Virtual Money
Internet Law & Cyber Commerce
June 7, 2012
Sharon Herman
What is Money?
• Investopedia defines “Money” as:
1. A commodity or asset, such as gold, an officially issued
currency, coin or paper note, that can be legally exchanged for
something equivalent, such as goods or services.
2. As defined by common law: a medium of exchange that is
authorized or adopted by a domestic or foreign government and
includes a monetary unit of account established by an
intergovernmental organization or by agreement between two
or more nations.
Money has a Store Value, is a Medium of Exchange, and a Unit
of Account.
Who is eligible to Issue Money?
• Israel:
,‫ מעות‬,‫ שום אדם זולת הבנק לא יוציא ולא יפיץ שטרי כסף‬:'‫ א‬44 ‫ סעיף‬,2010 ‫• חוק בנק ישראל‬
.‫ אשר הנגיד קבע כי הם עשויים להיות תחליף מטבע‬,‫ או כל דבר אחר‬,‫מסמך‬
‫ מטבע שהוציא הבנק יהא הילך חוקי בישראל כדי הסכום‬:'‫ ב‬41 ‫ סעיף‬,2010 ‫• חוק בנק ישראל‬
.‫הנקוב בו‬
.‫ המטבע של ישראל יהיה שקל חדש‬:'‫ א‬1 ‫ סעיף‬,1985 ‫• חוק מטבע השקל החדש‬
• US:
• Federal reserve notes are issued at the discretion of the Board of Governors of the
Federal Reserve System. (Federal Reserve Act, Section 16 (1) or 12 USC ss.411).
• US coins and currency are legal tender for all debts, public charges, taxes and dues.
Foreign gold or silver coins are not legal tender for debts. (31 USC ss.5103 - Legal
• European Union:
• Article 128 of the Treaty on the Functioning of the European Union: The European
Central Bank shall have the exclusive right to authorize the issue of banknotes within
the Union. The ECB and the national central banks may issue such notes. The
banknotes issued by the ECB and national central banks shall be the only such notes
to have the status of legal tender within the Union.
Exchange… if it’s Secure
The EURO notes include approximately 30 security features, including:
Variable colour ink
Ultraviolet light- EURion
• Watermarks
• Infrared and ultraviolet
Security thread
Magnetic ink
Magnetic serial number
Matted surface
Bar code
Digital watermark
See also:
Let’s talk (Virtual) Money in a……
Closed Circuit
Hybrid Circuit
Open Circuit
What is a Virtual World?
“A synchronous, persistent network of people, represented as
avatars, facilitated by networked computers.” (Mark W. Bell at Indiana University)
• A 3D computer environment in which users are represented
on screen as themselves or as made-up characters (through
avatars) and interact in real time with other users and create
• Persistent- the world must continue to exist even after a user
exits the world, and user-made changes to the world should
be preserved.
What is a Linden Dollar?
5.1 Each Linden dollar is a virtual token representing contractual permission from Linden Lab to access features of the
Service. Linden dollars are available for Purchase or distribution at Linden Lab's discretion, and are not redeemable for
monetary value from Linden Lab.
The Service includes a component of virtual tokens ("Linden dollars" or "L$"), each of which constitutes a limited license
permission to use features of our Service as set forth below. Linden Lab may or may not charge fees to acquire or use Linden
dollars, and these fees may change at any time.
When you acquire a Linden dollar, Linden Lab hereby grants you a limited license ("Linden Dollar License") to use the Linden
dollar as a virtual token to be held, bartered, traded and/or transferred in Second Life with other users [EXCHANGE] (and/or
Linden Lab), in exchange for permission to access and use Content, applications, services, and various user-created features,
in accordance with these Terms of Service. The Linden Dollar License is transferable by the holder to any other user,
provided that both users comply with these Terms of Service, maintain their Accounts in good standing, and are not
delinquent on any Account payment requirements. Except as expressly permitted by this Agreement or otherwise expressly
permitted by Linden Lab, the Linden Dollar License may not be sublicensed, encumbered, conveyed or made subject to any
right of survivorship or other disposition by operation of law or otherwise, and you agree that any attempted disposition in
violation of these Terms of Service is null and void.
