It still amazes me that people can make money creating and selling virtual scarves in virtual worlds but it’s happening and becoming increasingly normal.
When I first heard of virtual currencies they seemed an interesting novelty — created and usable only in virtual worlds. What caught my attention initially was hearing about a de novo bank starting up on Second Life looking to provide banking services in virtual dollars for real people. One of those services being the exchange of real dollars for virtual dollars. The concept of real money for virtual goods is fascinating to me.
When I started to hear about Bitcoin I found the model intriguing. An open, peer-to-peer currency with no central clearing structure. Hundreds of questions came to mind and for most of them the answer was found not in hierarchical structures of trust but in the use of technology and a principle of transparency. There is a great irony in Bitcoin:
With Bitcoin: everyone knows what everyone else is doing — but nobody knows who anyone else is.
In many ways this is the antithesis for traditional currency and payments systems which are built on networks of counterparty trust and knowing the other party. For more about Bitcoin, the Economist’s Babbage Blog has a great article on the topic.
So is this a currency side-show or is there something real to be aware of here in the banking context? What I am seeing happening is a theme of convergence: Bitcoin is a combination of technology and currency where technology is filling some of the gaps and voids previously held by clearing houses and dedicated networks. As with most new technologies, there are flaws and an almost frontier like quality to the world of Bitcoin. Hackers have flooded the Bitcoin network with malware and forced devaluation, people have had Bitcoins stolen. The Bitcoin hardly seems a safe haven for real dollars — even with the uncertainty in the global economy.
Still there is a growing legitimacy in the world of virtual currency. What caught my eye this morning is that 15,000 Wells Fargo and Chase Manhattan customers will be able to deposit cash into ATMs and receive Bitcoins. Currency analysts and speculators are covering the ‘currency’ and discussing it as though it were a going concern. The purveyors of virtual goods are also making real money. Bridges between the virtual world and the real world are being built and this serves to bolster and substantiate the concept of virtual currencies and their implementations.
I have seen over time how given a strong foundation and community software will evolve and adapt to mature and meet the needs of the community — or new splinters and iterations will emerge and evolve. This is what I think is most interesting about the intersection of currency and software — that this is just the beginning.