| 18 February 2010
Dear Readers,
Today we will continue our article and discussion on the evolution of virtual money and its incorporation into the real world. The following article consists mainly of the classification of virtual money and also on how the evolution of virtual money over the years has allowed it to become part and parcel of both reality and in the virtual system. The diverse modes discussed in the previous article allows us to be able to understand WHY virtual money holds such an important role in enabling players and developers to allow the game to run more smoothly and function automatically by itself.
Classification of Virtual Money
Virtual money can be classified according to its exchange mechanism, financial mechanism and purchasing power.
A. Exchange Mechanism
Non-exchangeable virtual money: The virtual money cannot be exchanged into real money or vice versa. The users can only gain virtual money by adventuring, fulfilling tasks and selling virtual goods in the virtual world. One-way exchangeable virtual money: The virtual money is linked with the real money in one-side-way, and the virtual economy is semi-closed. The users can gain virtual money
not only by adventuring, fulfilling tasks and selling virtual goods in world, but also buy virtual money with real money. Free-exchangeable virtual money: The virtual money is linked with the real money in two-side-way, and the virtual economy is an open system. Users can gain virtual money not only by adventuring, fulfilling tasks and selling virtual goods, buying virtual money with real money, but also to sell them to game operator into real money.
B. Financial Mechanism
Virtual money without money creation function: In the virtual community, there are no virtual financial institutions to grant virtual loans. The virtual money supply is equal to the virtual money issued by the game operators. Virtual money with money creation function: There are virtual financial institutions to grant virtual loans. The virtual money supply is greater than the virtual money issued by game operators. The deposit expansion multiplier depends on user’s cash-deposit ratio and virtual bank’s reserve ratio.
C. Purchasing Power
Virtual money can only buy virtual property: The virtual money is limited to circulate in the virtual economy, and can only be used to purchase virtual property or services Virtual money can buy both virtual and real property: The circulation of virtual money expands to real world.
Evolution of Virtual Money
The first virtual money emerged as a kind of artifice to increase the user’s viscosity. Now, the virtual money has been used widely, far from the original one. In future, how will the virtual money develop is a thought-provoking question. We classified virtual money into five modes: original, primary, ameliorative, intermediate and advanced. Each mode is a leap and different from the previous one.
Original mode: Non-exchangeable virtual money. The earliest virtual money appeared in the network with no money exchange mechanism. Virtual money can only be obtained through users accomplishing online task. Virtual money has no real value but only represents the user's online level and rights, as experience value in online community. It serves marketing method for operators to increase subscription.
Primary mode: Virtual money can be bought with real money, and used to buy virtual goods. The function of virtual currency changes from promotion to be a medium of in-world exchange, virtual money issuance becomes a profit method for network service operators.
Ameliorative mode: One-way exchangeable virtual money with ability to purchase virtual goods and some real goods.
Intermediate mode: Free exchangeable virtual money with ability to purchase virtual and real goods in the virtual community with no virtual banks. This is a leap of virtual money development. It means that virtual money has changed from an in-world general equivalent to substantial currency.
Advanced mode: Free exchangeable virtual money with able to purchase virtual and real goods with virtual banks. With the popularity of the Internet and the expansion of virtual economy, financial institutions will emerge in virtual world. This represents the future development of virtual money.