To get to the point - I'm worried about BitCoin.
Well, it is a non-fiat, non-centralised electronic currency. That is, BitCoin is not issued by any government; nor is it generated centrally by some other authority; and it does not have any physical manifestation. Technically BitCoins are digital files that sit in a distributed peer-to-peer database that use electronic signatures hence encryption as a fundamental to several aspects of their function. All BitCoin transfers are made public but the parties to the transfer are not. BitCoins can be bought (form those that have generated them) or self generated. Generation occurs through a process termed ‘mining’ which is getting ones computer to solve a hard mathematical problem, the problem is sufficiently difficult that there is an infinitesimal chance that ones computer will solve it at any one try, what’s more the difficulty changes with respect to number of factors such as time - there’s also an on-going process of creation, but let’s not get too into the details.
On the face of it BitCoin seems like other electronic currencies – such as WoW Gold. However there is a wide variety in electronic currencies and BitCoin is not quite like others.
So, BitCoin is like the kinds of virtual currency we are used to talking about on TN in at least a few relevant ways: it’s not backed by any asset or state, it’s electronic and its value is determined by the market (though this is increasingly true of most types of currency). Having said that, the kinds of currencies we talk about here are not as similar as one might think, here is a quick (non-exhaustive) run down of what is out there in currency land:
Fiat currencies - Those issued by states like China’s Renminbi, or the UK’s Stirling.
Hard Electronic Money - Electronic money systems where exchanges are non-reversible – these come in several types depending on what they are based on. Thus an e-currency virtual wallet on a mobile phone and BitCoin are hard electronic currency but the former has value in virtue of is representing fiat currency value, the latter’s has value do to the belief in the value of the currency in-and-of itself.
Soft Electronic money - Electronic money systems where exchanges are reversible, again there can be multiple types of Soft Electronic Money but the ones I’m aware of stand in for fiat currencies e.g. PayPal.
Closed economy game / social currency - A ‘currency’ that is limited by contract to only be used in a game. Technically these are not currencies but rather a limited license to use an element of a game or social network which themselves have no inherent value and there is no guarantee of access or redemption. Though, in practice, of course these are often used as tokens of exchange. An example of this is WoW gold.
Ingress-only game / social currency - An ingress (my term) currency is the same of a closed economy but the ‘currency’ can be. Note the property of no guarantee of access or redemption is retained even though a user may think they have purchased the right to access the ‘currency’ and trade it for electronic goods such as games or clothes. See Habbo Hotel, Xbox Points etc.
Exhalable economy game / social currency - This is a ‘currency’ that can be both bought and sold but does not legally retain value. For example, a Linden Dollar is traded as if it holds value but legally what is being traded are limited license to use elements of software that have no guarantee that they will exist over time and explicitly no inherent or redeemable value.
Semi-regulated game / social currency - This category is more about the state in which a currency persists rather than, in part, the currency itself. For example China and Korea have laws pertaining to in-game currencies that regulate their use – in the case of China this banned the use of QQ Coin for consumer to business transactions, in the case of Korea it enabled the sale of in-game currency between players.
Other - I’m not quite sure where EvE Online sits with the invention of PLEX (Pilot License Extension) as this is an in-game object that represents game time, which in turn has a direct financial value, so it’s kind of a in-game but ingress-by-proxy-feedback-something-currency.
So BitCoin is kinda like other currencies you might be aware of. One similarly that you will have spotted is that generated BitCoins is like bot-grinding i.e. you set your computer going at a mathematics quest and it has a chance of getting a loot drop but the probability changes based on certain game factors.
It’s the ‘kinda’ that worries me. As I hope my list above illustrated as soon as we move away from fiat currencies the exact different between one thing that looks like a currency and another gets rather complex.
My worry is the one I’ve had for some time, as all this virtual stuff starts to get more political and media attention the chances of staggeringly bad regulation and statute rises. Now, I’m all for regulation when it’s appropriate and regulation of virtual world / social media currencies may be a good thing – especially to protect consumers (ingress-only currencies already seem to be out of step with EU consumer law if you ask me). But the level of literacy about the complexities and social practices that surround things like virtual currencies is worryingly low. The Internet is a series of tubes remember.
So far we have a senator in the US, Charles Schumer, talking about BitCoin though largely in relation to allegations first made in Gawker about the use of BitCoin to purchase drugs on SilkRoad and suggests BitCoin is used for Money Laundering. LulzSec say they have received USD $7200 in BitCoin (http://twitter.com/#!/LulzSec/status/77771916794011648) which is sure to upset many.
If people like Schumer make moves for an outright ban of a class of currency it’s in everybody’s interest to carve out a space where virtual currencies can exist. One way might be for us to come to some agreement about how we would characterise virtual currencies as a matter of law – that is not argue over whether these things are property or not but provide a positive workable legal definition of what a virtual currency is that can be dragged and dropped into any putative legislation.
See tVPN’s work on virtual items and currency as a background doc: http://www.virtualpolicy.net/wp-virtual-items-public-policy