Topic: Virtual Currency
Objectives:
1. Provide better understanding of virtual currency- information sharing
2. Find out how the virtual currency works on:
(a) games application (game developer and player)
(b) e-commerce
3. Discover the advantages of virtual currency
4. Discover the disadvantages (issues) of virtual currency- problem and challenges
5. Virtual economy
Planned Outline:
1.0 Introduction
2.0 Objectives
3.0 Methodology
4.0 Research
4.1 Virtual currency in online games
4.1.1 How does virtual currency work in online games?
4.1.2 How does virtual currency works for online developers?
4.1.3 Facebook credit
4.2 Advantages
4.2.1 Protection
4.2.2 Less paperwork
4.2.3 Rewards users with “own” currency
4.2.4 Increasing profits
4.3 Disadvantages
4.3.1 Security issues
4.3.2 Fraud
4.3.3 Technical challenges
4.4 Virtual economy
5.0 Conclusion
Literature Review
Virtual currency is a well-known terms for online users who use it to purchase virtual goods and services in the gaming, virtual worlds, online communities and social networking websites. In Asia and Europe, virtual goods have been generating profits for many years (BBC News, 2009). The first virtual currency has been launched by GameXa in 2007 with the support of World of Warcraft- the world’s largest MMOG (Multiplayer Online Game) (Allpaynews, 2010). The currency is known as “gold” which enable the users to buy virtual items such as weaponry and to increase their game character level in the World of Warcraft game. There are various virtual currencies used for online gaming such as SecondLife uses Linden dollar, Everquest used dollar as well as platinum, while Star Wars use Galaxies credit (Walsh, 2009). Virtual wealth which refers to the ability and power to obtain virtual goods in virtual world is measured by virtual money such as Linden Dollar, KinzCash and LB (Guo J, Chow A & Gong Z, 2009).
From the business perspective, virtual currency provides a new source of income for business person due to the popularity of social networks such as Facebook and Twitter. Users can purchase virtual currency by using different payment methods for instances, mobile SMS payments, PayPal, and credit cards (Trialpay, 2009). As virtual currency is being used widely in the virtual economy, it is necessary to look into the pros and cons of the virtual currency to the users. As discovered by Sen, V (2010) virtual currency provides huge benefits such as protection, less paperwork, and reward users. On the contrary, the disadvantages of virtual currency include security issues, fraud and technical challenges. BBC News has shown that in the United States, the virtual economy is set to make billions selling goods that do not exist (Daily Tech, 2009). In addition, one of the social gaming companies, Playfish has succeeded in the sale of virtual goods. Therefore, it is essential to discover how the game developers utilize virtual currency in this research.
Reference ListWe use these articles in order to explain and describe some situations for readers to understand better. In addition, some of these articles contain essential copyright laws issues that we need in our research.
References:
Journal
David, M 2005, ‘Virtual currency’, PC Magazine, vol, 24, no. 11, EBSCOhost, Computers & Applied Sciences Complete, AN 17204142, viewed 10 September 2010.
This article provides idea and examples of how does virtual currency work in online games such as Sony Online Entertainment’s EverQuestII Game. Players are allowed to replace their swords and other tools by using credit cards to improve the virtual character. It also contains on information on other things that the players can do by using the virtual currency.
Guo J, Chow A & Gong Z, 2009, ‘Virtual Wealth Realization in Virtual and Real Worlds’, 2009 IEEE International Conference on e-Business Engineering, viewed 27 October 2010, http://www.sftw.umac.mo/~jzguo/pages/pub/09_icebe09.pdf
This paper provides a further understanding about virtual wealth in virtual worlds and in relation to the real world. This paper consists of the formation, explanation, realization, classification and measurement of virtual wealth.
Richard, H 2010, ‘Real money from virtual worlds’, Scientific American, vol. 302, no. 1, EBSCOhost, Computers & Applied Sciences Complete, AN 45692997, viewed 10 September 2010.
This article illustrates how entrepreneurs earn real cash money from online games in developing countries, which involves the selling of virtual currency for actual currency. Examples used would be the World of Warcraft and EverQuestII where the users can sell their virtual resources through websites like PayPa to buy foreign exchange in the virtual world. We will use this as a guideline to explain in detail on how the virtual currency works.
