Bitcoin Value Massively Deflates

Any currency is vulnerable to changes in supply or demand. Also, like any other commodity, if a bubble erupts, inflating value in a basically irrational way, a bursting bubble always is possible. And that seems to have happened to Bitcoin, the world's first peer-to-peer digital currency, which has "suffered" from massive speculation.

Bitcoin value fell below $3 in mid-October 2011, a 90 percent fall since the currency hit its peak in early June 2011.

Supporters argue that Bitcoin has fundamental advantages over conventional currencies. The system is designed to transfer funds without a central authority, freeing Bitcoin users from bank fees and government regulations. The Bitcoin protocol offers robust anonymity, and the protocol guarantees that there will never be more than 21 million Bitcoins in existence, which supporters have argued would give the currency a stable value.

Unfortunately, the currency's value hasn't proven stable in practice. Since few retailers actually accept Bitcoins, the currency's value has fluctuated primarily as a bubble-driven commodity.

Bitcoin implodes, falls more than 90 percent

As an Incentive, Virtual Currency Works

Marketers often think of advertising as a trade off for consumers: People watch ads in exchange for free or subsidized content. 


But a new study suggests giving consumers social currency or virtual currency as a reward for spending time with a brand message is a powerful incentive. 


But some digital ads are now explicitly offer social currency rewards rather than access to free content.


For example, a brand may sponsor a social game, and make a reward of virtual currency contingent on watching a display ad. These incentivized ads, research from digital advertising technology company SocialVibe and KN Dimestore found, can be very effective, even when consumers just watched to get the incentive.

Social currency rewards boost ad effectiveness

American Bankers Association Cals for Regulation of FarmVille’s Virtual Currency

It was only a matter of time before the banking industry began to ask for regulation of "social currency" and "virtual currency" as "real money" transactions are regulated.

In a letter to the Consumer Financial Protection Bureau, the American Bankers Association has asked the new Consumer Financial Protection Bureau to consider regulating virtual currencies, like those used on FarmVille and Second Life.

“We understand that in some instances virtual currencies, which were initially developed to help individuals manage virtual credits earned through online games, have also been used to pay developers of applications, and their use can be expected to expand even further,” the ABA wrote.

The move was highly predictable, and eventually, as use of social currencies and virtual currencies become mainstream, those calls for regulation will grow louder. It is hard to argue that social currency and virtual currency will not wind up more regulated than today.

Bankers want regulation of FarmVille’s "Virtual Currency"

Social Gamers Open to In-App Ads, Commerce, Virtual Currencies

About seven percent of social gamers surveyed by Interpret, on behalf of RockYou, would use real money to purchase a virtual item not used inside the game, 14 percent have used real money to purchase virtual currency, 13 percent use a branded virtual good, and 18 percent paid to play a game or get items in a game.

On average, gamers spend $42.70 on in-game items or virtual currency. A quarter of the survey participants report buying virtual currency at least once weekly, and 55 percent would rather earn virtual currency than purchase items with real money.

When it comes to ads in games, 45 percent are open to viewing in-game ads to earn virtual currency, 42 percent are more motivated to play a social game that offers real-world rewards, like a coupon or gift card, and 41 percent will review the game or spread the word through their social network page to earn virtual currency.

All of those sentiments illustrate growing interest on the part of game developers in in-application commerce, in-app advertising and in-app "currencies" of various types.

Social gamers receptive to ads, in-app commerce, virtual currency

American Express Buys Gaming Payment Provider

American Express has spent $30 million to buy Sometrics, a virtual currency company that works with social game providers including BigPoint, Nexon and OMGPOP.

The Sometrics platform will be integrated into Amex Serve, the credit card company's recently launched, PayPal-like online and mobile payment system. This integration will eventually allow Serve users to "purchase virtual currency for hundreds of games," and participate in loyalty programs from various merchants.

American Express also offers users of its Membership Rewards program to redeem their points for virtual currency and goods in Zynga's social games.

The long-running Membership Rewards program has previously allowed users to earn points when they use their American Express cards for purchases, then exchange those points for bonuses like free flights, electronics, gift cards, and more. Virtual currency

In an agreement that the two companies call "an industry first", American Express and Zynga have partnered to provide exclusive virtual goods (Amex Outdoor Fountain), physical game cards, and virtual game cards for Zynga titles to Membership Rewards participants.

