The Dematerialisation and Democratisation of Currencies: a historical description of currencies and how the physical has been replaced with the virtual more |
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Submitted
to
IR
11.0
please
do
not
cite
without
authors
permission
October
2010
The
Dematerialisation
and
Democratisation
of
Currencies:
a
historical
description
of
currencies
and
how
the
physical
has
been
replaced
with
the
virtual
Ulf
Sandqvist
Umeå
University
Department
of
Economic
History
ulf.sandqvist@ekhist.umu.se
Peter
Zackariasson
University
of
Gothenburg
School
of
Business,
Economics
and
Law
peter.zackariasson@handels.gu.se
ABSTRACT
In
this
paper
we
examine
the
relation
between
the
dematerialisation
of
currencies
and
democracy.
We
argue
that
money
play
an
important
role
in
any
democratization
process,
as
it
enables
and
provide
assets
needed
for
individuals.
Physical
currency
has
a
long
history
in
supporting
trade.
It
has
also
existed
in
many
different
shapes,
depending
on
local
demands
and
practices.
In
the
shaping
of
virtual
worlds
cybercash
has
been
made
a
part
of
this,
although
the
trade
practices
depends
on
the
type
of
virtual
world:
extension
worlds
or
detension
worlds.
But,
learning
from
the
historical
development,
cybercash
can
be
compared
to
other
forms
of
currencies
and
therefore
it
is
very
likely
that
cybercash
will
be
as
important
for
any
democratization
process
in
virtual
worlds
as
currencies
has
been
in
the
physical
world.
INTRODUCTION
In
his
introduction
to
one
of
the
first
anthologies
on
Cyberspace
Benedikt
(1991)
plots
the
many
meaning
of
this
Gibsonian
term:
technology,
cyborgian,
parallel
universe,
information.
Indeed,
there
are
many
ways
to
describe
Internet
and
how
these
technologies
have
affected
us
humans
and
our
interaction.
Although
almost
20
years
has
past
from
since
the
texts
in
this
anthology
was
written
its
centre
of
gravity
still
remains:
cyberspace
as
a
space
for
democracy.
What
is
so
galvanizing
today
is
that
technologically
advanced
cultures
–
such
as
those
of
Japan,
Western
Europe,
and
North
America
–
stand
at
the
threshold
of
making
that
ancient
space
both
uniquely
visible
and
the
object
of
interactive
democracy.
(Benedikt,
1991,
page
3)
At
this
point,
the
cyberspace
imagined
by
Gibson,
and
other
authors
filling
this
conceptual
space
with
ideas
and
metaphors,
has
in
many
parts
come
to
life
through
Internet.
We
have
seen
Internet
making
it
possible
for
individuals
to
interact
and
make
their
voices
heard.
In
that
aspects
the
interactive
democracy
envisioned
in
1991
is
a
reality
in
2010.
But
as
Internet
has
grown
it
has
also
opened
up
discussions
for
a
wide
variety
of
other
topics.
In
some
aspects
so
many
that
the
impact
of
all
voices
at
the
same
times
makes
all
voices
mute
–
everyone
are
talking,
but
no
one
is
listening.
Internet
and
interactive
democracy
is
therefore
today
no
longer
a
possible
future,
but
Internet
and
democracy
is
integrated
in
the,
at
occasions
overwhelming
and
incomprehensible,
constant
stream
of
discussions
about
society
and
life
(e.g.
Benkler,
2006;
Castells,
1996;
Ludlow,
2001;
Zittrain,
2008).
1
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2010
Economy
and
currencies
is
inevitable
always
an
intertwined
aspect
of
democracy
(e.g.
Palast
2002).
This
is
true
no
matter
if
the
topic
is
Internet
in
the
21st
century,
or
monarchies
in
the
16th
century.
One
example
of
this
is
the
recent
transformation
for
us
European
citizens
and
the
introduction
of
a
common
currency
in
the
Euro.
When
deciding
on
changing
from
a
national
currency
to
a
European
currency
democracy
has
been
enrolled
as
an
argument
(Siedentop,
2001):
do
a
nation
lose
its
democracy
if
they
decide
to
use
the
Euro?
Do
the
power
of
the
democratically
elected
government
move
from
the
capital
of
a
nation
to
Brussels?
Disregarding
what
we
think
democracy
ought
to
be,
money
is,
on
most
occasions,
enrolled
in
the
practice
of
democracy.
This
was
historically
the
case,
and
is
also
the
case
with
virtual
currencies.
In
this
conceptual
article
we
will
explore
how
currencies
that
has
been
introduced
in
virtual
worlds,
cybercash,
has
affected
the
democratization
of
Internet.
What
are
the
roles
of
currencies
in
virtual
worlds
and
how
do
these
enable
individuals
to
form
democratic
virtual,
and
physical,
societies?
In
order
to
understand
the
relation
between
currencies,
democratization
and
virtual
world
there
is
a
need
to
understand
of
the
function
of
currencies
both
historically
and
conceptually.
But,
foremost
we
must
realise
how
the
economy
of
the
real
world
has
oozed
into
the
virtual
world
and
today
economy
is
a
driving
factor
in
our
physical
and
in
virtual
worlds.
This
will
leave
us
with
an
understanding
that
the
dematerialization
of
currencies,
into
cybercash,
has
everything
to
do
with
democracy.
THE
STATE
OF
A
VIRTUAL
ECONOMY
Most
of
us
that
are
participating
in
virtual
worlds
are
familiar
with
the
economics
of
these
worlds,
selling
and
buying
what
we
need
for
consumption
of
other
purposes.
Just
as
elves,
swords
or
magic
wands
are
part
of
these
virtual
worlds
has
money
and
barter
also
has
been
ascribed
a
significant
part
of
this.
We
play
with
this
virtual
marketplace,
just
as
we
play
with
every
other
aspect
of
our
virtual
lives.
One
might
claim
that
in
order
to
become
economically
successful
in
a
virtual
world
one
must
be
a
good
capitalist.
If
one
cannot
manage
and
increase
the
wealth
it
is
impossible
to
improve
ones
equipment
and
it
does
not
matter
how
good
the
skill
is
in
using
a
dull
sword.
Thus
economy
and
the
understanding
of
this
is
not
an
optional
extra,
but
an
essential
part
that
the
participant
has
to
learn
and
master.
