On currencies, virtual or otherwise

Published December 7th, 2010 edit replace rm!

Currency is one of the most popular buzzwords right now and there are lots of different definitions. I’ll try to unify them in some way and talk about some of the issues involved. Over the next couple of posts I’ll try to analyze what currency is.

Maceration of Money

If you ask most people on the street, currency is what they have in their bank account and in their wallet.

Gamers will tell you that currency can also mean numbers on a screen earned and spent within a game.

Silicon valley hipsters will also try to say that Virtual Currency is the latest monetization strategy out there, often without realizing what it really means.

Community activists also like to remind us of all the successful community currencies that have sprouted up in the past few years.

So my first attempt at a definition is:

A currency is a fungible asset that can be transferred from one person to the other.

Now under that definition we may also need to include stocks, options other securities. As they are generally transferrable and fungible. Most people wouldn’t consider them currency, but they fit the definition perfectly. I’m personally quite happy to consider them currencies.

Virtual Currencies?

What makes a currency virtual or not? It’s not wether it has any real value as World of Warcraft Gold clearly has value. I’d say it depends on the backing of it. So an attempt at a definition:

A virtual currency is a currency backed by the promise of it’s issuer.

Closed loop currencies

A closed loop currency is a currency only meant to be spent with the issuer. Good examples are Starbucks Cards, but most game currencies are also closed loop currencies as you can only use them within the games.

What about Whuffie, Page Rank and other reputation currencies?

That is a good question. These are currencies that are objectively awarded and taken away based on your standing/actions in a community. Pagerank is often also described as a currency. Most of these break my definition above as they aren’t generally speaking transferable.

Whether they are really fungible is also a good question. A Google PageRank of 8 would have to be worth 8 times a PageRank of 1. But clearly that is not the case.

In my next post I explore a few different flavors of what many of us think is just one currency, the all mighty US Dollar.

Posted December 7th, 2010

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Comments
lau@taarnskov.com

Lau December 7th, 2010

> A virtual currency is a currency backed by the promise of it’s issuer.

Does this make the USD (and all other fiat currencies) virtual?

pelle@stakeventures.com

Pelle December 7th, 2010

You could argue that it’s backed by noting, but they are backed by a small fraction of actual assets. I’ll deal with backing of currencies in a future post.

pr@microsourcing.com

MicroSourcing March 2nd, 2011

Currency is essentially value, and its determinant is often external.

About me

Pelle gravatar 160

My name is Pelle Braendgaard. Pronounce it like Pelé the footballer (no relation). I live in wonderful Managua, Nicaragua. I work with Clojure, Bitcoin and Ethereum.

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