Does your grid need its own currency?

Update: I still recommend the OMC currency, which has grown substantially since this article was first written and now used on 30 OpenSim grids. The two other currencies I mentioned — V$ and G$ — have not been getting much traction in OpenSim, and have pretty much faded away. Some grids and merchants are skipping virtual currencies and using PayPal and PayPal Micropayments. 

One of the first decisions a new grid owner has to make is whether there will be an in-world economy — and, if so, if they will need to create their own currency.

Creating your own currency is expensive. You will probably need to have an OpenSin consultant set it up for you — check out our list of hosting providers. I recommend using someone close to the core development team — Dreamland Metaverse,  SimHost, or Nova if you’re using the Aurora-Sim version of OpenSim.

They will have to install and configure a currency module for your OpenSim grid.

If you’re going to do it yourself, the modules are here. Please note and heed the warnings on that page — currency isn’t something you want to mess with, especially if you’re setting it up as a real, fully-convertible currency. Depending on your jurisdiction, you may have legal issues to deal with, if you do.

There are two major use cases for an in-grid currency:

Role playing games

If you want your players to earn their money in-world, you might not want them to go out and buy the money elsewhere, bring it back, and mess up the dynamics of the game.

You also don’t want your sword-and-sorcery types to hypergrid teleport to another grid, buy a grenade launcher, and come back and blast their enemies. Keeping the grid closed doesn’t just keep out machine guns and nuclear weapons — it also keeps out inappropriate clothing, animations, buildings and other content, and helps keep the real world at bay.

After all, people are playing the game to take a break from their daily life. If the game is being played for real money, then pretty soon it starts to seem just like regular old work.

Having a closed grid, with a fictional currency, keeps everything nice and tidy.

In addition, selling the virtual currency could be a nice little additional revenue stream for the grid operator.

Casinos

Even in the real world, casinos use virtual currencies, in the form of gambling chips. There’s a psychological factor at work here — people gamble more because it doesn’t feel like they’re playing with real money. In fact, they’re already spent their money, buying the chips. Now, if they win anything at all, it will feel like they’re ahead. The same applies to virtual casinos and poker rooms.

But, more importantly, if you’re serving U.S. customers, you don’t want the money they spend gambling to be real money — that would violate U.S. laws. Instead, you can give them fake money to play with that they can’t redeem for cash if they win — but you can let them spend it on virtual gifts. This is what the guys over at Tiberius Casino are doing, which is running in the Red Light District on the Utherverse platform.

If you’re running an off-shore casino, however, then controlling your own currency means that you can get payment information from your customers, and confirm that they are located outside the United States.

The Taiwan-based img8888.com virtual gaming world uses the I$ virtual currency, which can be purchased through PayPal or with Linden dollars in Second Life.

Technical challenges

If you are running your own virtual currency — especially one that is redeemable for real money — then you have to be careful that your security is air-tight.

To start with, you’ll want an auditable transaction record. This is a database where, once a transaction is recorded, it cannot be changed or erased later. This is also known as “write once, read many” technology (WORM) and you’ll need this for protection in case you ever get sued or audited. It will also hep protect you from the single largest threat you’ll face: your own employees, using their insider knowledge to rip you off.

Next, you will need to be sure that the transaction process itself is secure. Requiring a web-based confirmation for all transactions will add a security layer, but may also be inconvenient for your customers. If you run all the regions on your grid yourself, and your customers don’t have access to the underlying servers, you may be able to skip that step.

You can also add an extra layer of security by allowing only own own, approved, point-of-sale terminals on the grid, each of which is linked with a separate, unique identifier and locked down to a single location. If you are running all the regions on your own servers, you can also install server-side scripts that are activated by the terminals that are unique to those specific regions, so if a user somehow is able to crack a machine, and take it to their own grid, it will become useless.

As the provider of the virtual currency you will, at the end of the day, be responsible for everything that goes wrong. If someone rips off a merchant or customer due to a security hole in your system, they will expect you to cover their losses. Unlike in Second Life — where users grumble but stay, since they have nowhere else to go — your users have a lot of different grids to choose from.

Other challenges

Running your own currency poses some additional challenges beyond the technological ones, though. With a small economy, you have to monitor it carefully to make sure that the money supply just keeps pace with demand. Either deflation or inflation could scare your users away from your grid. As people cash out and leave — or leave and simply abandon the virtual money they have on balance — the in-world money supply problems can get exacerbated.

