Internet and mobile technologies are adding a new dimension to the idea of currencies, including a growing crossover between real-world money and currencies such as those earned and redeemed within loyalty programmes, according to the operator of the eBucks coalition loyalty programme.
While physical currencies have been around for thousands of years, today's evolution, penetration and acceptance of virtual currencies has added greatly to the understanding, usage and flexibility of currencies not only as a payment tool but also as a means of social interaction.
Due in no small part to the explosion of internet and mobile technologies, virtual currencies are becoming integral ingredients of virtual economies, virtual assets, social networking, and even mainstream electronic commerce (for example, consumers can spend eBucks as if they were cash at the online department store Kalahari.net, among others).
Having begun life as an online incentive to encourage users to take action on a web site in exchange for the ability to buy certain items, the virtual currency phenomenon has since broadened and matured into a much greater 'enabler'.
For example, the popular social networking sites Facebook and MySpace have recently said they are considering developing their own virtual currencies, while Second Life already boasts robust trade equivalent to some US$35 million per month in its own currency (the Linden Dollar). Similarly, Twitter has developed Twollars, a virtual currency aimed at helping charities to gather funds from Twitter users.
While some virtual currencies are used to fund online games (such as the multiplayer online roleplaying game, World of Warcraft), others are used to acquire more traditional goods and services.
Virtual currency is already a massive phenomenon in China, especially among lower-wage workers, who use this form of payment to acquire gaming products and upgrades, anti-virus software, electronic greeting cards, and even to vote in talent contests. According to research by China Market Research Group, the country already has an annual trade in virtual currencies of some US$800 million, and this is growing at the rate of almost 30% per annum. In fact, according to a recent article by the New York Times, the buying and selling of the make-believe currencies used in online gaming has become so widespread that Chinese authorities fear it will affect the real economy.
But what eBucks sees as being most significant is that there is a growing trend toward currency exchange, meaning that people are exchanging real-world currency for virtual currency, and vice versa. In effect, in the minds of consumers at least, virtual currencies are becoming more recognised and more valuable as they become increasingly popular, because they can be traded and assigned worth.
Real money commerce in a virtual market has grown into a big industry that continues to flourish and develop. An important feature of virtual currencies is that they can be issued in micro-denominations to make micro-payments (e.g. for the purchase of screensavers or wallpaper). Of particular note, NCSoft, a developer of online games, has introduced a micro-transaction system called NCcoin with denominations of 100 (equivalent to US$1), 500 (US$5), 1,000 (US$10) and 2,000 (US$20) while, in South Africa, mobile internet messaging service Mxit also makes use of micro-denominations to enable the use of its services.
So, while traditional currencies such as the US Dollar, the Pound Sterling, the Euro and a range of other national currencies continue to dominate the international currency trading scene, there is little doubt that the whole world is beginning to find increasing value and functionality in rewards currencies, gaming currencies, and other virtual currencies.
Major factors influencing the growth of virtual currencies include the inherent flexibility of being virtual, the ability to make micro-payments, and the fact that virtual currencies are not (yet) subject to the many central bank and regulatory restrictions that traditional currencies have to abide by.
Virtual currencies, which include those backed by real currencies, gaming currencies and rewards currencies, make the online experience more satisfying while allowing users to feel as if they are part of a wider community. In addition, it is often safer to use virtual currencies with a real-world value (such as rewards currencies) than to use traditional currencies which can more easily be stolen or used fraudulently because they are more difficult to trace.
eBucks is among South Africa's pioneer virtual currencies, and its usage has grown rapidly, along with the programme's membership and increasing roster of corporate partners. eBucks members, who are allocated their eBucks by First National Bank (the programme's main partner), as well as other partners, can spend their eBucks through a variety of retailers, service providers and e-commerce operators.
Although rewards programmes typically start out as single-vendor programmes, they often evolve into multi-partner programmes, transforming them into virtual currencies that can be used throughout the retail sector. Frequent flyer points, for example, can be earned almost anywhere that a linked credit card is accepted. Some frequent flyer programmes have merged with other rewards programmes to accelerate members' earning potential, and miles can also be used for other travel-related services such as accommodation or car rentals.
Indeed, eBucks predicts that mobile phone airtime itself could be the "next big virtual currency" in Africa, where there are already over 100 million mobile phones, and millions more coming into usage every month. There is still a lot of growth opportunity, too, with a continental population of over 600 million.
"Virtual currencies and rewards programmes are continually developing and evolving, broadening their appeal for users and members alike. In Africa particularly, it is interesting to note how commodities such as fuel and airtime have taken on virtual currency status, possibly opening up the potential for other goods to be used in this way," commented Lezanne Human, CEO for eBucks.
As virtual currencies continue their evolution, it is likely that their versatility will improve and their usage will become even more widespread. While in many cases virtual assets bought with virtual currency are nothing more than digital items - coins, avatars and the like stored on a remote database somewhere - it is nevertheless estimated that more than US$1.5 billion is being spent annually on virtual items.
"What the future holds for virtual currencies is anyone's guess, but it is likely to be characterised by increased innovation, greater convergence between virtual economies and real economies, as well as a range of new opportunities and possibilities to benefit from ongoing technological developments and functionality," concluded Human.