The European Central Bank (ECB) has issued a report on Virtual Currency Schemes (PDF), with case studies on Second Life and bitcoin. In the report, the ECB calls bitcoin ‘the most successful – and probably most controversial – virtual currency scheme to date’. The ECB goes on to say that the concept of bitcoin stems from the Austrian school of economics, where business cycle theory developed by Mises, Hayek and Bohm-Bawerk floated the idea that virtual currencies could be the starting point for ending central bank money monopolies.
Why does the ECB bother to write a report and an in-depth analysis of bitcoin and other virtual currencies? Because they’re worried that they’re unregulated value exchanges that could represent a challenge for public authorities and have a negative impact on the reputation of central banks. Oooh! You don’t say! On the other hand, they do make note that ‘these schemes can have positive aspects in terms of financial innovation and the provision of additional payment alternatives for consumers’.
To be honest, whether bitcoin takes off or not, virtual currencies are going to explode thanks to in-app gaming on the mobile internet, something the ECB report misses. Most of us already top-up or bling our gaming on our iPhones and iPads via iTunes. This is virtual currency in operation. You may disagree, but the aggregation of large amounts of small payments is effectively building a virtual currency system. Don’t believe me? Read this paragraph from an article in The Next Web about Japanese mobile gaming company DeNA:
While popular gambling-style kompu gatcha titles – in which users pay for coins to win prizes – are being eradicated from Japan, DeNA notes that its Moba-coin virtual currency was nonetheless used in a record $689m worth of transactions in the country.
There are many examples of others developing virtual currencies for gaming: NHN Japan offers a global gaming virtual currency called Line Coins, KakaoTalk in Korea offers virtual currencies called Chocos, and Tencent’s Q-Bi in China is firmly entrenched as a virtual currency. All of these are driven by mobile internet gaming services, and the real killer will be when the major payments processors get into the virtual payments space.
Oh! They already are! Visa recently acquired PlaySpan, a company with a payment platform that handles transactions for digital goods, while American Express has purchased Sometrics, a company ‘that helps video game makers establish virtual currencies, and plans to build a virtual currency platform in other industries, taking advantage of its merchant relationships’.
So, it’s the world of gaming that’s developing our new-world virtual economies into new-world virtual payments processors. Meantime, for more analysis of bitcoin, it’s worth reading this article by Doug French in Laissez Faire.
– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. You can read the original article here.