Other references
Corwin, P 2009, Virtual goods in social networks- Alternative business models, How to Start A Social Network, viewed 1 October 2010, http://howtostartasocialnetwork.com/2009/12/21/virtual-goods-in-social-networks-alternative-business-models/
Daily Tech 2009, Virtual economy is booming, real economy still stinks, Digital Trends, viewed 11 October 2010, http://www.digitaltrends.com/gaming/virtual-economy-is-booming-real-economy-still-stinks/.
Facebook Credits Expanding the Social Network’s Ecommerce Efforts, ZippyCart Ecommerce Software Reviews Content Team 2010, viewed 24 September 2010, http://www.zippycart.com/ecommerce-news/1263-facebook-credits-expanding-social-network-ecommerce-efforts.html
Facebook Credits and the future of micro-transactions 2009, Entreprecurious, viewed 27 September 2010, http://entreprecurious.com/2009/09/19/facebook-credits-and-the-future-of-micro-transactions/
Facebook Credits could be our new universal currency 2010, The Duffy Agency, viewed 27 September 2010, http://blog.theduffyagency.com/methodical_madness/2010/07/facebook-credits-may-be-our-new-universal-currency.html
GameXa announce the launch of the first virtual currency trading platform 2007, Allpaynews.com, viewed 25 October 2010, http://www.allpaynews.com/node/3605
Hansen, JD & LLP, PC 2010, Virtual Currencies: Real Legal Issues for Retailers, RetailingToday.com, viewed 4 October 2010, http://www.retailingtoday.com/(S(ac2eydfbp0e0knyy0zaqrr45))/editorial.aspx?id=132107
Hefflinger, M 2010, Facebook teams with MOL to sell Facebook Credits in Asia, Digital Media Wire, viewed on 28 September 2010, http://www.dmwmedia.com/news/2010/07/08/facebook-teams-mol-sell-facebook-credits-asia
Korolov 2010, Does your grid needs its own currency?, Hypergrid Business, viewed 3 October 2010, http://www.hypergridbusiness.com/2010/08/does-your-grid-need-its-own-currency/
Mills, E 2008, Rising fraud threats in virtual worlds, cnet news, viewed 4 October 2010, http://news.cnet.com/8301-1009_3-10027609-83.html
OffGamers 2010, viewed 24 September 2010, http://www.offgamers.com/
Sales of virtual goods boom in US 2009, BBC News, viewed 23 October 2010, http://news.bbc.co.uk/2/hi/technology/8320184.stm
Sen, V 2010, Virtual currency-money for nothing & clicks for fee?, Thinkplank, viewed 1 October 2010, http://thinkplank.wordpress.com/2010/05/24/virtual-currency-money-for-nothing-clicks-for-fee/
Trialpay 2009, Virtual currency monetization platforms: five ways to increase revenue with direct payment options, Trial pay blog, viewed 10 October 2010, http://blog.trialpay.com/2009/04/virtual-currency-monetization-platforms-five-ways-to-increase-revenue-with-direct-payment-options/.
Walsh, I 2009, Value of virtual currencies c US dollar virtual currency chart, Ivanwalsh.com, viewed 25 October 2010, http://www.ivanwalsh.com/technical-writing-tips-tools/value-of-virtual-currencies-v-us-dollar-virtual-currency-chart/2224/
Watters, A 2010, Facebook consolidates Its Virtual Currency with Facebook Credits, Read Write Web, viewed 25 September 2010, http://www.readwriteweb.com/archives/facebook_consolidates_its_virtual_currency_with_facebook_credits.php
Worthen, B 2010, Fraudsters Like Virtual Goods, THE WALL STREET JOURNAL, viewed 4 October 2010, http://online.wsj.com/article/SB10001424052748704723604575379333744203498.html
Thursday, October 28, 2010
Tuesday, October 5, 2010
For Discussion: Disadvantages of virtual currency
There are some disadvantages of virtual currency that we would like to share with our readers which include security issues, fraud and technical challenges.
