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Tuesday, May 30, 2017

2017 BIZ: IMA: Virtual world money: Virtual world commerce needs micropayments

Virtual world money: 
Virtual world commerce needs micropayments  
Commerce in virtual worlds depends on selling things at low cost.  We can do that because replacement cost is zero and selling costs are very small.  But low cost means that we need a way to pay in micro-payments.   Here I give some background, cite various systems for micro-payments, and give superficial consideration to their prospects. 
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  • Virtual world goods will only sell at prices considered small by the customer.
  • Inworld currencies can use denominations that accommodate that need.
  • Content creators want to convert inworld earnings to outworld money.
  • OpenSim has many grids.  Single grid currency is not satisfactory.
  • How can we have a multi-grid currency that converts to outworld money?
  • And also accommodates micro payments. 
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  • (More after the break, scroll down!)
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Key concepts

Micropayments

A micropayment is a financial transaction involving a very small sum of money and usually one that occurs online. A number of micropayment systems were proposed and developed in the mid-to-late 1990s, all of which were ultimately unsuccessful. A second generation of micropayment systems emerged in the 2010s.
While micropayments were originally envisioned to involve very small sums of money, practical systems to allow transactions of less than 1 USD have seen little success. One problem that has prevented the emergence of micropayment systems is a need to keep costs for individual transactions low, which is impractical when transacting such small sums even if the transaction fee is just a few cents. --Wikiipedia

Virtual economy

A virtual economy (or sometimes synthetic economy) is an emergent economy existing in a virtual world, usually exchanging virtual goods in the context of an Internet game. People enter these virtual economies for recreation and entertainment rather than necessity, which means that virtual economies lack the aspects of a real economy that are not considered to be "fun" (for instance, avatars in a virtual economy often do not need to buy food in order to survive, and usually do not have any biological needs at all). However, some people do interact with virtual economies for "real" economic benefit.
Despite primarily dealing with in-game currencies, this term also encompasses the selling of virtual currency for real money. --Wikipedia

Digital currency

Digital currency or digital money is distinct from physical (such as banknotes and coins) that exhibits properties similar to physical currencies, but allows for instantaneous transactions and borderless transfer-of-ownership. Examples include virtual currencies and cryptocurrencies, among others. Like traditional money these currencies may be used to buy physical goods and services but may also be restricted to certain communities such as for use inside an on-line game or social network. --Wikipedia

Money

Money is any item or verifiable record that is generally accepted as payment for goods and services and repayment of debts in a particular country or socio-economic context, or is easily converted to such a form.  The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, sometimes, a standard of deferred payment. Any item or verifiable record that fulfills these functions can be considered as money.   --Wikipedia

A medium of exchange  

A medium of exchange is an intermediary used in trade to avoid the inconveniences of a pure barter system.   --Wikipedia
Fiat currencies are the generally accepted mediums of exchange. Their most important and essential function is to provide a 'measure of value'... Hifzur Rab has shown that the market measures or sets the real value of various goods and services using the medium of exchange as unit of measure i.e., standard or the yard stick of measurement of wealth. There is no other alternative to the mechanism used by the market to set, determine, or measure the value of various goods and services. Determination of price is an essential condition for justice in exchange, efficient allocation of resources, economic growth, welfare and justice. The most important and essential function of a medium of exchange is to be widely acceptable and have relatively stable purchasing power (real value).   --Wikipedia

Internet payment systems, micropayments

Paypal

Paypal is the established service in internet payments.  Its standard transaction costs are too high to be reasonable for micropayments.   It has a special Micropayments service:

Other micropayment systems

These systems  either allow many micropayments but charge the user's phone bill one lump sum or use funded wallets.  

Virtual world micropayment systems

Second Life Lindens

The currency in Lindens, established by Linden Lab for Second Life, is the best known of the virtual world currencies.  It is a complete medium of exchange in that it can be exchanged for a fiat currency such as the US dollar. The exchange rate floats against the dollar, but the Linden money supply is managed by Linden Lab.  

