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Introduction.

If the idea of a world without dollars, Euros, yen or pounds etc seems far fetched, then you must have been hiding in a shed these recent years and have absolutely no knowledge of online virtual currencies. Online virtual currencies are currently restricted to transactions in online virtual worlds and social networking sites such as Second World. The best known of these virtual online currencies are probably the Linden dollar and Facebook credits.

Exchanging Online Virtual Currencies.

Ever thought about trading in Linden dollars?

Whilst the numbers involved aren’t likely to worry the US Treasury too much at present, as the major ‘real-world’ currencies continue to regain the stability they had a couple of years ago - the online virtual currencies like Second World’s Linden dollar go from strength to strength. During a period in which the US economy actually fell by 1%, Linden dollars saw a 20% increase in trade during the second quarter to $144 million - according to figures from LindenX, the official Second World foreign exchange. It is the use of currency exchange for the online virtual currencies that can make these currencies attractive to investors. When you consider that many ‘real’ currencies no longer have a gold standard, what actually is there to say that the UK ‘Pound’ is more worthy of trading on currency exchange markets than say Eve ISK or World of Warcraft gold?

Nothing new in online virtual currencies.

Check out the online virtual currency exchange rates.

In actual fact online currencies pre-date Web 2.0 applications, and the vast majority of the latest versions of the major online games. Back in the late 1990s two online currencies were launched - Beenz and Flooz. They were, however, rather short-lived as at that time the relatively small uptake of online services in general, coupled with a few unhelpful cases of fraud, meant that they soon folded. However, now as the numbers of internet user’s rise and websites become ever more sophisticated, in the way they offer virtual economies in online games and social/entertainment services, a whole financial industry has grown up servicing those needs. A company that has emerged as the market leader in helping websites to incorporate online virtual currencies is Twofish. The growth Twofish has experienced arises from the need of websites such as Facebook and Second World to service what has not only become a large scale operation, but one where the online virtual world actually needs to interact with the real one. This has led to two types on online virtual currencies developing. Although  Linden dollars can only be bought and sold through virtual/online currency exchanges, you can exchange US-Linden and vice-versa Linden-US, with the option to then taking your US dollars back into the ‘real world’ to spend. However, Eve Online will only allow you to exchange US dollars, or other major currencies, into Eve ISK - that can only be used in the online/virtual world or game - with conversion back and withdrawal to a real world currency forbidden.

Trading in online virtual currencies.

Is this hyper-inflation?

Don’t think for one minute that online virtual currencies are anything to do with ‘children’s play money’. Although they are currently associated with leisure activities there’s absolutely nothing playful about the way that they are traded. Just like any economy in the real world, online virtual currencies are operated and controlled by central banks with finance regulators and economic institutions. There’s good reason for this too, as a very real risk to the currency is that a websites participants will buy a currency and then not use it, a sure-fire recipe for inflation as cash accumulates while still more is being sold to new buyers. Looking forwards, the online virtual currencies accept that they will need to subject themselves to even further regulation if they want to make the move into true ‘real world commerce‘.

The future of online virtual currencies.

Don't think all Chinese traders just scurry around markets like this one.

Whilst the US currently spends around $500 million a year in online virtual currencies - China spends the equivalent of some $2 billion! Despite the recent economic reforms in China foreign exchange currencies are still made difficult to get hold of or trade in. Needless to say the money savvy Chinese people were quick to spot an opportunity to trade in online virtual currencies for all manner of ‘real world ‘physical goods and services, something the Chinese authorities are now stamping down on. However, word has it that we will soon be able to use Facebook credits to buy other things than those from the ‘virtual gift shop’ of Facebook. Initially these things look like being restricted to other online environments, mainly games. However, in another development two new companies, Jambool and Spare Change, have launched online currencies that can be used across several games, social networks and applications; which could yet become serious contenders for inclusion in online payment systems such as PayPal. However, for the time being, getting them accepted as a valid currency in Facebook is currently seen as being the true test of their ability to prosper in the future.

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