equivalent to approximately 67 million yuan. China’s net currency provider, ChinaBonus.com, offers consumers virtual currency in the form of points. Accumulated points can be redeemed for phone cards, network cards, T-shirts, and other prizes. Virtual goods like virtual gold, equipment, animals, plants, and human players in online games attract significant attention, promoting the consumption of these virtual items. Due to the backwardness of domestic electronic payment methods and security concerns, players use virtual currency advances issued by operators to purchase virtual items in online games. As long as the game content is attractive enough, players will buy the virtual currency issued by the operator through various channels. The development of the online gaming industry has led to the proliferation and circulation of virtual currency.
To gather popularity, expand the number of game users, and increase player interest and loyalty, all game operators provide a considerable amount of free virtual currency. Players can also win virtual currency during the course of the game, giving online game operators virtually unlimited distribution rights for virtual currency. Virtual currency is used to buy virtual goods, whose supply is artificially set, and manufacturing time is almost negligible. Even if transactions occur between different types of virtual currencies, they will not significantly impact the real economy. However, if virtual currency is used to purchase real goods and services, excessive issuance will certainly cause inflation. At this point, whether virtual currency is converted to real money becomes unimportant.
Many Internet companies have long surpassed the boundaries between the virtual and real economies by issuing virtual currencies like bubbles. For instance, NetEase POPO users earn virtual money online that can be used to pay for SMS services. This equates to paying 0.4 yuan per SMS with an exchange rate of 1000 bubbles. It can also be used as vouchers to buy physical goods on NetEase Mall. Grand point coin holders can buy Baidu’s pay-per-download service. Q coins can be used to buy not only the company’s paid services but also other games, cards, virtual goods, and even some videos and software download services. Currency is abstracted from units of numbers to facilitate the exchange of different resources. If enough people recognize the value of a virtual currency, it may very well become an alternative material exchange unit. Given the popularity of QQ, Q coins are becoming a tradable unit of equivalent exchange.
Famous economist Adam Smith referred to barter in 1776 to explain the origin of money: in Abyssinia, salt is the universal medium of commerce and trading; a shell in the Indian coast, Newfoundland dried cod... The Network World again interprets the origin of currency. Manufacturing virtual currency has become a reality. Net currency sales serve as the main source of income for game companies, accessing wealth worth hundreds of millions each quarter. Currently, only 2% of Internet users and 0.4% of people play online games. In South Korea, 80% of people are online, and 60% play online games, creating an incredibly diverse market. Among the most sought-after are fictitious equipment transactions, digital music, video, wallpaper, and e-book downloads. Simply put, the business model involves using cash to buy low-cost virtual items, sell high, and achieve differential profits. Data shows that 460,000 online users frequently engage in virtual goods transactions. With 30 million online game enthusiasts, the secondary market capacity is estimated at least 195 to 300 million. Assuming per capita game consumption is 300 yuan, the market capacity is at least 600 million to 900 million yuan.
In the United States, individuals sitting at computers daily buy low-cost virtual property and seek opportunities to sell high. It is estimated that their annual income exceeds that of U.S. secondary school teachers and curators, averaging firefighter incomes. America’s largest online game virtual goods dealer, IGE company, reports monthly sales up to $20 million, with gross margins rising 20% to 50%. In Wenzhou, Zhejiang Province, dozens of virtual mints hire people to play games, earning game currency to sell at a difference of about 2 cents each. Many individuals rely on producing and illegally trading virtual currency, achieving profits exceeding 50%.
Millions of people participate in online games daily, engaging in production, exchange, and undifferentiated human labor combinations. Players make money by defeating monsters to obtain gold and equipment, provided they are willing to spend more time doing so. The secondary market allows players willing to spend more time in games to redistribute income. Virtual currency purchased with cash enables players to enjoy billionaire pleasures in real life within games, transforming virtual goods transactions into socio-economic phenomena. It is difficult to estimate how many people are employed in this manner.
The popularity of networks brings wealth, and the value of various net currencies varies. Distributing currency across the network requires a large user base and attractive applications to promote the currency across the Internet. The higher the liquidity of net currency, the higher its value. Tencent serves as a representative case. Q coins, in certain groups, reach fascinating extents, benefiting the company greatly. For instance, addictive games require betting where players can easily purchase Q coins via phone and replace them with game currency. Players winning 10,000 game currency see operators deducting 1,000. Young women prefer QQ Show, converting RMB to Q coins to buy virtual fashion on QQ rather than real-life clothes, finding it much cheaper. Tencent reported IVAS revenues of nearly $0.9 billion in the first half of 2006.
Virtual currency can either be used only within a specific time frame in a spontaneous market behavior as a general equivalent exchange or between users, even having similar purchasing power to real currency, without necessarily causing harm to the real economy. This is a legislative and regulatory blank area, though some companies involved in this field have sparked widespread interest. International precedents exist, such as Habbo interactive community Kazakh currency issued by 17 countries, widely used within five short years, even in some countries' e-commerce stores providing Kazakh currency payment options. Domestically, part of the virtual currency has been recognized by a large number of users, quite powerful in terms of distribution range, company size, or corporate reputation. For instance, cool coins issued by a company can be quickly and easily bought through fixed telephones, online banking, Shenzhouxing cards for free network consumption; merchants selling goods access cool currency and can settle with the company in RMB. Due to the two-way convertibility of cool coins and RMB, the company lost cool coins confirmed by documents produced by the pricing department as equivalent to a certain amount of RMB.
A well-known online chess website launched a value-added spending plan, allowing users to use virtual coins to buy various digital physical products. Conversions find net currency buying much more affordable than direct market purchases. Online gaming companies issuing virtual currency and profiting can easily lead to the devaluation of players’ money spent on virtual property, damaging interests. Inflation in the virtual world is inevitable. Subjectively, issuers lack incentives to control net currency issuance to buy real assets, imposing excessive issuance. Additionally, game companies cannot control the impact of secondary trading markets. For instance, Winger's main chess game saw its net currency purchasing power shrink nearly 40% within a year.
Currently, our virtual currency management, in principle, only allows using real money to buy virtual currency, not vice versa. However, domestic main businesses exchange game currency into RMB websites, developing virtual currency-RMB exchange rate tables, converting actual game currency values. The exchange process differs little from commercial banks. This inevitably impacts the financial system. It is estimated that countries will not take release and supervision measures to open up this area in the short term. The original intention of issuing net currency was to address micro-payment difficulties, but side effects far outweigh solving this problem's benefits. Thus, the fundamental solution lies in electronic payment laws. Prior to this, departments may strengthen supervision and restrictions on net currency purchasing usually RMB-bought products and services and phase out net currency-RMB exchange business activities.