Security and privacy issues may arise in virtual world especially on Payment Card Industry Data Security Standard as users need to provide their personal information while making payment for virtual currency transactions (Hansen & LLP, 2010). Hackers are able to access user personal information by using cheating program and viruses, especially on users who use credit card to perform online transactions. For example, hackers might gain the bank account number by hacking into user personal information. In addition, by assessing into user ID and password, hacker can gain profit from stealing the virtual properties of gamers and selling them to third parties at higher price. This will cause users to feel unsecure while performing online transactions.
In 2009, there is a decrease of 1.9% in the total revenue of virtual goods traders caused by fraud according to a research from CyberSource Corp (Worthen 2010). It is hard to believe that these online criminals are interested in acquiring virtual goods in online game but it will be another story when online criminals are able to convert the virtual goods into real cash and it is easier for stealing virtual goods in game than in real life. As a result, virtual worlds had turned into a place where online criminals steal information; launder money, increase profit by selling virtual goods for cash and others. In addition, fraud will also increase the amount of scammers in virtual world who have the ability to acquire confidential and personal information of users (Mills 2008). Some of the methods that used by scammers in stealing private information are message spamming, phishing, viruses such as Trojan which used to trace passwords, ID and others.
1)Security issues
Security and privacy issues may arise in virtual world especially on Payment Card Industry Data Security Standard as users need to provide their personal information while making payment for virtual currency transactions (Hansen & LLP, 2010). Hackers are able to access user personal information by using cheating program and viruses, especially on users who use credit card to perform online transactions. For example, hackers might gain the bank account number by hacking into user personal information. In addition, by assessing into user ID and password, hacker can gain profit from stealing the virtual properties of gamers and selling them to third parties at higher price. This will cause users to feel unsecure while performing online transactions.
2) Fraud
In 2009, there is a decrease of 1.9% in the total revenue of virtual goods traders caused by fraud according to a research from CyberSource Corp (Worthen 2010). It is hard to believe that these online criminals are interested in acquiring virtual goods in online game but it will be another story when online criminals are able to convert the virtual goods into real cash and it is easier for stealing virtual goods in game than in real life. As a result, virtual worlds had turned into a place where online criminals steal information; launder money, increase profit by selling virtual goods for cash and others. In addition, fraud will also increase the amount of scammers in virtual world who have the ability to acquire confidential and personal information of users (Mills 2008). Some of the methods that used by scammers in stealing private information are message spamming, phishing, viruses such as Trojan which used to trace passwords, ID and others.
3) Technical Challenges
The service providers of virtual currency will encounter with different challenges in this modern era where users are more concern with the security and privacy problem. In order to protect the safety of users, service providers need to improve the security layer of all transactions by establishing a web-based confirmation, firewall system, server-side script, identity authentication mechanisms and others. These methods are important in ensuring the protection on users as service providers will need to take all the responsibility if users encounter with fraudulent or security issues due to the incompleteness security system. Besides that, service providers should take time to understand the current virtual currency program in order to choose the most suitable privacy policies to be applied on.
References:
Hansen, JD & LLP, PC 2010, Virtual Currencies: Real Legal Issues for Retailers, RetailingToday.com, viewed 4 October 2010, http://www.retailingtoday.com/(S(ac2eydfbp0e0knyy0zaqrr45))/editorial.aspx?id=132107
Korolov 2010, Does your grid needs its own currency?, Hypergrid Business, viewed 3 October 2010, http://www.hypergridbusiness.com/2010/08/does-your-grid-need-its-own-currency/
Mills, E 2008, Rising fraud threats in virtual worlds, cnet news, viewed 4 October 2010, http://news.cnet.com/8301-1009_3-10027609-83.html
Worthen, B 2010, Fraudsters Like Virtual Goods, THE WALL STREET JOURNAL, viewed 4 October 2010, http://online.wsj.com/article/SB10001424052748704723604575379333744203498.html
For Discussion: Advantages of Virtual Currency
After discussed about the functions or purposes of virtual currency, now we'll be looking at the implication of virtual currency to the real world.