Those game cards will be available in a variety of amounts and can be used to buy virtual goods in Zynga's popular Facebook releases like FarmVille, FrontierVille, PetVille, and Cafe World.

American Express also offers game-specific prepaid cards. Right now, one might argue that American Express can make a business out of allowing users to buy virtual game credits with real currency. But it is hard not to envision circumstances under which Amex might like to have the ability to operate a "cash in, cash out" virtual currency model as well.

American Express Buys Gaming Payment Provider Sometrics

Virtual Currency for Virtual Goods is a Start

What comes next might be much more interesting, namely use of virtual currency in an application that might become a medium of value and exchange outside an application.

U.S. virtual goods revenue on Facebook to grow 32 percent to $1.65B in 2012

U.S. virtual goods revenue on Facebook is expected to grow 32 percent in 2012 to $1.65 billion, according to a new report by Inside Network.

That growth rate is lower than the 40 percent growth for 2011, as the market analyst firm predicts that revenue this year is growing from $800 million in to 2010 to $1.25 billion by the end of 2011.

U.S. virtual goods revenue on Facebook to grow 32 percent to $1.65B in 2012

Virtual Currency in Buenos Aires

Javier Goglino is an engineer. He created a bartering system, christened “Proyecto Mutuo,”or“Mutual Project,” in his community of Martínez, a Buenos Aires suburb.

Mutual Project is a system in which members can exchange goods and services instead of money. Each member of the community has the option to offer a service or goods in exchange for “merits,” which later help them to acquire new goods and services. The merits register virtually in the participants’ accounts.

Mutual Project already has 79 members, from translators and web designers to musicians and plumbers. It fulfills an average of 14 transactions per month, with peaks of up to 30. Members exchange about 1,400 merits per month, with peaks of up to 3,000 merits.

Social Currency Systems Emerge to Supplement Money in Argentina

Twollars: A Virtual Currency for Twitter

Twollars are a new virtual currency for Twitter apps.

Virtual currency for carbon futures

Virtual currencies are not used only in social games. The virtual currency Ven, traded among a closed online community of individuals and businesses, hopes to have 80 million in circulation by this time next year, up from about eight million today. It is backed by a basket of commodities, currencies and carbon futures.

The currency exchange now has 25,000 members, up from 22,000 members in the spring of 2011.

One Ven was trading for $9.35, or €13.35 in September 2011. However, users can’t exchange Ven to other currencies at present, because of the regulatory issues this could cause, according to Stalnaker, and the risk of money laundering. Instead, the currency can be used to pay for goods and services.

There are two lines of thinking about "virtual currency." One line of thinking is that tokens, points and credits used exclusively within social games and environments should be used carefully, in ways that do not invoke the regulation that applies to "currency" transactions. In other words, "real money" can come in, but cannot come out of the game.

Others want to create virtual currencies where real money can be used to buy credits, points or tokens within a social game, but also can be exported out of those settings and exchanged for value in other settings, up to and including use as a prepaid instrument in the real world of shopping or commerce. In other words, money can go in, be converted to some social value store, but then also come out of a social game as a real currency again, or as a store of value that can be used in other settings, whether online or offline.

That is a more-challenging notion precisely because many regulations and rules related to banking, payments and prepaid instruments likely will have to be followed. But as online and offline commerce begins to fuse in new ways, the issue of virtual currency will have to be addressed.

Virtual currency, part backed by carbon

Openbucks: Use Gift Cards to Make Virtual Goods Purchases

Openbucks is a new firm that allows users to buy gift cards from a number of companies and then use the stored value to buy things on online sites. Subway, CVS, Citgo, Sports Authority, Hess and Circle K are participating gift card suppliers. 

Use these gift cards:

Virtual currencies and social network payments

If you are a bit confused about the ramifications of mobile payments, so is just about everybody else. The common sense notion is that "mobile payments" is principally about using a mobile phone, in some way, to buy things, in scenarios where cash, a credit card, a debit card or perhaps a check typically is used instead.