As
most
of
the
actions
in
the
real
world
are
economised,
the
tendency
to
evaluate
relationships
and
objects
from
an
economic
perspective,
the
threshold
to
adapt
to
a
virtual
market
is
quite
low.
Just
like
many
other
structures
we
find
in
the
real
world,
economy
seems
to
make
sense
to
us
and
are
many
times
taken
for
granted.
Soon
after
these
economic
structures
were
in
place
virtual
goods
started
to
change
owners
by
means
of
external
structures,
using
real
currencies
as
payment.
The
economy
of
virtual
worlds
was
thus
connected
with
the
economy
in
the
real
world
(Castronova,
2002).
Thus
the
capitalistic
structures
that
in
most
nations
were
employed
to
secure
wealth
and
happiness
were
adapted
to
the
virtual
which
resulted
in
the
birth
of
cyber
capitalism
(Zackariasson,
2009).
2
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2010
Today
this
Real
Money
Trade
(RMT),
consisting
of
virtual
goods,
virtual
currencies
and
services,
is
a
rapid
growing
industry
that
is
estimated
to
exceed
$100
million
(~73,3
million
EUR)
each
year
(Castronova,
2006).
There
are
even
claims
from
the
game
industry
that
it
is
worth
almost
nine
times
that,
$887
million
(~642
million
EUR)
(Castronova,
2005).
Because
of
this
marketplace
many
times
dubious
legal
status
this
is
not
a
business
that
is
open,
as
professional
markets
in
the
real
world,
like
the
stock
trade
for
example.
Thus
these
estimates
only
give
a
rough
idea
about
its
impressive
size.
The
reaction
to
this
trade
has
been
mixed.
Developers
of
virtual
worlds
have
either
allowed
this
trade,
even
encouraging
it
and
making
it
an
important-‐part
of
that
virtual
world,
as
is
the
case
of
Ultima
Online
(Origin
1997).
In
other
cases
the
developer
has
banned
this
trade
as
a
violation
of
the
End
User
Licence
Agreement
and
subsequently
closed
down
accounts
involved
in
this
trade,
as
is
the
case
of
World
of
Warcraft
(Blizzard
2004).
According
to
Gaute
Godager,
Game
Director
for
Funcom
when
launching
Anarchy
Online
(2001),
RMT
is
not
primarily
a
financial
bad
for
a
developer.
What
it
instead
does
is
weakening
the
philosophy
of
these
virtual
worlds:
that
any
success
in
a
virtual
world
depends
on
your
action
within
this
world,
and
not
on
your
actions
outside
of
this
world
(Zackariasson,
2007).
But
it
could
actually
have
financial
negative
aspects.
Castronova
(2006)
argues
that
RMT
is
financially
negative
for
those
players
not
participating
in
this
activity
and
the
company
running
the
virtual
world.
Governments
in
different
countries
are
finding
ways
to
adapt,
or
control,
to
this
trade.
In
the
USA
National
Taxpayer
Advocate
2008
Annual
Report
to
the
Congress
recommends
to
the
IRS
to
(National
Taxpayers
Advocate,
2008):
1.
Work
with
the
Office
of
Chief
Counsel
and
the
Treasury
Department
to
issue
guidance
addressing
how
taxpayers
should
report
economic
activities
in
virtual
worlds
(or
at
least
ask
the
Office
of
Chief
Counsel
to
put
it
on
the
priority
guidance
plan)
along
with
other
emerging
issues;
and
2.
Invite
the
Taxpayer
Advocate
Service
to
appoint
a
representative
to
the
E-‐Business
and
Emerging
Issues
policy
group.
Despite
that
these
are
only
recommendations
to
the
IRS
they
highlight
a
feeling
of
urgency
in
dealing
with
RMT
on
a
legislating
level.
Instead
of
only
making
recommendations
the
Swedish
Tax
Agency
has
positioned
RMT
in
2008
as
a
business
activity,
therefore
being
an
activity
obliged
to
pay
VAT
(Value
Added
Tax),
if
the
total
annual
turnover
exceeded
30,000
SEK
(~
3,000
EUR)
(Skatteverket.se,
2008).
There
is
no
doubt
that
the
RMT
will
continue
to
grow,
both
in
size
and
in
its
content,
or
applications.
The
same
cybercash
might
in
the
future
be
used
to
facilitate
trade
between
different
virtual
worlds,
or
between
a
virtual
world
and
the
real
world.
But
at
this
point
both
RMT
and
cybercash
has
a
position
as
second
order
trade.
The
legal
status
has
in
many
cases
not
been
clarified,
but
more
important
there
has
yet
to
be
established
a
practice
on
par
with
the
trade
activities
that
is
conducted
in
the
real
world.
In
a
historically
perspective
these
phenomenon
are
parts
of
the
establishments
of
new
currencies.
Compared
to
physical
currencies
there
might
not
be
any
big
difference,
even
dematerialization.
Most
currencies
today
only
has
a
symbolic
value:
Euro,
Dollar
and
Cybercash.
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FUNCTION
MEANING
THE
FUNCTION
AND
HISTORY
OF
MONEY
Today,
most
people
in
the
western
world
Medium
of
Mediate
the
trade
of
take
a
functioning
monetary
system
for
Exchange
different
goods
granted
and
few
reflect
upon
the
role
that
money
has
in
our
economy.
It
is
only
Store
of
Value
Facilitate
value
over
in
extreme
situations,
like
in
a
deep
time
economic
crisis
when
the
monetary
system
stops
working,
that
the
central
Unit
of
Account
Measure
the
value
of
functions
become
apparent
-‐
like
the
different
goods
and
situation
in
Iceland
2008
and
Lativa
service,
for
2009.
The
Króna
and
the
Lats
were
all
of
comparability
a
sudden
no
longer
exchangeable
currencies.
Abruptly
the
value
of
notes
and
coins
became
very
instable
and
these
two
currencies
could
not
easily
be
exchanged
for
other
currencies.
This
illustrates
in
a
harsh
way
the
important
functions
of
a
currency.
Money
has
three
basic
functions:
1)
as
a
medium
of
exchange,
2)
a
store
of
value
and
3)
a
unit
of
account
(see
Table
1).
Medium
of
exchange
points
to
the
functions
the
money
has
during
transactions.
One
must
be
able
to
exchange
the
money
for
products
and
services.