As discovered by Sen, V (2010) virtual currency provide huge benefits in different aspects such as protection, less paperwork, and reward users. It could be explained further as below:
As discovered by Sen, V (2010) virtual currency provide huge benefits in different aspects such as protection, less paperwork, and reward users. It could be explained further as below:
1. Protection
Ø As mentioned before, virtual currency can be obtained by using cash, credit card, physical store or mobile purchasing.
Ø Once you made the payment to buy the virtual currency, no information regarding the bank account is needed in the application.
Ø Unlike credit card, in buying virtual goods or services bank account information is not important and not involved; therefore there is less probability that your bank account will be hacked.
Ø Therefore, this virtual currency transaction will not affect users’ bank account privacy and security issue.
Ø It could be a benefit for the companies to provide protection and confident to their customers.
2. Less paperwork or form filling
Ø It is very efficient and effective way to perform transaction with virtual currency.
Ø The users need not to follow up the procedures in the normal business world for example using credit cards or bank in payment.
Ø Users only have to make sure they have sufficient virtual currency on hand if they are interested in purchasing the virtual goods or services.
Ø This ease up the transactions as less paperwork (information of customers, initial signature of the customers) are needed while purchasing.
3. Rewards users with “own” currency
Ø Many providers in China are running their own virtual currencies for example, Baidu, NetEase, and Tencent.
Ø This provides an incentive to the companies as they have the “right” to “print money” as well as rewards users with their “own” currencies.
Ø In my opinion, this could be an advantage in terms of customer retention where customers will be tied to use the company’s goods and services.
4. Increasing profits
Ø According to Corwin (2010), the virtual currency provides benefit the website owners as the revenue will come straight from the users instead of advertisements.
Ø This is where the service provider or game application owned the website and where the users can directly purchase the virtual goods from there.
Ø This may be due to the reason where the virtual goods are cheap to produce and therefore increase the profit margins.
Ø As mentioned before, virtual currency can be obtained by using cash, credit card, physical store or mobile purchasing.
Ø Once you made the payment to buy the virtual currency, no information regarding the bank account is needed in the application.
Ø Unlike credit card, in buying virtual goods or services bank account information is not important and not involved; therefore there is less probability that your bank account will be hacked.
Ø Therefore, this virtual currency transaction will not affect users’ bank account privacy and security issue.
Ø It could be a benefit for the companies to provide protection and confident to their customers.
2. Less paperwork or form filling
Ø It is very efficient and effective way to perform transaction with virtual currency.
Ø The users need not to follow up the procedures in the normal business world for example using credit cards or bank in payment.
Ø Users only have to make sure they have sufficient virtual currency on hand if they are interested in purchasing the virtual goods or services.
Ø This ease up the transactions as less paperwork (information of customers, initial signature of the customers) are needed while purchasing.
3. Rewards users with “own” currency
Ø Many providers in China are running their own virtual currencies for example, Baidu, NetEase, and Tencent.
Ø This provides an incentive to the companies as they have the “right” to “print money” as well as rewards users with their “own” currencies.
Ø In my opinion, this could be an advantage in terms of customer retention where customers will be tied to use the company’s goods and services.
4. Increasing profits
Ø According to Corwin (2010), the virtual currency provides benefit the website owners as the revenue will come straight from the users instead of advertisements.
Ø This is where the service provider or game application owned the website and where the users can directly purchase the virtual goods from there.
Ø This may be due to the reason where the virtual goods are cheap to produce and therefore increase the profit margins.
In my own perspective, virtual currency will be successful and beneficial if the company is able to adopt the technology and manage it properly. What do you think? Will the costs outweigh the benefits? After this, we’ll be discussing on the disadvantages of the virtual currency.
