Virtual wealth protection through virtual money exchange

Abstract

This article presents pioneering research on virtual money exchange (VMX) to protect the wealth generated in virtual worlds. This goal is realized by designing and implementing a VMX system through which virtual money exchange rates between virtual worlds are generated based on a redistribution strategy. Moreover, this strategy aims to re-value the total intrinsic value and the total exchangeable value of virtual currencies at a series of Pareto exchange points. We have designed, implemented, proved and extended a novel VMX exchange rate algorithm (VERA) algorithm, which implements the redistribution strategy. In order to observe the behavior of virtual money exchange rate generations, we built a VMX simulator to simulate various cases of virtual money exchange. Experiments on our VMX simulator show that minimum acceptable virtual exchange rates set by exchange requestors have a great impact on the success or failure of a virtual money exchange. This suggests the need for further research to reconcile the contradiction between presenting fair virtual currency exchange rates and achieving low fluctuations of virtual currency exchange rates. Finally, this research contributes to a better understanding of many aspects relating to virtual money, virtual currency exchange and virtual wealth protection. These are important for the future design and implementation of integrated virtual worlds.

Introduction

Virtual communities have been of great interest since the dawn of Internet. Soon after different types of virtual communities emerged, fascinating billions of people around the world of all genders, ages, nationalities, cultural backgrounds and educational levels. These users have been called netizens (Hauben and Hauben 1996), referring to those who use the Internet to engage in activities of extended virtual social groups. This attracted the research interest of many computer scientists, sociologists, economists and entrepreneurs, who actively shaped a new research field.

A virtual community is a technology-supported cyberspace, centered on communication and interaction among participants, resulting in relationships that are built for certain purposes (Lee et al. 2002). A virtual community is a social aggregation emerging from the Internet when enough people carry on public discussions long enough and with sufficient human feeling to form webs of personal relationships in cyberspace (Rheingold 1993). Here similarly, cyberspace, a term originally used in William Gibson’s science-fiction novel Neuromancer, is the name some people use for the conceptual space where words, human relationships, data, wealth, and power are manifested by people using computer-mediated communication technology (Rheingold 1993). As a subcategory of virtual community, a virtual world is a virtually-formed common information space in the form of a virtual universe community or a virtual space, where a group of netizens represented as avatars of real-world humans relate to each other, in ways that are characterized by integration, interaction, immersion and interoperability (Cherbakov et al., 2009, Alther et al., 2009).

Technically, a virtual world can be defined as a computer-simulated representation allowing avatars to interconnect and communicate in relatively life-like environments (Ives and Junglas 2008), such as online games and metaverses (Kumar et al. 2008). When two or more virtual worlds are integrated, they constitute an integrated virtual world. When many virtual worlds are significantly integrated worldwide, they become global virtual world. Now, with the rapid development of many Web-based sciences such as multimedia study, e-commerce and social networking, virtual communities catalyze the evolution of this virtual world, blurring the boundary between the virtual world and the real world.

This article establishes a virtual money exchange regime to protect virtual wealth between virtual worlds or within an integrated virtual world. The importance of building such a virtual currency exchange regime is that it will be possible to freely transfer virtual wealth in the form of virtual money from one virtual world to another. This transferability is essential for virtual wealth protection. Transferability becomes a concern. This is the situation when netizens detect that a virtual world is declining in virtual business, implying the potential of virtual wealth loss. Valuable virtual wealth may then be transferred from the worsening virtual world to another more prosperous and stable virtual world to gain more or at least retain the original value of virtual wealth. This behavior is analogous to real-world behavior in similar settings.

A key concern then is how to generate a virtual currency exchange rate at which one virtual currency can be bought for another. A critical research issue encountered here is how to value and measure the worthiness of one virtual currency against another in a fair and transparent way – in essence, how to establish a fair virtual money exchange regime. The challenge of the underlying issue is that a virtual world is often closed in which the value of virtual wealth as measured by the individual virtual currency is arbitrary when compared to another. Guo and Chow (2008) investigated existing virtual money systems and they provide us with a better understanding of this setting. This research shows that most virtual currencies are not interoperable, as virtual worlds are different from the real world, the latter being open to present an integrated global market. In contrast, a virtual world is limited within a virtual community. In the real world, standard baskets of goods, services or currencies can be used as the measurement bases of value comparisons to determine and adjust the exchange rates among real currencies. In contrast, a virtual world is often relatively isolated and its real value of virtual products compared with other virtual worlds is unknown. Thus, before we can build a virtual currency exchange system, we first need to establish a value comparison mechanism between the virtual currencies of virtual worlds.

In establishing such a value comparison mechanism, it is important to investigate the relationship between the existence of a common value system among all netizens for all virtual monies and the problems of a fair virtual money exchange regime. According to Vilfredo Pareto (1906), when following the preference assumptions of a set of individuals, it is optimal that no redistribution of goods can improve the position of one individual without making at least one other individual worse off. This implies that a fair virtual money exchange regime can be established if it complies with the principle of this Pareto optimization.

To research this question, it is first necessary to specify the precise assumptions of common value systems. An important theorem could thus be formulated, which, loosely speaking, asserts that a common value system will exist if two sets of virtual currency exchanges are unique Pareto minimal sets.

Assuming the existence of a common value system, the authors propose a novel virtual money exchange(VMX) regime, featuring the characteristic of self-adjustment so that virtual currency exchange rates could be computer-adjusted or human-adjusted to a Pareto exchange point as the demand and supply of virtual currencies change under the virtual market forces. An additional goal of this research is to provide a basis for future research by conducting a series of experiments on a VMX simulator that is designed and implemented in this article. These experiments will enable us to improve the existing VMX system to support the generation of fairer virtual currency exchange rates for netizens in various virtual worlds.

The rest of the article is organized as follows. Section 2 introduces the concepts of virtual wealth and virtual money exchange. Section 3 reviews the related works on virtual money research and online virtual money exchange shops. Section 4 discusses virtual money value determination practices and the related theories. Section 5 follows and offers a description of a virtual money exchange market and the existence of a common value system. Section 6 proposes a novel VMX model. It describes the technical approach that is used, as well as a virtual exchange rate algorithm (VERA) that describes how virtual currency exchange rates can be generated following different strategies. Section 7 discusses how our VMX simulator was designed and implemented to enable the generation of virtual currency exchange rates. Section 8 presents experiments to simulate virtual currency exchange rate generation. Section 9 offers a discussion on the VMX system from the perspectives of the theory, including Pareto optimization, the Arrow–Debreu model and a double auction system. We conclude in Section 10 with contributions and future research.