It
is
important
that
one
can
walk
in
to
a
store
and
be
able
to
exchange
the
money
for
their
merchandise.
As
a
store
of
value
money
must
be
able
to
facilitate
value
over
time.
This
is
important
for
money
to
be
able
to
work
as
a
medium
of
exchange.
This
makes
for
example
livestock
a
poor
currency,
since
animals
have
a
limited
life
span
and
will
(probably)
lose
their
function
as
a
medium
of
exchange.
In
this
respect,
physical
money
is
a
somewhat
risky
medium
of
exchange
for
the
holder,
since
money
can
be
destroyed
because
the
risk
of
being
destroyed.
But
whenever
physical
money
is
necessary,
metal
and
especially
the
noble
metals
are
ideal
for
this
purpose
(the
characteristics
of
the
noble
metals
are
that
they
do
not
deteriorate
through
corrosion
or
oxidation).
No
currency
is
perfect
as
a
store
of
value,
however,
because
value
is
socially
constructed
and
therefore
it
will
always
fluctuate
over
time
depending
on
what
value
is
attributed
to
the
currency.
For
currency
to
retain
its
function,
it
is
imperative
that
its
value
is
reasonably
stable,
so
that
holders
can
choose
to
spend
their
money
today,
in
a
week
or
next
month
without
running
the
risk
of
losing
too
much
of
their
assets
on
the
way).
If
the
value
deteriorates
fast
(high
rate
of
inflation)
the
currency
will
soon
be
abandoned
for
other
currencies
or
commodities.
If
the
money
is
accepted
as
a
means
of
exchange,
it
will
be
the
unit
of
account
in
the
economy
(Krugman
et
al.,
2007).
It
will
be
the
yardstick
for
the
whole
economy.
The
value
of
a
commodity
will
be
measured
in
a
specific
currency
and
not
in
relation
to
other
commodities.
A
video
game
will
not
be
priced
in
x
numbers
of
t-‐shirts
or
empty
bottles
even
though
the
value
is
equal.
If
money
is
studied
historically,
it
is
apparent
that
there
has
been
a
large
diversity
and
that
many
different
objects
can
take
on
these
basic
functions.
4
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2010
HISTORY
One
of
the
fundamental
elements
of
human
society
is
exchange
of,
and
trade
with,
products
and
services.
This
activity
has
a
long
history
and
findings
from
excavations
show
how
objects
have
been
traded
over
long
distances
(Morgan,
1965).
But
it
is
probably
only
trough
the
Neolithic
Revolution
(roughly
8000-‐5000
B.C.)
that
more
standardised
currency
systems
evolve
to
support
this
trade.
Some
form
of
standardized
currency
must
have
played
an
essential
part
in
the
transformation
from
a
nomad
society
to
a
cultivating
domiciled
society.
The
economic
concept
of
a
currency
made
it
possible
to
develop
a
more
advanced
economic
system
with
an
advanced
division
of
labour
and
specialisation
within
the
population.
A
market
system
and
money
had
a
central
role
in
facilitating
this
type
of
trade.
The
currency
was
at
this
time
different
kinds
of
objects
and
the
diversity
of
objects
that
have
been
used
are
currency
is
quite
spectacular
(Einzig,
1996).
Different
kind
of
livestock,
crops,
goods
and
even
human
slaves
are
only
a
few
things
that
have
been
used
as
currency.
Examples
of
these
different
types
of
currencies
can
be
found
all
over
the
world.
For
example,
the
Aztecs
in
Mexico
used
the
Cocoa
seed
as
currency.
These
seeds
were
used
to
buy
all
other
products
with.
Shells,
rice
and
dried
fish
are
other
examples
of
commodities
that
have
been
used
as
currency
to
facilitate
barter
(Wetherford,
1998).
An
interesting
case
of
commodity
money
and
one
of
the
most
impractical
forms
of
money
is
the
fei,
stone
disc
money,
which
have
been
used
for
centuries
on
the
Island
of
Yap
(a
state
of
the
Federated
States
of
Micronesia)
in
the
Pacific
Ocean.
The
discs
varied
in
size
and
could
be
more
than
three
meters
in
diameter.
The
stones
had
a
hole
in
the
middle
that
made
them
somewhat
easier
to
move.
However,
because
of
the
properties
of
this
money,
it
became
common
practise
just
to
claim
the
money
without
actually
moving
it.
The
owner
could
then
trade
the
fei
for
goods,
or
services,
and
the
circulation
of
money
could
continue
without
the
stone
discs
ever
being
moved.
An
interesting
detail
is
that
if
a
stone
disc
was
lost
at
sea
it
was
still
possible
to
claim
it.
It
could
still
be
used
in
trade
even
though
it
could
have
been
lost
for
generations
(Einzig,
1996;
Mankiw
2006;
Wetherford,
1998).
The
first
metal
coins
appeared
in
Asia
Minor
(a
region
in
the
West
Asia
comprising
most
of
contemporary
Turkey)
in
the
7th
century
B.C.
These
coins
were
made
of
gold
and
silver
and
had
a
symbol,
or
picture,
printed
on
them
that
showed
where
it
was
stamped.
Up
until
the13th
century
A.D.
kings,
dukes
and
other
institutions
(e.g.
monasteries)
produced
coins,
usually
of
noble
metal
(e.g.
gold
and
silver).
The
coins
came
in
myriad
of
shapes
and
forms
and
had
different
diffusion
and
use.
Under
dire
economic
times,
producers
would
often
change
coins
by
reducing
the
amount
of
noble
metal
they
contained.
Problems
with
the
diversity
of
different
kinds
of
coins
and
fluctuation
of
value
lead
to
the
creation
of
institutions,
like
the
money
exchanger,
that
would
ensure
stable
value
and
constant
currencies.
The
exchanger
was
typically
a
person
that
knew
and
could
assess
the
value
of
money
and
estimate
exchange
rates
(Cameron
and
Neil,
2003).
Since
the
end
of
the
13th
century
when
the
Gold
Florin
was
established
there
has
been
a
functional
and
widely
used
money
system
in
Europe.
The
Florin
was
first
produced
in
5
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Florence
in
Italy
and
in
a
short
time
other
cities
also
implemented
and
used
the
same
coin.
This
created
a
fairly
stable
and
widely
used
currency
up
until
the
16th
century
when
other
currencies
were
created;
one
of
these
was
the
Silver
Thaler
that
was
used
widely
in
Europe
and
from
the
18th
century
also
in
America.