Negative news reports or even rumors can also cause a run on your currency. To protect your grid against these risks, expect to keep sizable cash reserves on hand.

In addition, if you allow your currency to be fully convertible for real money, you may find yourself with a real currency on your hands, in some jurisdictions. South Korean courts, for example, recently ruled that virtual currency earned through skill is real money. The Chinese government has also been cracking down on virtual currency use in recent years. As virtual currencies expand, it is likely that other jurisdictions will also impose more controls and regulations on the use of virtual currencies.

At some point, virtual currency operators should expect to register as financial institutions with their local regulating authorities. This is similar to the way that PayPal was required to incorporate as a bank in the jurisdictions where it does business after its service became popular.

Finally, if you’re based in the U.S., and one of your users made over $600 over the course of a year on your grid and cashed out their profits, you would need to file an IRS form 1099 to report their earnings. Other countries have their own tax procedures.

Outsourcing the money

If you’re not running a role playing game or a casino, then you should probably consider letting someone else handle the money — and the headaches that come with it.

The three main multi-grid currencies in use today are the OMC, the G$, and the V$.

The OMC is the one we currently recommend because it’s fully convertible with the US dollar, the Euro, and the Linden dollar, it is backed by a real-world company, Austria-based Virwox, and it’s currently accepted on 15 grids and several other grids — including OSGrid, the largest grid in the metaverse — are currently in process of being added. More information about OMC and Virwox here. The OMC does not only work across the hypergrid, but also works with your existing viewer, showing your balance at the top right of your screen whenever you are in an OMC-enabled region. Virwox also releases up-to-date aggregated statistics about OMC transactions, exchange rages, and users.

The G$ is also a good choice. It is also backed by a real-world company, CyberCoinBank, and, though it bills itself as a “fictional currency,” there are third-parties who are willing to exchange the currency for real money. (The parent company, however, will not redeem the currency.) Although the G$ is only accepted on half as many grids as the OMC, it has been around longer, and there is more of it in circulation, partly because of it’s use in at least one virtual casino, and its use in Second Life.  More information about G$ and CyberCoinBank here. (Disclaimer: CyberCoinBank’s sister company, Alpha Towne, is an advertiser on Hypergrid Business.)

At Hypergrid Business, we do not recommend the V$ currency. It is not backed by a real-world company, publishes no statistics about its use, and it doesn’t have its own website. Ralf Haifisch posted some info about V$ last year, and you can find out more about it by visiting the Virtual Wallet region on OSGrid.

Non-profits

If you are running a non-profit grid, you may want to accept donations from visitors, or sell promotional items like real — or virtual — T-shirts and baseball caps. For real products, the best bet is PayPal, which can be easily integrated with your e-commerce front end. A visitors could, for example, try on a virtual T-shirt, decide they liked it, and click on the “Buy Now” button — which would automatically take them to the PayPal payment webpage. Once the payment has been received, you can ship the real product.

Some OpenSim service providers offer PayPal integration modules that allow instant in-world delivery of items paid for by PayPal.

PayPal or PayPal Micropayments are the best option if your grid handles only a few, large transactions, or doesn’t see much traffic over the hypergrid.

If, however, you get many hypergrid visitors who already have G$ or OMC accounts, offering either of the two as payment options would reduce costs to both merchants and buyers. It would also encourage more shopping since the visitors have already “spent” their money by putting it into their G$ or OMC accounts.  Both G$ and OMC systems are free to grid owners and merchants to use and do not charge any transaction fees. The two currency systems make their money when the currency is bought or sold.

Company grids

If you are running a grid for your company to use as a virtual meeting or collaboration space, and aren’t using it for virtual commerce, you might not need any in-world currency at all.

If your employees need to buy something on other grids — business supplies, clothing, presentation tools, or buildings — they can get a personal OMC or G$ account and get reimbursed later, or your company can set up an company avatar with virtual money for this purpose.

Commercial grids

If your grid has a shopping district, clubs, cafes, or other commercial establishments and is open to the hypergrid, then a multi-grid currency like OMC and G$ is your best bet. Otherwise, visitors will have to create a separate virtual currency account for every grid they visit — which isn’t very likely.

If your grid is currently closed to the hypergrid, but you want to keep your options open then, again, a multi-grid currency is a better choice.

If your grid is closed to the hypergrid, and will always remain closed, then a proprietary in-world currency could help you generate some additional revenue from your residents and merchants. However, you would need to think hard about whether the these additional revenues justify the overhead of maintaining your own currency, and the legal risks and responsibilities that come with it.