At least part of what some of us might say is growing confusion about mobile payments is that "payments" are part of the "buying," "shopping" or "commerce" activity, and there now are growing ways to embed "promotion," "coupons," "offers," "daily deals" and "loyalty" into a shopping experience. You hear the term "mobile wallet," for example, which is how some of these related processes might be integrated and handled in the future.

To complicate matters further, shopping for "virtual goods," or "content" goods, as well as real world goods, are seen as essential parts of the mobile payments business. In other words, you might use your mobile to checkout from a retail location, buy a song or video, as well as purchase virtual goods for use in a game that is played on a mobile.

Then consider a growing interest in the ability not only to buy virtual goods with real money, but then to export virtual money to other applications or retailers, in some cases as another version of virtual currency, but possibly even as "money" in the classic sense.

You can go into a Wal-Mart right now and pay cash (or check) for a Facebook payment card, to be used in virtual gaming with such companies as Zynga. That doesn't seem to trouble regulators. But many believe there are advantages to allowing points, credits or tokens to be accumulated and then redeemed back into some form of actual real world currency. And that means there now are banking and other regulations that come into play.

Virtual currencies and social network payments

Microsoft Wants Broader Use of Virtual Currency in Australia

Microsoft is pressing the Reserve Bank of Australia to consider adjustments to the domestic payments markets to help consumers conduct transactions in virtual currencies, such as Facebook Credits and Microsoft Points.

Responding to the RBA's call for submissions relating to innovation in payments systems, Microsoft points out that virtual currencies have some key advantages driving their adoption including the removal of the cost of multiple card processing interchange fees for low value or micro-transactions.

"While these systems are generally closed at this point of time, it is foreseeable that consumers may desire in the future to exchange value between the various schemes and that they could well become more widespread and prevalent within online retail environments," Microsoft says.

That's an important thought. Credits and tokens, even when purchased with real world money, now can be used only within a closed application, typically a game. What Microsoft and many others seem to believe is that demand will grow, at some point, for methods to convert such virtual currencies into real-world currencies. And the regulatory scrutiny already has begun.

French courts are being asked to define the status of the virtual currency Bitcoin, after local banks switched off accounts for exchanges handling the currency on the presumption that Bitcoin should conform to electronic money regulations.

At the moment, Microsoft Points are not convertible to a monetary equivalent, but are used solely to gain licenses to digital products. However, implicit in its submission to the RBA, Redwood is clearly looking to a future in which the store of value inherent in Points can be used for transactions beyond the XBox Live and MSN community.

Microsoft on virtual currencies

Are Virtual Goods a Bigger Business Than Advertising?

Sales of virtual goods are a significant, and growing revenue stream for Facebook and many developers who seem to be finding that they can make more money selling digital goods than they can selling apps outright or selling advertising within games.



That isn’t to downplay mobile advertising revenues, as a longer-term source of revenue growth for many participants in the mobile ecosystem.



Mobile advertising in the United States will grow from $491 million in 2009 to $2.9 billion in 2014, according to BIA/Kelsey, a compound annual growth rate of 43 percent. The global market for ads in video games is expected to grow from $3.1 billion in 2010 to $7.2 billion in 2016, according to DFC Intelligence. Video Games: More Ad Revenue.



But revenue models often “are discovered” in the mobile and online space, rather than intentionally created, and that seems to be the case for virtual goods.



Revenue specifically generated from the sale of virtual goods in social games has increased 245 percent from $2.1 billion in 2007 to $7.3 billion in 2010, according to In-Stat. Virtual goods forecast



According to eMarketer, the U.S. virtual goods market is expected to generate $653 million in revenue in 2011, up 28 percent from 2010. U.S. virtual goods revenue



Virtual goods purchased for use in social games might already be a more-important revenue stream for game developers than advertising represents, in other words.



And that might also suggest that virtual goods could be a more important revenue source for at least some social networks, for example, than advertising. Facebook is probably the best example of that, at the moment.



A study published in 2010 by Flurry suggested that monthly average virtual goods revenue per user amounted to $7.80. This far exceeds the ad revenue earned from marketers which is about $1.20 per month per user.




According to PayPal, a facilitator of online payments, about 12 million consumers buy virtual goods every month in the U.S. Often, the purchases are all about online currency. Flurry virtual goods forecast



Virtual goods sales already represent the primary source of revenue for social gaming on Facebook.  Michael Pachter, Wedbush Morgan Securities video game analyst, reports that social gaming has grown from approximately $600 million in 2008 to $1 billion in 2009.   