Over
time
many
countries
came
to
adapt
the
Thaler
toward
national
standards
and
eventually
this
currency
was
transformed
into
separate
national
currencies.
National
currencies
guaranteed
by
a
national
central
bank
are
a
fairly
new
phenomenon.
In
modern
economies,
from
the
18th
until
the
beginning
of
the
twentieth
century,
it
was
common
that
banks
issued
their
own
bills
or
banknotes.
It
is,
however,
only
after
the
First
World
War
that
this
has
become
a
common
practise
in
most
countries.
Up
until
WWI,
currencies
had
been
linked
to
gold
through
the
system
of
the
Gold
Standard.
This
system
collapsed
during
WWI
as
a
number
of
governments
financed
their
participation
in
the
war
by
increasing
the
number
of
banknotes
printed.
During
the
interbellum,
no
new
structure
to
handle
this
overproduction
of
banknotes
was
established.
One
of
the
most
well
known
incidents
with
inflation
also
occurred
during
this
period:
Germany
experienced
a
period
of
hyperinflation
during
the
1920s'
and
their
currency,
the
Mark,
lost
its
value
entirely.
Eventually,
notes
were
not
worth
more
than
ordinary
paper.
After
WWII
the
Bretton-‐Wood
system
was
established.
In
this
structure
all
currencies
were
linked
to
the
US
dollar,
which
was
in
turn
linked
to
gold.
Theoretically,
any
currency
in
the
structure
could
then
be
exchanged
for
gold.
But
this
system
fell
apart
during
the
1970s
when
countries
started
to
distrust
the
value
of
the
dollar.
The
US
had
large
economic
undertakings,
such
as
the
Vietnam
war,
and
the
dollar
to
gold
ration
was
not
maintained.
After
the
fall
of
the
Bretton-‐Wood
system
there
has
been
different
attempts
to
establish
a
more
stable
system,
but,
in
general,
currencies
have
been
floating
against
each
other.
Supply
and
demand
regulates
the
relationship
between
the
different
currencies.
At
the
core
of
the
supply
and
demand
mechanics
is
the
confidence
and
trust
that
society
have
in
currency.
If
large
enough
actors
believe
that
the
value
of
a
certain
currency
will
fall,
the
value
will
immediately
start
to
fall.
For
example,
this
was
what
happened
to
the
Icelandic
Króna
in
2008
when,
for
a
period
of
time,
it
could
not
be
used
in
trade
and
could
not
be
exchanged
for
other
currencies.
With
the
introduction
of
electronic
transfers,
large
amounts
of
money
can
be
moved
globally
and
exchanged
almost
instantaneously
with
a
possible
destabilising
effect
on
weak
currencies.
This
has
been
seen
as
problematic
due
to
the
negative
impact
on
affected
countries.
One
suggested
solution
is
a
Currency
Transaction
Tax
also
known
as
the
Tobin
tax.
Its
proponents
suggest
that
the
tax
would
be
more
democratic
and
generate
a
new
source
of
income
for
poor
countries
while
discourage
destructive
short-‐term
speculation.
As
history
shows,
control
over
the
currency
can
be
misused,
and
this
can
cause
serious
problems.
Especially
in
the
wake
of
the
rejection
of
the
Gold
standard,
a
large
number
of
currencies
have
gone
through
periods
of
poorly
functioning
currencies
and
high
inflation.
There
have
been
different
experiments
trying
to
establish
complementary
currencies.
6
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These
are
typically
more
limited
in
their
diffusion
and
some
examples
include
Liberty
Dollar,
Calgary
Dollars
and
LETS.
LETS
(Local
Exchange
Trading
System)
are
used
in
a
number
of
locations
around
the
world.
The
LETS
are
used
to
facilitate
trade
with
products
and
services
within
a
local
community.
All
participants
in
the
system
start
with
zero
LETS
and
can
then
trade
with
each
other
within
the
system.
This
works
because
it
is
aloud
to
have
a
certain
negative
balance
of
LETS.
A
central
registry
is
used
to
keep
record
of
the
amount
of
LETS
each
participant
owns.
These
systems
are
more
community
oriented
and
follow
a
philosophy
of
a
more
democratically
structured
currency.
The
system
will,
for
example,
give
purchasing
power
to
people
with
otherwise
small
assets
within
the
regular
monetary
system.
Even
though
in
this
system
money
is
not
physical,
the
system
itself
functions
like
normal
currencies
do,
but
with
the
difference
that
participants
have
a
greater
influence
and
has
a
better
over
view
of
the
economy
[www.gmlets.u-‐net.com].
CATEGORISING
THE
DIFFERENT
FORMS
OF
MONEY
As
has
been
shown
in
this
brief
historical
survey,
money
can
be
a
multitude
of
things
and
a
multitude
of
things
can
be
money.
There
are
few
restrictions
as
to
what
can
be
used
as
money,
even
though
different
options
are
naturally
more
or
less
practical
in
different
contexts.
By
definition,
anything
that
is
accepted
as
a
means
of
payment
can
be
used
as
currency.
The
pivotal
point
here
is
the
acceptance
-‐
people
must
think
of
it
as
a
viable
form
of
payment
in
the
present
transaction.
Over
time,
the
form
of
currencies
has
moved
from
physical
objects
to
money,
which
is
based
on
more
abstract
foundations.
Money
can,
according
to
Krugman
et
al.
(2007)
be
divided
into
four
basic
categories:
1)
commodity
money,
2)
commodity-‐backed
money,
3)
fiat
money,
and
4)
alternative
money
(see
Table
2).
Older
forms
of
money
are
examples
of
commodity
money.
Any
commodity
can
be
used
as
money,
but
the
reliable
commodity
to
use
is
some
kind
of
relatively
easily
attainable
noble
metal.
Depending
on
what
kind
of
commodity
is
used,
commodity
money
is
a
relatively
safe
currency,
because
it
retains
its
use
value
even
when
it
loses
its
capacity
to
be
used
as
currency.
For
example,
the
holder
can
always
produce
chocolate
from
cocoa
seeds
or
sell
gold
to
a
jewellery
store
even
if
his
or
her
cocoa
beans
or
gold
nuggets
are
not
accepted
as
currency.
A
type
of
money
that
is
related
to
commodity
money
is
the
commodity-‐backed
money.