Linden Lab may revoke the Linden Dollar License at any time without notice, refund or compensation in the event that: (i)
the Linden dollar program is suspended or discontinued; (ii) Linden Lab determines that fraud or other illegal conduct is
associated with the holder's Account; (iii) Linden Lab imposes an expiration date on usage of Linden dollars in compliance
with applicable laws and regulations; (iv) the holder's Account is terminated for violation of these Terms of Service; or (v)
the holder becomes delinquent on any of that user's Account payment requirements, ceases to maintain an active Account
or terminates this Agreement.
You acknowledge that Linden dollars are not real currency or any type of financial instrument and are not redeemable for
any sum of money from Linden Lab at any time. You agree that Linden Lab has the right to manage, regulate, control, and/or
modify the license rights underlying such Linden dollars as it sees fit and that Linden Lab will have no liability to you based
on its exercise of this right. Linden Lab makes no guarantee as to the nature, quality or value of the features of the Service
that will be accessible through the use of Linden dollars, or the availability or supply of Linden dollars.
Legal Issues in the Virtual World
“We need to police these lawless frontiers.” (Greg Lastowka, authorof VirtualJustice)
• Legal system has not determined whether virtual property should be treated as if it were
physical property. Implications for tax laws, criminal proceedings on theft and transfer of
ownership, inheritance planning and more….
[Note: January 31, 2012: Supreme Court of the Netherlands found that items in the online game RuneScape had been stolen
from a player, subject to criminal law. Note too: China and South Korean courts displayed a trend to grant more rights to
players than stated in their contract and to see digital objects as being akin to physical property in certain important respects.]
• Other Issues:
• Intellectual Property—Protect virtual world items and currency from unauthorized copying and
marketplaces. Avoid liability by developing and implementing a sound DMCA policy.
• Terms of Service Agreements—Customize to take into account your specific business model and
• Tax—Gains from virtual worlds currency and sale of virtual goods raise tax concerns. Several
countries have already taken steps to track and tax such gains.
• Data Privacy and the Children’s Online Privacy Protection Act (COPPA)—Due to the significant use of
virtual worlds by children, and unique privacy issues associated with the collection of data from
children, understanding and abiding by COPPA are critical.
“Real” Laws, Terms of Use, Code?
• In-game community determines social construct – laws.
If we have “toading” why do we need outside interference?
• Virtual world super-users often have the ability to restore accounts and equipment.
• Governments shouldn’t interfere with the internal regulations of virtual worlds. The value
of a virtual world is the fact that it exists, in an imaginary sense, outside the bounds of the
real world. We visit virtual worlds to escape the real world.
• “Code is law“ (Lawrence Lessig, 1999)
• Freedom of Contract- BUT, if there is no protection of private property or protection
against fraud or force, it seems like an empty claim.
What is an MMO/MMORPG?
• MMO: A massively multiplayer online game (also called MMO and
MMOG) capable of supporting hundreds or thousands of players
simultaneously. Played on the Internet.
• Game consoles (including the PSP, PlayStation 3, Xbox 360, Nintendo
DS, Ps vita and Wii) and Mobile devices and smartphones (with
Android, iOS and Windows Phone) can access the Internet and may
therefore run MMO games.
• See:
• MMORPG: Massively multiplayer online role-playing game where a
very large number of players interact with one another within a
virtual game world.
• Examples: World Warcraft, World of Darkness, StarWars: The Old Republic, The Secret
World, Guild Wars 2 (the Top 5 MMORPGs of 2012 according to
Money? Who issues it? How do you earn it? Where can you use it?
Buy it? How do you exchange it?
Currency? Who issues? Exchangeable? Auction? Real Auction?
What is a Facebook Credit?
“The safe and easy way to buy things on Facebook.”
• Use to buy virtual goods in all games on the Facebook platform; can be purchased using credit card,
PayPal, mobile phone, etc.