Further, he forecasts that social gaming will generate nearly $1.6 billion this year, and grow to more than $4 billion by 2013. Virtual goods beat advertising





Javelin Strategy & Research predicts that U.S. revenue from virtual goods will quadruple between 2009 and 2012, from $0.6 billion to $2.4 billion.



The increased use of virtual currencies and socially networked payments present new challenges to traditional payments services providers, regulatory bodies, and even cross-border economies. Virtual currency issues

In-App Purchases of $20 or More Account for 51% of Revenues

According to Flurry just 0.5 percent to six percent of mobile game app players spend money in free games. Spending on virtual currency

Just one percent of people who play Zynga's games are thought to account for between 25 percent and 50 percent of the company's revenues.

Now data published by mobile analytics company Flurry indicates that "whales" (big spenders)  are also a key source of income for freemium games on iOS and Android. The company analysed in-app purchases by 3.5 million mobile gamers, and found that the average transaction value was $14.

About 71 percent of all transactions are for amounts under $10, Some 16 percent of transactions are for $10 to $20 and 13 percent of sales are for amounts greater than $20.

In-app purchases for less than $10 account for 31 percent of the revenues. In-app purchases between $10 and $20 account for 16 percent of transactions and 18 percent of revenues.

In-app purchases of more than $20 account for a mere 13 percent of transactions, but 51 percent of revenues. In fact, five percent of all in-app purchases were for more than $50.

What is Money?

What is money, or currency? According to Bitcoin, money is any object, or any sort of record, accepted as payment for goods and services and repayment of debts in a given country or socio-economic context. In Bitcoin's case, "money" is a peer-to-peer exchange of value using a "Bitcoin," with no use of any central banking institution. http://bitcoin.org/

When the virtual currency bitcoin was released, in January 2009, it appeared to be an interesting way for people to trade among themselves in a secure, low-cost, and private fashion. Cryptocurrency

The Bitcoin network, designed by an unknown programmer with the handle "Satoshi ­Nakamoto," used a decentralized peer-to-peer system to verify transactions, which meant that people could exchange goods and services electronically, and anonymously, without having to rely on third parties like banks.

Its medium of exchange, the Bitcoin, was an invented currency that people could earn—or, in Bitcoin's jargon, "mine"—by lending their computers' resources to service the needs of the Bitcoin network. Once in existence, bitcoins could also be bought and sold for dollars or other currencies on online exchanges.

For small person to person transactions, there typically are no fees, thought complicated transactions might require some amount. Transaction_fees. But there is a problem. There are not many things a user actually can buy with a Bitcoin, transaction volume seems to be dropping, providing little incentive for real-world or digital goods merchants to accept them for payment. One take on Bitcoin

People have come to see it primarily as a way to make money. In other words, instead of being used as a currency, bitcoins are today mostly seen as (and traded as) an investment.

So just now the bitcoin boom of the past year looks not so much like the birth of a new currency as like a classic bubble. And this has created a real paradox for Bitcoin enthusiasts. The best thing for Bitcoins would be for people to stop thinking of them as an investment and start thinking of them as a currency. That probably requires the Bitcoin investing bubble to burst.

One of the reasons people seem to be hoarding Bitcoins is that there is a firm limit of 21 million Bitcoins in total, and the number of coins cannot be increased. That means Bitcoin value can fluctuate based on market demand, but cannot be bebased by "printing more Bitcoins." Controlled Supply

Bitcoin might wind up being an interesting experiment. Other similar systems might emerge. It appears almost certain that regulatory opposition from national governments will be an issue if any of the systems start to get serious traction. There are legitimate concerns about money laundering, criminal activity and tax evasion, for example.

So it is not likely "virtual currency" in the sense of a medium of exchange that supplements or competes with other existing currencies, is going to escape scrutiny by regulatory and governmental agencies. But it is interesting.

Right now, there is more interest in "captive" forms of value in the form of points, tokens or other "virtual" stores of value used within closed communities, and often for use within games such as Farmville. But as those activities grow, there is bound to be growing interest in virtual currencies that actually can be exchanged for "real world" currencies.