This
type
of
currency
is
typically
based
on
paper
money,
but
the
value
is
backed
by
a
promise
of
a
subsequent
exchange
for
a
commodity.
The
purpose
of
this
system
is
to
avoid
locking
the
commodity
within
the
system,
while
retaining
the
stability
of
the
currency.
At
any
given
moment,
only
a
small
fraction
of
note
holders
are
likely
to
demand
that
their
money
is
exchanged
for
commodities.
Currencies
that
were
introduced
during
the
20th
century
and
are
used
today
are
called
fiat
money
and
are
not
connected
to
a
specific
commodity.
It
is
usually
issued
by
the
national
7
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2010
government,
has
no
intrinsic
value
and
is
only
backed
by
the
collective
acceptance
of
the
currency.
Different
types
of
alternative
money
have
been
introduced
to
exist
alongside
established
fiat
money.
Their
variety
is
great
but
it
is
generally
different
local
organisations
who
issue
this
kind
of
money
and
they
will
usually
only
have
a
narrow
local
acceptance
and
diffusion.
As
with
fiat
money,
these
currencies
will
in
the
end
depend
on
trust
and
belief
in
the
stability
of
the
currency.
A
disadvantage
with
alternative
money
is
that
these
currencies
will
not
have
the
same
credibility
and
backing
as
fiat
money,
which
is
backed
by
governments.
TYPES
Commodity
Money
MEANING
Made
out
of
a
commodity:
gold,
silver
cocoa
seed,
pearl
etc.
Commodity-‐backed
Paper
money
that
is
backed
up
by
noble
metals
Money
Fiat
Money
Alternative
Money
Paper
money
where
the
value
is
upheld
by
social
belief
and
practice
Local
money
issued
by
organisations
or
institutions
with
limited
acceptance
Table
1.
Types
of
money
VIRTUAL
WORLDS
AND
CYBERCASH
As
we
have
seen
from
this
description,
currency
has
long
been
present
in
our
society.
It
has
during
this
time
changed
shaped,
depending
on
local
circumstances
and
practices.
But
during
this
time,
currency
has
had
a
role
of
enabling
trade;
a
trade
that
had
the
capability
of
facilitating
the
development
of
societies
and
nations.
As
we
now
have
moved
into
the
virtual
world
we
have
translated
the
practice
of
currencies
into
these
worlds.
In
when
doing
that
we
have
also
brought
with
it
an
element
that
will
be
part
of
any
democratic
process
in
these
worlds.
Virtual
worlds
have
existed,
at
least,
from
the
end
of
the
1970s’
when
MUD1
was
constructed
at
the
University
of
Essex,
UK
(Bartle,
2003).
At
this
time,
and
until
the
end
of
the
1990s’,
these
worlds
were
mostly
text-‐based
because
of
the
technical
limitations.
But
despite
of
this
crude
environment
their
popularity
increased
and
the
MUD/MOO
scene
was
thriving
as
entertainment
and
social
platform
(Pargman,
2000).
In
general
there
are
two
different
categories
of
virtual
worlds
(Zackariasson,
2007;
2009):
extension
worlds
and
detention
worlds.
Extension
worlds
are
those
that
have
been
constructed
with
the
ambition
to
extend
the
real
world
into
the
virtual.
In
these
types
of
worlds
the
developer
strive
to
create
numerous
connection
between
these
two
worlds:
commercial,
sales
of
physical
goods,
and
established
real
world
business.
The
goal
is
to
8
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October
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incorporate
as
much
of
the
real
world
as
possible
into
the
virtual
world,
and
in
this
way
create
an
interesting
extension.
Detention
worlds
on
the
other
hand
have
quite
an
opposite
ambitions.
These
worlds
have
instead
the
aim
of
providing
an
alternative
to
the
real
world
and
these
virtual
worlds
are
therefore
isolated
from
the
physical
world.
The
physical
is
unwanted
and
destroy
the
illusion
of
an
autonomous
virtual
world
that
is
not
dependent
of
the
physical
world.
It
is
important
to
recognize
that
this
distinction
makes
sense
for
developers
of
virtual
worlds,
those
who
define
the
limits
of
a
virtual
world
and
what
it
will
include.
For
participants
this
distinction
might
not
make
as
big
sense
as
both
extension-‐
and
detention
world
offer
immersive
worlds.
There
might
be
as
many
connections
with
the
real
world
when
participating
in
an
extension
world
as
when
participating
in
a
detention
world.
Economic
trade
did
not
seem
to
have
been
a
major
activity
in
the
first
virtual
worlds,
neither
as
part
of
the
constructed
structures
or
as
external
initiative
from
the
participants
of
these.
Though
there
have
been
a
few
occasions
where
a
market
was
created,
where
the
demand
of
one
person
met
the
supply
of
another
person.
Dibbell
(1998),
for
example,
write
of
an
incident
in
the
MOO
LambdaMOO
(Pavel
Curtis,
1990)
where
memory
storage
was
used
as
currency
for
barter
between
two
participants.
There
were
also
occasional
activities
of
trade
that
crossed
the
virtual/real
border
in
the
late
80s
where
a
person
was
paid
real
currency
to
level
an
avatar
in
the
game
Shades
(Sinha,
2008).
But
it
was
not
until
the
end
of
the
90s
that
economy
was
starting
to
become
a
major
part
of
virtual
worlds
and
trade
between
virtual
and
real
worlds
a
frequent
activity.
This
might
have
been
due
to
technical
advances,
as
virtual
worlds
were
developed
into
graphical
products.
This
in
turn
attracted
thousands
of
participants,
and
the
phenomenon
of
cybercash
and
RMT
grew
significant,
as
there
now
was
a
bigger
base
for
a
market
to
be
established.
In
both
categories
of
virtual
worlds
there
are
today
economic
structures,
structures
for
practicing
trade
of
virtual
goods.
These
structures
are
different
depending
on
the
category
of
virtual
world
one
is
looking
at
as
they
have
acquired
different
possibilities
from
the
aim
and
design
of
that
virtual
world.
How
a
marketplace
has
evolved
around
these
worlds
then
has
to
be
understood
in
relation
to
the
specific
virtual
world.
Extension
worlds
In
the
heyday
of
MUD/MOO
these
were
both
worlds
for
scripted
adventure
and
worlds
for
social
interaction.
