Virtual currencies and social networks

With the rapid proliferation of social networks and the increased access to virtual currencies, it was inevitable that the two would merge at some point. Indeed, virtual currencies are being increasingly used in networks, particularly for the payment of premium services.

Virtual currencies are characterized by their digital nature. They are stored on electronic media and used by electronic devices. They serve the same purpose as real money, that is, to purchase goods and services. However, they are private currencies and are thus not controlled or regulated by the state. They may be used either for profit or for charity.

These new currencies, which work in parallel with real money, are often network-specific. Facebook Credits and Twitter’s Twollars are amongst the most popular. They have also established themselves in other media, particularly in video games.

There are two systems of virtual currencies:

–       open systems where real money can be converted into virtual currency and vice versa;

–       closed systems where virtual currency cannot be reconverted back into real money.

In connection with these currencies, new payment methods can be found which are specifically designed for social networks like, for instance, Dwolla. At the same time, “likes”, followers and tweets are being monetized. This concept was used in Marc Jacobs’ pop-up store during the Fashion Week in New York where customers could pay through tweets by using the hashtag #MJDaisychain.

Currently, these currencies are not regulated. However, their evolution and the stakes involved make it very important for a related legal framework to be established. Given their lack of territoriality, an international solution should be found for these currencies to be effectively monitored. This makes the issue a complex one.