 The Linden system is a grid-level monetary system, meaning that it is exclusively available in Second Life.  It thus does not function as a virtual world currency and cannot grow into that role.  It may be worth considering as a model for possible virtual world currencies.

OpenSim grid-level currencies

Various grid-level currencies exist in OpenSim.  Some of these, as on Kitely, do not allow exchange for a fiat currency and so do not function as a complete medium of exchange.  

 A currency that allows exchange in both directions (can be bought and sold for a fiat currency, such as USD) is exposed to fraud and to legal conditions designed to prevent tax evasion and money laundering.  While a large operation, such as Linden Lab, can afford the cost of managing the legal conditions, that cost will set some minimum size for a full medium of exchange operation.  To remain profitable, a company will need to charge some amount per transaction.  To attract customers, the company will need to keep that charge small (as perceived by customers).  A company could afford legal costs only if it has enough transactions to spread the costs to a small charge per transaction.

Fiat currencies as a medium of exchange

Kitely Market allows transactions either in Kitely currency or in US dollars.   To buy in US dollars, a customer needs a Kitely account with a payment method.  

Multi-grid payment systems

Comment

I think the model to beat at this time is the PayPal model.  Their micropayment charges are a bit high and they don't make it easy for sellers to use the service.  But PayPal is an established and trusted payment with a very large existing user base.  The merchant using PayPal has many potential customers that already have PayPal accounts.  

 Cryptocurrencies could become the winning model in the future. They have no direct use charge, but they may fluctuate in value.  They could handle micropayments.  Bitcoin seems to be gaining some acceptance as a medium of exchange.  But process is too complicated for most people to use and feel comfortable with.  

 Sellers will be interested in using it only if their customers want to pay in that currency--and if it is widely accepted or they can quickly convert it to a widely accepted currency.  Buyers will be interested in using it only if it is accepted as payment for things they want to buy.  

 Both of those things may be emerging now.  But we are not there yet.

Gloebit , Podex or any other inworld currency seems to me to be less promising as a business proposition for several  reasons:

I see no advantage to limiting the target market to virtual worlders.  Nobody makes much money on a micropayment.  The way to make money lies in volume and that comes from having a large target market.  

PayPal is already an established business with an established customer base.  Starting in competition with an established seller requires much lower prices and deep pockets.  I see no reason to think that a virtual world start-up could make money at lower prices than PayPal can offer.  

A start-up currency must get an attractive collection of sellers to accept that currency before the currency has any value to the people who would buy with it.  A PayPal account already has recognized value to a large number of people, whether sellers or buyers.
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News and Notes

The Hypergrid WIP Show

  • The Hypergrid WIP is a one hour "show & tell" of works in progress. 
  • Everyone is invited.  Building, scripting, entertainment-- whatever you are working on.
  • Selby may capture video of presentations in voice, for posting on YouTube.
  • The WIP show normally meets on 2 Sundays a month at 12 pm California time.
  • The show meets at the Pandora location on the second Sunday 
  • But may not meet in the summer.
  • And at Cookie II on the fourth Sunday.  
  • To keep up with the WIP meetings, join the Kitely group, Work in progress.

Next WIP meeting

    • Sunday June 11, noon SLT (California) time
    • Pandora Location: (second Sunday of the month)
    • Pandora allows presenters to run high threat OSSL functions.
    • world.narasnook.com:8900
    • Put the line above in your World Map next to Find.  Click Find. TP
    • At Narasnook, use World Map to search for Pandora
    • Cookie II location (fourth Sunday of the month)
    • HG address below: paste into the World Map next to Find. Click Find, TP
    • grid.kitely.com:8002:Cookie II 
    • in Kitely: paste into Nav (top) bar of Firestorm, Enter.
    • hop://grid.kitely.com:8002/Cookie II/68/369/22

            Previous Articles from the WIP show 

            HG links-- depending on your interests 

            Communities in the virtual worlds

            Radio in the virtual worlds

            Metaverse beginner help

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