Is Virtual Currency Dangerous?

According to Rodney Nelsestuen, financial strategies and IT investments senior research director at TowerGroup, these could come in the form of money laundering, fraud and the chance of the collapse of a virtual economy.

He told ZDNet Asia in an e-mail that virtual money has emerged as a money laundering vehicle over the past year, and remains a small but growing threat.

Virtual money also creates no actual economic value, and has "questionable sustainability", he said.

The Chinese government in July outlawed the use of virtual currency to trade for real-world products and services.

This includes virtual credits such as popular Chinese portal, Tencent's QQ coins.

Should other governments look into banning virtual money? Nelsestuen said outlawing it will drive it away from the public consciousness but will still be an issue for gamers, as virtual currency trading goes deeper underground.

In 2007, a virtual heist in Second Life ruffled feathers as online criminals made off with an estimated US$10,000 of Linden dollars, Second Life's virtual currency.

Furthermore, there is some real-world value created by virtual money, such as stored value cards offering retailers a new avenue to expand sales, he said.

One academic applauded China's move. Edward Castronova, Indiana University Bloomington professor of telecommunications, said in a New York Times report, virtual currencies could pose a threat to world economies, by shifting control of the money supply from the central bank to game developers.

Web payment facilitator PayPal, responding to an e-mail query from ZDNet Asia on the impact of the ban on revenues, and its plans to offer other goods and services, said only: "PayPal adheres to all local legislation in the markets in which we operate."

Before it's here, it's on the Bloomberg Terminal.