Thus
making
the
distinction
that
MUD
were
scripted
adventured
and
MOO
social
spheres
might
be
too
simplistic,
but
then
again
it
was
in
the
MOO
that
the
user
acquired
the
possibilities
of
adding
her
content
in
the
world.
Extension
worlds
that
are
online
today
have
many
of
the
similar
features
as
these
early
social
MOOs:
user
created
content,
lack
of
scripts,
and
great
emphasis
on
social
interaction.
As
these
worlds
have
the
ambition
to
bring
an
addition
to
the
physical
life
they
are
open
for
the
users
to
participate
with
user-‐generated
content.
Generally
developers
do
not
provide
all
content
here,
but
users
are
co-‐creators;
within
the
limits
defined
by
developers.
The
lack
of
scripts
in
extension
worlds
leaves
the
participants
without
any
of
the
pre-‐defined
goals
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one
would
find
in
most
video
games.
What
one
decides
to
do
and
enjoys
is
primarily
a
result
of
personal
preferences.
Social
interaction
is
the
key
element
in
any
virtual
world,
but
because
of
the
lack
of
content
in
extension
worlds
it
here
becomes
pivotal;
just
as
social
interaction
is
driving
chat
applications.
Extension
worlds
are
in
general
not
video
games
per
se;
they
are
virtual
sandboxes.
But
despite
the
fact
that
they
lack
many
of
the
characteristics
of
games
(Juul,
2005)
they
have
many
times
been
associated
with
these,
a
most
unfair
association
to
both
mediums.
The
most
successful
of
these
extension
worlds
are
Active
Worlds
(Active
Worlds
Inc,
1997),
Habbo
Hotel
(Sulake
Corporation
OY,
2000),
There
(Makena
Technologies,
2003),
and
Second
Life
(Linden
Lab,
2003).
The
number
of
participants
in
these
world
is
at
first
quite
impressive.
Second
Life
(SL),
for
example,
had
in
September
2008
just
over
15
million
registered
accounts
(Wikipedia).
But
this
number
does
not
say
anything
about
the
actual
participation
since
it
is
free
to
create
accounts;
this
could
explain
the
low
threshold
of
creating
new
accounts.
Instead,
on
average
SL
has
about
38,000
participants
online
in
any
given
moment
and
the
maximum
of
concurrent
participants
88,200
was
recorded
in
2009.
SL
is
both
the
typical
extension
world
and
has
also
most
coverage
in
the
press.
The
economy
in
this
world
has
a
direct
relation
to
the
economy
in
the
real
world.
The
cybercash
that
is
used
in
SL
is
the
Linden
Dollar
(L$).
This
currency
can
be
traded
through
the
interface,
exchanged
to
the
currency
of
your
choice.
This
is
a
key
component
of
SL,
and
is
therefore
supported
and
encouraged
by
the
developer.
Thus
every
transaction
you
make
in
SL
has
a
direct
equivalent
value
in
real
cash.
There
seem
to
have
been
a
fairly
constant
exchange
rate
of
250
Linden
Dollar
=
1
US
Dollar
(0,7
EUR).
In
SL
L$
is
used
to
facilitate
a
market
within
this
virtual
world.
That
is,
you
can
only
buy
and
sell
products,
or
services,
within
this
world
and
not
in
the
real
world
or
any
other
virtual
world.
There
are
ample
opportunities
to
generate
an
income,
for
example:
creating
objects,
employment,
camping
or
exotic
dancing
(Rymaszewski
et
al.,
2007).
What
characterizes
SL
and
extension
worlds
is
that
the
market
in
the
virtual
world
cannot
be
separated
from
the
market
in
the
real
world
(see
Figure
1).
When
selling
objects
in
SL
you
are
paid
in
L$.
This
currency
is
cybercash
and
it
enables
trade
within
this
virtual
world,
but
it
could
just
as
well
have
been
US
Dollars
or
Euro.
The
different
is
rather
that
of
currencies
used
in
different
countries.
When
going
to
France
we
exchange
our
currencies
to
Euro,
or
US
Dollar
when
going
to
the
USA.
10
Submitted
to
IR
11.0
please
do
not
cite
without
authors
permission
October
2010
RMT
is
therefore
both
an
integral
part,
and
enabler,
of
extension
worlds.
It
is
this
very
obvious
connection
between
out
economic
structures
in
the
real
world
and
the
economic
structures
in
extension
worlds
that
seem
to
draw
much
of
its
attention.
It
seems
to
be
the
dream
of
making
it
big
in
the
virtual
world
that
attracts
much
of
this
attention.
As
has
been
the
case
of
both
Anshe
Chung
that
were
the
first
millionaire
in
SL
(business
week
online,
2006)
and
Jon
Jacobs
that
seemingly
seem
to
successfully
operates
a
space
station
in
Entropia
Universe
(Schiesel,
2006).
Detention
Worlds
Detention
worlds,
on
the
other
hand,
were
not
developed
from
the
social
worlds
of
MOO
where
users
could
participate
in
the
creation
of
objects.
Instead
they
were
developed
as
sophisticated
graphical
scripted
adventure
MUDs.
Just
as
in
these
text-‐based
adventures
the
participants
in
detention
worlds
are
lead
through
the
world
by
predefined
quests
and
missions.
There
are
of
course
ample
opportunities
to
socialize
with
other
participants
and
choose
what
activity
to
undertake,
this
is
imperative
for
the
success
of
these,
but
these
activities
is
carried
out
within
the
meta
narrative.
Detention
worlds
are
almost
exclusively
defined
as
video
games;
in
the
structure
of
quests
and
mission
there
is
a
game-‐logic
that
also
can
be
found
in
other
video
games.
They
all
belonged
to
the
genre
Massively
Multiplayer
Online
Role-‐Playing
Games
(MMORPG).
The
first
generation
of
these
games
was,
amongst
others,
Ultima
Online
(Origin
Systems,
1997),
Lineage
(NCSoft,
1998),
and
EverQuest
(SOE,
1999).
They
managed
to
attract
more
participants
then
previously
recorded
in
virtual
worlds.
In
US
and
Europe
the
most
successful
were
EverQuest
with
420,000
participants
subscribing
to
the
game.
The
South
Korean
game
Lineage
had
five
times
as
many
participants,
2,5
million.