• Aim: making transactions simpler for users and higher conversion rates for developers.“ (Facebook
retains 30% and developers get 70% of all revenue earned through Credits).
• In 2011, Facebook’s non-advertising revenue was $557 million (15% of total revenues). Users (only 15
million of Facebook’s 900 million members) spent close to $2 billion in Credits in 2011…..
• Acquiring Credits outside of Facebook: Via Gift cards , shopkick (allowing users to earn Credits by
checking in to stores with an iPhone or Android application), ifeelgoods (enabling online retailers to
offer Credits as incentives for making purchases, signing up for e-mail newsletters, and other actions,
AppDog (which awards users with an Apple or Android mobile device with free Facebook Credits in
exchange for downloading apps, and TrialPay (which issues Credits as an incentive for users to sign up
for advertiser services, complete market research surveys or interact with brand-sponsored
• Spending Credits outside of Facebook: Warner Brothers this summer offered movie-goers a chance to
watch “Harry Potter” and “The Dark Knight” for 30 Credits apiece. Miramax and Paramount countered
with film-viewing offers, too.
The Virtual Goods Market
$2.9 B in 2012
(expected- JUST IN THE USA), up from $2.2 billion in 2011, (Inside Network Report).
What is a BitCoin?
• Bitcoins are a peer-to-peer internet-driven cryptocurrency.
• A community currency which requires self-policing.
• Can be used to purchase REAL world goods and services among willing
• Advantages: Degree of anonymity provided; divisible (more flexibility in
sales); no central monetary authority; no intermediaries and no
transaction fees.
• Disadvantages: Security; Credibility.
• FBI Concerns: Venue to generate, transfer, launder, and steal illicit funds
with some Anonymity; acceptance of Bitcoins as payment by cyber
criminals (Silk Road); money laundering; exploitation of services and
individual’s wallet by compromising personal computers and accounts
using malware hacking to steal and botnets to generate; cyber crimefunding illicit activities, useful tool for illegal activities beyond cyber realm.
What is Virtual Money?
“The future of our civilization’s money”
• Virtual World Currency: Circulate within internal virtual world communities. Accumulating
fictional money takes time, but helps improve game experience (acquiring accessories,
weapons, or land). Buying virtual goods signal players' social standing, showcases their
virtual identity, and opens more doors for experience. Virtual world currencies can turn into
real money profits.
• Corporate Value Currency: Acquired by engaging with a company or participating in a
loyalty program (points, credits, mileage, and badges). Tied to a company's product or
service, not any official tender. Earned by mastery, redeeming prizes, and earning freebies.
Facebook Credits, the universal currency for buying social games and applications on
Facebook integrates traditional promotions and deals. People perceive their value as
higher than their cost.
• Peer to Peer Currency: Driven by networked communities and serve as an alternatives to
centralized bank currency: Bitcoin, system operated by computing networks that
collectively encrypt, verify, and process transactions, like a Bittorrent for cash.
• Mobile Fiat Currency: Mobile fiat currency allow consumers to send and transfer legal
tender using their mobile phone (Square- pay by swiping a credit card through a plug-in
device on the iPhone; Pay Pal’s app scans a credit card number using the phone’s
camera; Google Wallet, Zong, and Isis, invest in “Near Field Communication (NFC)”
technologies- tap smartphone on a reader to complete a transaction).
Future of Virtual Money
• Virtual currencies and e-commerce platforms have risen and
fallen faster than consumers have had time to adopt them.
• “… we have a zillion different ways of doing financial
transactions. There's cash, checks, credit cards, debit cards,
wiring money, traveler's checks ... each of these has a
particular point. We're going to see that much diversity in
digital money." (Microsoft’s former CTO Nathan Myhrvold, 1994 Wired)
• Each type of virtual currency affords unique advantages and
disadvantages for specific situations. It is a future not of digital
money, but of digital monies. To shape it, we need to better
understand where our money system has been, where it is
now, and where we would like it to go next…..

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