Beginning in the first quarter of 2010, social networking sites IMVU and MyYearbook announced that they will launch a virtual currency exchange allowing users from either service to exchange currency between the sites. This is particularly interesting, primarily because it gives users on both platforms a perception of value in both currencies. It doesn’t by itself create one “universal” currency, but in fact leads the path to multiple currencies being popular among users.
Additionally, this is a more subtle way of exchanging users, and growing a community. Users with one currency can now take their value to another site, and vice-versa, thus creating a user exchange through the medium of currency. It is particularly significant because users who transition from one currency to another likely have a higher value because paying users are more likely to spend money on the new site they visit.
Despite these opportunities, currency exchanges bring some challenges in the long term. As long as these exchanges are tightly controlled and the number of participating currencies is small, it poses fewer problems. However, over time, as more currencies jump in, there will be a need for more regulation and monitoring. Specifically, issues around fraud and money laundering will have to be addressed. Instability of any one currency can also pose risks for other currencies. These challenges can potentially be addressed by ensuring there are well-structured rules and regulations around the exchange. For example, there will need to be controls that grant permission for users to participate in the virtual currency exchange program. Publishers will also need to store the history of users’ transactions, which can be used to protect the users from certain kinds of abuse. In addition, participating currencies will need to establish a shared concept of user identity to prevent fraud.
Virtual currency exchanges are still in the early stages, and potentially only a select few currencies will engage in these exchanges because of the risks involved. For indie developers who aspire to be included in the set of currencies users can exchange, as their currency grows in popularity over time, they will have the opportunity to choose whether to participate in such exchanges. As currency exchanges develop further, it will be clearer whether the rewards will outweigh the risks.