References:
Sen, V 2010, Virtual currency-money for nothing & clicks for fee?, Thinkplank, viewed 1 October 2010, http://thinkplank.wordpress.com/2010/05/24/virtual-currency-money-for-nothing-clicks-for-fee/
Corwin, P 2009, Virtual goods in social networks- Alternative business models, How to Start A Social Network, viewed 1 October 2010, http://howtostartasocialnetwork.com/2009/12/21/virtual-goods-in-social-networks-alternative-business-models/
Wednesday, September 29, 2010
For Discussion: More on Facebook Credits
Few months ago, Facebook has collaborated with a Malaysia-based online payments company-MOL Global to sell Facebook Credits online as well as physical outlets in several countries including Malaysia, Singapore, Australia, New Zealand, and so on (Hefflinger M, 2010). To recall, Facebook Credits are the official currency made available for the Facebook users to purchase virtual goods on games and applications which costs $1 for 10 Facebook Credits (Entreprecurious.com). Facebook Credits can be bought by using different methods for instance, credit card, PayPal, and even mobile phone.
According to theduffyagency.com (2010), other than buying virtual goods by using Facebook Credits, they also can be used as a sales channel as below:
- Immediate purchase
- Users tend to buy either virtual or real items once they have sufficient Facebook Credits while they are using the Facebook applications. The consumers will be directed to more than one game or application and encouraged to buy more just within a click. This increases the possibility for consumers to make immediate purchase.
- Through this Facebook wide social network, it serves as a global platform for businesses. By using Facebook Credits and supported by PayPal, it provides an opportunity for seller to promote and sell goods and services to consumers all around the world.
In our opinion, we think that Facebook Credits would be a virtual currency that enables us to purchase virtual and real goods in the future. It will be efficient and convenient for the consumers as it does not limited to games and application, but also on shopping goods like clothes, books, hand phones, accessories, and some home appliances. Will you consider using Facebook Credits now and in the future? Or do you have any opinion about it? Please feel free to share with us...
References:
Hefflinger, M 2010, Facebook teams with MOL to sell Facebook Credits in Asia, Digital Media Wire, viewed on 28 September 2010, http://www.dmwmedia.com/news/2010/07/08/facebook-teams-mol-sell-facebook-credits-asia
Facebook Credits and the future of micro-transactions 2009, Entreprecurious, viewed 27 September 2010, http://entreprecurious.com/2009/09/19/facebook-credits-and-the-future-of-micro-transactions/
Facebook Credits could be our new universal currency 2010, The Duffy Agency, viewed 27 September 2010, http://blog.theduffyagency.com/methodical_madness/2010/07/facebook-credits-may-be-our-new-universal-currency.html
Friday, September 24, 2010
For discussion: How does virtual currency works for game developer?
From the previous discussion, we can see the ways that virtual currency work in online games for gamers. Now, we will look into how business person can gain profit from the virtual currency. The main purpose of the creation of virtual currency is to enable trading to be performed in virtual world. For example, Maple Story uses Mesos; Second Life trades in Linden Dollars; World of Warcraft uses virtual gold and others. Players can either obtain virtual money while playing the games or buy it from services providers by using real money. The virtual currency exchange service provider is internationally available around the worlds where some of the companies that provide this exchange service are My MMO Shop, eGaming Supply, OffGamers, Nexon and others. For example, OffGamers offer services such as virtual currency packages, power leveling packages, codes of subscription and virtual product mall credits to gamers in order to satisfy the needs and wants of gaming community (OffGamers 2010). 
Facebook Credit
In April 2010, Facebook introduced and launched its official currency which was known as Facebook Credits that enabled users to utilize virtual currency more easily in Facebook games such as Pet Society, Restaurant City, Farmville, Mafia Wars, Frontierville and others. Facebook believed that the launching of Facebook Credit would bring substantial profit in long run (ZippyCart Ecommerce Software Reviews Content Team 2010). 
Pet Society
According to Watters, Facebook tends to obtain 30% from all proceeds by launching Facebook Credit which will bring huge profits to the company. The number of Facebook’s social gamers had increased to nearly 800 million players and this may result in a potential growth in virtual currency for Facebook and game as more players are willing to spend on virtual items in their gaming (Watters, 2010).
References:
OffGamers 2010, viewed 24 September 2010, http://www.offgamers.com/
Watters, A 2010, Read Write Web, Facebook consolidates Its Virtual Currency with Facebook Credits, viewed 25 September 2010, http://www.readwriteweb.com/archives/facebook_consolidates_its_virtual_currency_with_facebook_credits.php
ZippyCart Ecommerce Software Reviews Content Team 2010,Facebook Credits Expanding the Social Network’s Ecommerce Efforts, viewed 24 September 2010, http://www.zippycart.com/ecommerce-news/1263-facebook-credits-expanding-social-network-ecommerce-efforts.html
Wednesday, September 15, 2010
How does virtual currency work in online games?
