I realize the idea of virtual currency sounds kinda like play money, so I’ll try to explain it a little more clearly. Let’s say that you go to a pizza arcade where they use tokens instead of quarters. Everything from games to food to prizes has to be redeemed in tokens. So, you find the coin machine and purchase 4 tokens for $1 (or 40 tokens for $10, etc.).

There is a stuffed animal behind the prize counter that you really like, and it costs 4 tokens. The difference between this pizza arcade and the ones you might be familiar with is that the person behind the counter doesn’t actually work for the arcade; she leases the booth space to sell her stuffed animals for tokens (like a flea market type of setup). You pay the 4 tokens, receive your new stuffed animal and go on about your merry way. The booth vendor has just made 4 tokens, but she can’t spend them outside of the pizza arcade, because regular stores only accept dollars, not tokens.

So, the question is: Did the booth vendor make income on that sale? If yes, how can you prove it? She has no dollars to show for her efforts, only tokens that aren’t worth anything in the outside world.

Ok, so let’s say the booth vendor takes the 4 tokens that she earned to the pizza arcade manager and asks him to exchange them for a $1 bill. Now, has she made income? Yes! She now has a dollar that is worth something in the outside world.

This example might seem like small potatoes in the grand scheme of global commerce, but let’s say that instead of selling just one stuffed animal, she sold 50 … or 500 … or 5,000. Now, the money starts to add up. The current position (of the U.S., that is … other countries have differing opinions) is that as long as she keeps her earnings in token form (maybe she treats herself to pizza and video games in the arcade), then it’s a wash. However, as soon as she converts her tokens to dollars, then she needs to be conscientious about taxable earnings.

The moral of the story is that virtual currency may not seem “real,” but it has real value.

It seems like ages since I first started brainstorming about my dissertation topic, but I’m still a couple of semesters away from officially beginning it. I’m at the point now in my coursework, though, that my term papers should start pointing in that direction. In other words, if I gear the subject matter toward my topic, then that will be beneficial to my future research.

One of the classes I’m taking this semester is an Information Technology class (more about managing IT from a practitioner’s perspective than the nitty-gritty of programming, etc.), and our term paper is supposed to be a research proposal for a technology issue. Perfect! I thought this would be a great opportunity to test the waters with the case study that I started outlining last year.

A case study is just that: a study of a particular case, not a broad overview of an entire subject. Because of my familiarity with the virtual world of Second Life and the interesting (to me, at least) effort by the American Cancer Society to hold a virtual Relay for Life within Second Life, I thought that would make a great case study on how philanthropy is adapting to emerging technologies.

This subject matter is so new, so unique that there is very little (actually, I’ve found nothing, but that doesn’t mean that I’ve exhausted the entire body of work available in the world) on the topic of philanthropy via virtual currency. There are a few articles on virtual currency, in general, but I wanted to explore how this case with the ACS has potential to break the mold of traditional fundraising, while at the same time, cracking open the door for my future research on policy issues concerning virtual currencies. (There are some discussions about whether “virtual” transactions should be taxable events, even if they occur solely inworld, like a value-added tax, so to speak. This raises the issue that if you can tax it, you ought to be able to deduct it. In other words, charitable contributions made in a virtual economy should be deductible, if commercial transactions become taxable.)

If I haven’t put you to sleep yet, here’s what has ruffled my feathers. I asked a techie friend (not a classmate) to read my research proposal for a second set of eyes before I turned it in for a grade, and before he even read the paper, he made the off-handed remark, “I know you’re a big fan of Second Life, but you might also consider …” and then went on to make a couple of perfectly legit suggestions about other research angles. I guess it rankled me because it seemed like he didn’t take me seriously, as if I’m just goofing off researching about games (speaking of which, there is a slew of research on social, psychological and even economic influences of games, not to mention game theory applied to other subjects). But, that’s beside the point. I responded to my friend, “I’m not like a ‘rah-rah’ fan, but I think it has fascinating research potential.”

And, it does! The last thing we need is for policymakers to try to figure this out on their own; after all, they have a tendency to wield an axe in order to carve a toothpick. We need to explore the ins and outs of what it means to make transactions in a virtual economy and how that translates into the so-called “real” world. It’s not about one particular virtual environment; it has broadly sweeping impact on everything from Facebook credits to XBox Live Points to, yes, even Linden dollars (L$) in Second Life. Imagine if you had to start paying taxes on “income” from app games. Sounds outlandish? Perhaps not.

Even for such a new subject, the topic is too broad to say that I’m researching virtual currencies. What about currencies? What type of currencies? What country’s policies, for that matter? I have to drill down and focus on some micro-issues, rather than the big macro subject. To me, it’s like being a scientist who studies a particular aspect of the ester bonds of DNA polymers and someone says, “I know you like ester bonds, but you should not overlook nucleobases.” (<<Yeah, I totally pulled that from Wikipedia; I’m not a geneticist in my spare time.)

I guess the point is that I have to narrow my focus, and right now, I’m looking at one particular issue concerning virtual currencies in one particular venue. That’s what’s so neat about research … there are so many more issues to delve into over time!