This
difference
is
mostly
explained
in
different
gaming
cultures
between
US/Europe
on
the
one
hand
and
Southeast
Asia/China/Japan
on
the
other.
Despite
these
impressive
numbers
of
subscribers
none
of
these
early
MMORPGs
comes
close
to
the
recent
success
of
World
of
Warcraft
(Blizzard,
2004).
In
the
end
of
2008
Blizzard
announced
that
this
game
had
reached
11,5
million
subscribers
(Blizzard
press
release).
The
difference
to
SL
15
million
accounts
is
that
most
of
the
subscribers
are
most
probably
active
as
they
pay
a
monthly
fee
for
the
account.
To
date
there
seems
as
this
single
MMORPG
has
a
firm
grip
on
its
subscribers
and
one
has
to
admire
Blizzards
ability
of
transforming
the
MMORPG
genre,
previously
aimed
at
hard-‐core
gamers
to
a,
to
mainstream
audience.
The
economic
structure
in
detention
worlds,
most
times,
does
not
have
a
direct
connection
with
economic
structures
in
the
real
world.
There
are
structures
the
very
much
simulate
real
world
economy,
but
this
is
all
part
of
that
isolated
virtual
world.
As
these
worlds
are
supposed
to
provide
an
alternative
to
the
real
world
a
direct
connection
would
destroy
this
illusion.
World
of
Warcraft
(WoW)
is
a
typical
detention
word
in
that
it
has
been
developed
as
a
virtual
world
without
any
connections
to
the
real
world.
Of
course
there
will
be
a
multitude
11
Submitted
to
IR
11.0
please
do
not
cite
without
authors
permission
October
2010
rcash
and
ds
of
these
connection
through
the
participants,
but
no
connection
to
real
life
structures
in
its
design.
In
WoW
one
can
observe
two
different
economic
systems:
socialistic-‐
and
liberal
capitalistic
economy.
The
first
provides
goods
to
participants
through
fix
price,
thus
making
it
affordable
to
most.
The
latter
provides
goods
to
participants
with
price
defined
by
a
market,
through
supply
and
demand.
Though
the
connection
to
the
real
world
economy
can
only
be
established
with
the
help
of
a
3rd
party,
using
transaction
over
Internet
(see
Figure
2).
Both
of
these
markets
depend
on
the
virtual
currency
(gold)
within
WoW.
This
currency
is
not
possible
to
buy
directly
from
the
developer,
as
was
the
case
in
SL
and
other
extension
worlds.
But
in
WoW,
as
in
many
(most)
other
detention
worlds
a
market
has
evolved
that
offer
this
currency,
and
other
items.
Today
one
can
buy
currency
through
a
large
number
of
online
vendors,
for
example
www.ige.com,
www.inwowgold.com
or
www.gdpchina.com.
A
participant
in
detention
worlds
does
not
generate
wealth
that
is
directly
transferable
to
the
real
world
as
was
the
case
with
extension
worlds.
The
wealth
generated
is
most
spent
on
further
develop
the
gameplay
inside
of
this
world.
It
is
possible
to
develop
items
in
WoW,
just
as
in
SL,
but
the
trade
of
these
is
part
of
the
game
and
not
a
value
creating
activity
in
itself.
Though
there
are
both
bots
and
sweatshops
(Heeks,
2008)
used
to
try
generating
a
profit
in
collecting/creating
virtual
currency.
As
this
marketplace
transgresses
the
virtual
world
and
incorporate
traditional
economic
structures
in
the
real
world
the
effect
is
more
then
capitalism,
it
can
more
accurately
be
described
as
cybercapitalism
(Zackariasson,
2009).
This
market
is
in
direct
violation
with
the
end
user
license
agreement
that
the
participants
have
to
agree
with
in
order
to
enter
WoW.
You
agree
that
you
will
not,
under
any
circumstances:
…
12
Submitted
to
IR
11.0
please
do
not
cite
without
authors
permission
October
2010
C.
exploit
the
Game
or
any
of
its
parts,
including
without
limitation
the
Game
Client,
for
any
commercial
purpose,
including
without
limitation
(a)
use
at
a
cyber
cafe,
computer
gaming
center
or
any
other
location-‐based
site
without
the
express
written
consent
of
Blizzard;
(b)
for
gathering
in-‐game
currency,
items
or
resources
for
sale
outside
the
Game;
or
(c)
performing
in-‐game
services
in
exchange
for
payment
outside
the
Game,
e.g.,
power-‐leveling;
(Blizzard,
EULA)
Castronova
(2002)
was
amongst
the
first
to
bring
the
RMT
in
detention
worlds
to
the
scholars’
attention.
In
his
seminal
study
on
EverQuest
he
compared
the
GDP
(Gross
Domestic
Product,
in
general
the
economic
performance
of
a
nation)
with
this
detention
world
as
if
it
had
been
a
nation
in
the
real
world.
This
was
made
possible
because
of
the
exchange
rate
that
was
established
through
the
3rd
party
trade
with
the
currency.
Economic
activities
in
detention
worlds
can
be
described
as
a
black
market.
The
actors
operating
on
this
market
ensure
that
the
virtual
currency
in
these
worlds
can
be
exchanged
to
real
currency.
In
this
way
establishing
an
indirect
connection
between
the
cybercash
in
detention
worlds
and
cash
in
the
real
world.
DISCUSSION
From
the
history
of
money
we
can
learn
that
the
path
to
the
money
we
use
today
is
not
a
straight
one.
There
have
been
some
quirks
and
oddities
on
the
way,
and
different
ways
to
approach
the
problem
of
supplying
means
to
bridge
trade
of
goods
and
services.
Today
the
question
of
what
money
is
rarely
raised,
as
this
is
something
we
take
for
granted.
There
has
formed
a
practice
in
which
money
and
use
of
this
form
a
central
part
of
our
daily
actions.
Then,
in
the
end
of
the
1990s’
the
virtual
money
came
along.
This
currency
grew
in
size
over
a
short
time
and
there
are
today
a
number
of
different
virtual
currencies
in
use.
Thus
the
question
is
raised,
what
should
we
make
of
this
virtual
money?
How
real
are
these,
in
comparison
to
real
money?
To
start
with,
there
is
a
difference
between
the
virtual
money
that
is
used
in
extension
worlds
and
the
virtual
money
that
is
used
in
detention
worlds.