It is very interesting to see how the virtual currency work in online games, as it provides better understanding especially for those who are unfamiliar with it. It also can see that virtual currency is not only use by the gamers to improve their character or buying equipments, but they can also earn actual money from here. So now let's look at the examples for more information.
Example 1: (Pipeline, 2005)
- For e.g. Sony Online Entertainment’s Everquest II game, players are allowed to use credit cards to improve the virtual character (replace swords and other virtual loot) through the game’s new Station Exchange service.
- Players can purchase other players’ item, preplayed powerful character as well as currency where the players do not have to spend much time on it.
- These virtual goods are available on eBay-style auction sites or game companies.
Example 2: (Richard H, 2010)
- In many MMORPGs (massively multiplayer online role-playing games) like World of Warcraft and EverQuest II, they have virtual economy other than virtual items like houses, landscapes, and different characters.
- Whenever the players have piled up their currency by killing monster, mining, and cutting timer, they can sell their virtual resources (gold) on the websites through PayPal or any other services in order to buy foreign exchange in the virtual world.
- World of Warcraft: 1000 gold units = $10, which is almost equivalent as yen-to-dollar exchange rate.
References:
David, M 2005, ‘Virtual currency’, PC Magazine, vol, 24, no. 11, EBSCOhost, Computers & Applied Sciences Complete, AN 17204142, viewed 10 September 2010.
Richard, H 2010, ‘Real money from virtual worlds’, Scientific American, vol. 302, no. 1, EBSCOhost, Computers & Applied Sciences Complete, AN 45692997, viewed 10 September 2010.
Example 1: (Pipeline, 2005)
- For e.g. Sony Online Entertainment’s Everquest II game, players are allowed to use credit cards to improve the virtual character (replace swords and other virtual loot) through the game’s new Station Exchange service.
- Players can purchase other players’ item, preplayed powerful character as well as currency where the players do not have to spend much time on it.
- These virtual goods are available on eBay-style auction sites or game companies.
Example 2: (Richard H, 2010)
- In many MMORPGs (massively multiplayer online role-playing games) like World of Warcraft and EverQuest II, they have virtual economy other than virtual items like houses, landscapes, and different characters.
- Whenever the players have piled up their currency by killing monster, mining, and cutting timer, they can sell their virtual resources (gold) on the websites through PayPal or any other services in order to buy foreign exchange in the virtual world.
- World of Warcraft: 1000 gold units = $10, which is almost equivalent as yen-to-dollar exchange rate.
References:
David, M 2005, ‘Virtual currency’, PC Magazine, vol, 24, no. 11, EBSCOhost, Computers & Applied Sciences Complete, AN 17204142, viewed 10 September 2010.
Richard, H 2010, ‘Real money from virtual worlds’, Scientific American, vol. 302, no. 1, EBSCOhost, Computers & Applied Sciences Complete, AN 45692997, viewed 10 September 2010.
Research Objectives
Research Objectives
Below are the objectives of our research paper:
- provide better understanding of virtual currency- information sharing
- find out how the virtual currency works on:
- games application (game developer and player)
- e-commerce
- discover the advantages of virtual currency
- discover the disadvantages (issues) of virtual currency- problem and challenges
Reasons of choosing this topic:
Nowadays, technology is developing gradually as human is keen in inventing a lot of new and modern things. The evolution of games has transformed from conventional computer games into latest online games such as 2D and 3D online games. For example, Maple Story, World of Warcraft, Everquest, Secondlife and others are the common and popular online games for gamers currently.
By doing research on this topic, we have an opportunity to learn and discover how the game developers generate profit by using virtual currency in the virtual world. Besides that, we can satisfy our curiosity about virtual currency and share this information to our readers including gamers and non-gamers. We will also discuss about the advantages and disadvantages of virtual currency to improve our knowledge.
HAPPY READING (^.^)
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