Castronova (Telecommunications and Cognitive Science/Indiana Univ.; Exodus to the Virtual World: How Online Fun Is Changing Reality, 2007, etc.) speculates on how the expansion of virtual currencies is transforming money and potentially banking.
The author, a founder of scholarly online game studies with expertise in the interconnection among digital games, technology and society, advances the idea that developments in the virtual world of online games eventually have an effect in the real world. He takes issue with what he calls “the common belief that institutions originating in virtual environments will stay virtual.” In fact, he writes, “[t]oday, anybody can be a central bank.” For the author, this is not just due to the use of virtual money, but also due to changes in the technology of payments. Castronova builds a two-step argument. First, he traces the history of in-house virtual currency deposits—e.g., credit-card reward points—in Internet game and social networking companies. Then he takes up the history of money and banking, especially in the United States, and argues that there is nothing in the U.S. Constitution or law to prevent anyone from becoming an issuer of currency. Castronova also provides an intriguing discussion of the history of online games and the parallel development of in-house payments systems. In addition to a host of other smaller companies, the author examines Facebook and how the social networking giant now accepts money from users and clears their payments to its vendors for a fee, with no intervening virtual step. Other companies have made the transition from in-house, token-type arrangements to become financial services operators. “While treating fantasy and business virtual worlds both fairly and differently will not be easy,” writes the author, “it is certainly feasible and extremely important.”
A controversial thesis with potentially broader implications for the future of banking and global corporations.