As
these
two
different
categories
have
different
aims
when
it
come
to
connection
to
the
real
world
the
currency,
that
is
an
integral
part
in
both,
gains
different
characteristics.
In
extension
worlds,
where
the
virtual
are
meant
to
be
an
extension
of
the
real
world,
the
virtual
money
seems
to
have
much
in
common
with
fiat
money.
This
is
quite
interesting
as
most
of
our
real
world
currencies
also
are
fiat
money.
The
main
reason
why
this
currency
works
is
not
that
there
is
a
Gold
Standard
backing
it
up,
but
that
there
is
a
practice
upheld
by
a
critical
mass
of
people
that
are
using
this
money
to
trade.
In
SL
the
L$
could
then
be
described
as
fiat
money.
There
is
a
large
number
that
are
using
this
currency
and
upholding
the
trade
of
this
and
as
long
as
this
is
done
the
trade
will
continue
to
work.
But
then
again,
as
participant
in
SL,
or
any
other
virtual
world
for
that
matter,
one
does
not
have
much
of
a
choice.
This
is
the
only
currency
available,
if
the
participants
themselves
do
not
decide
to
create
an
alternative
of
their
own.
13
Submitted
to
IR
11.0
please
do
not
cite
without
authors
permission
October
2010
As
for
the
different
function
of
money,
the
L$
seem
to
fill
these
just
as
well
as
any
other
fiat
money
do.
The
money
serves
the
function
of
enabling
a
trade
to
take
place
between
the
people
inside
SL.
Historically
the
money
has
also
preserved
its
value.
Thus
making
it
trustworthy
of
not
loosing
all
its
value
from
one
day
to
another.
And
last,
it
enables
the
participants
in
SL
to
measure
the
worth
of
goods
and
services
inside
that
virtual
world.
In
detention
worlds,
that
are
meant
to
be
isolated
from
the
physical,
the
virtual
money
seems
to
share
the
traits
of
alternative
money.
Just
as
the
fiat
money
they
are
dependent
on
the
practice,
but
the
difference
is
that
the
spread
is
local
and
there
are
no
ambitions
for
its
spread
outside
of
this
local
context.
Just
like
chips
are
used
inside
of
a
casino,
note
that
all
casino
has
different
chips,
the
gold
in
WoW
can
only
be
used
inside
of
that
single
virtual
World.
As
for
the
function
of
this
virtual
currency,
gold,
it
does
work
just
as
any
other
currency.
It
enables
trade
to
take
place
within
WoW,
through
the
auction
house
or
from
vendors.
It
also
facilitates
a
value,
wealth
of
a
person,
over
a
longer
period
of
time.
It
is
fairly
possible
to
keep
gold
in
the
bank
and
rest
assure
that
the
value
of
this
gold
will
still
be
the
same
over
time.
But,
just
in
the
real
world,
prices
of
goods
will
always
change.
In
WoW
this
mostly
depends
on
patches
and
expansions.
Gold
in
WoW
also
enables
participants
to
compare
the
value
of
different
items.
The
currency
thus
enables
comparison
between
these.
From
these
examples
it
then
seems
that
virtual
currencies
work
just
as
well
as
real
world
currencies.
In
this
sense
could
one
say
that
virtual
currencies
are
as
real
as
real
world
currencies?
In
one
sense
yes,
this
could
be
the
case.
They
do
fill
the
same
functions
and
there
is
a
burgeoning
practice
that
supports
this
currency.
On
the
other
hand
the
use
of
this
currency
is
still
limited
to
virtual
worlds.
The
practice
has
to
find
a
way
to
breach
the
virtual/real
world
border.
The
history
of
money
show
that
many
different
things
can
be
used
as
a
currency.
It
does
not
have
to
be
something
convenient,
as
the
example
of
fei,
the
stone
discs,
show.
What
is
essential
in
most
circumstances
is
that
the
currency
is
the
belief
and
support
by
the
people
using
them
for
trade.
If
there
is
a
structure
that
assumes
the
practice
of
using
a
currency
it
makes
sense
in
that
trade,
thus
gain
a
status
as
legitimate
money.
In
one
sense
virtual
money
could
seem
even
easier
to
handle
then
real
money,
easy
to
transport
and
easy
to
handle.
Somewhat
as
the
fei
that
was
lost
to
sea,
they
are
only
a
virtual
symbol
of
the
value.
Does
virtual
money
have
a
danger
of
being
over-‐produced,
resulting
in
an
inflation?
This
is
not
necessarily
the
case.
The
danger
of
producing
too
much
currency
in
virtual
world
does
have
its
physical
equivalence.
The
history
has
on
several
occasions
showed
that
kings
and
governments
also
have
a
propensity
to
produce
an
excess
of
money
in
hope
to
turn
a
negative
trend
in
state
finances.
Thus
the
virtual/real
factor
do
should
not
be
important
in
this
respect.
So
what
is
it
that
is
actually
traded
when
exchanging
currencies,
in
general?
If
one
would
exchange
Euro
for
US
Dollar
the
value
would
still
be
preserved.
The
difference
would
be
that
instead
of
owning
100
Euro
I
would
instead
own
about
$140,
minus
exchange
fees.
Both
of
these
currencies
are
fiat
money
and
are
dependent
on
a
practice
that
supports
the
14
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to
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11.0
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without
authors
permission
October
2010
use
of
these.
So
in
the
case
of
Euro
and
US
Dollar
we
only
transport
the
value
from
one
currency
practice
to
another.
But
what
happens
when
exchanging
Euro
to
virtual
currency?
When
looking
on
the
future
of
virtual
worlds
and
the
practices
that
evolve
here,
practices
that
are
made
part
of
our
physical
world,
it
is
as
important
to
incorporate
currencies
in
any
understanding
of
this.
As
we
have
shows
in
this
paper,
cybercash
has
a
direct
heritage
from
currencies
in
our
physical
world.
Although
the
practice
might
not
yet
have
been
stabilized
due
to
the
short
time
cybercash
has
been
in
use.
It
is
therefore
reasonable
to
assume
that
currencies
will
support
processes
in
the
virtual,
as
it
has
in
the
physical.
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16
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IR
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do
not
cite
without
authors
permission
October
2010
Cover
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My
Virtual
Life,
A
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into
a
place
in
cyberspace
where
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of
people
have
imaginary
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a
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http://www.worldofwarcraft.com/legal/eula.html
17