One advantage to your own currency on a closed, proprietary grid is that you can make the shopping experience easier for your customers.

Today, multi-grid currencies have an extra step for each transaction, where buyers have to approve each payment on the currency’s website. This adds a needed layer of security, given that a multi-grid environment creates situations where strangers have access to the servers running individual regions.

However, a closed grid in which all the servers are owned by the grid operator can skip this step.

“We believe having to load and click on a website each time you make a payment is too cumbersome,” the operators of the Avination role-playing grid state on their website. “We aim to provide the seamless experience you are used to from Second Life, where transactions just work. To that end, we provide our own, self-contained currency.”

The German Grid was one of the earliest adopters of the OMC currency from Virwox, which can be used in shops across the grid -- and elsewhere on the hypergrid. The store in the Folk Cafe, for example, sells guitars.

Subscription-based grids

If you charge your users a subscription fee for accessing your grid, you can offer the residents a stipend as part of their premium account. By offering the stipend in the form of your own, proprietary currency, you can reduce your expenses, since you don’t have to buy the currency from Virwox or CyberCoinBank.

And if the currency is a non-refundable, fictional currency, then you will significantly lessen your legal liabilities (except perhaps in South Korea and China).

Your residents won’t be able to use this currency outside of your grid, but, depending on your business model, this could be a net benefit for your company.

A subscription-based grid can still be hypergrid-enabled, just as subscription-based websites have some public areas. Your premium members would simply have access to additional services and features, such as land rentals, stipends, or private areas of the grid.

The benefits of doing it that way is that they’ll be able to use the currency as they travel the hypergrid — and you won’t have to set up shop as a virtual currency provider (with all the headaches that this entails). Your users will be able to buy and sell the currency as much as they want, etc.. And they’ll be able to set up shops and sell to customers from other grids, who come in via the hypergrid.

If you’re doing a content-rich grid (like gaming, dating, gambling, etc…) you should be able to charge a subscription fee. If you’re setting up your grid as a residential and commercial land rental area, you can add the currency cost to your rental fees — and advertise “free money” as part of your marketing. I know that I love getting stuff for free — even when, rationally, I know I’m paying for it.

The other option is to create a closed grid economy. Since the currency will be grid-specific, you won’t be able to have outsiders coming in, or your residents spending it elsewhere.

maria@hypergridbusiness.com'

Maria Korolov

Maria Korolov is editor and publisher of Hypergrid Business. She has been a journalist for more than twenty years and has worked for the Chicago Tribune, Reuters, and Computerworld and has reported from over a dozen countries, including Russia and China.

  • Ener Hax

    i concur with using a host close to or involved in the development of OpenSim. our experience with SimHost is that they can, and will, install anything we need – including the PayPal module

    we don’t need that now and one of our scripters is working on her own PayPal-enabled in-world vendor (another advantage to being your own grid – no one to smack you down for doing this)

    money will become needed for many grids without a doubt

  • Ener Hax

    PS – the subscription-based grid is an interesting concept. for our educational build we have considered various pay aspects. the first was that in purchasing the book that goes along with the activities, you would receive a access for a set time (6,8, 12 month or so)

    another option could be to charge a small subscription for general access (like seat licenses) – say one teacher and 10 students for $60 per year

    of course, administering even simple PayPal transactions take effort

    thanks for the post, i was writing one this morning about PayPal for projects and hosting!

  • Good article.

    This is something that I am looking into at the moment, although my idea is a little more complex I think.

    It will be a closed grid and when someone new joins they will receive so many $, although these will be more like tokens. Then every time the login they will receive some more.

    The 'tokens/$' can only then be spend on the grid, not on other grids and not enhanced for real money.

    Although, while hypergridding is enabled (during constructions stages) I assume there would be no problem huypergridding between grids that have a different currency?

    – Jonathan

  • Jonathan —

    You can simultaneously be a member of your own in-world currency system, *and* G$, V$ and OMC — and use the latter three when you travel to other grids to buy stuff for construction.

    The OMC kicks only when you're on an OMC enabled region with an OMC-registered avatar.

    G$ and V$ don't really "kick in" at all — they don't access your viewer, and are only accessible through the in-world vendor systems.

    Happy building!

    — Maria

  • vanbak

    Maria,

    thank you for the informative and comprehensive article!

    Van