Could virtual currency become king in developing countries?

Could virtual currency become king in developing countries?
April 13, 2011

Hot on the heals of my post about a virtual currency called BitCoin, I have uncovered another rather surprising new paradigm. It would seem that increasingly people in Third World countries – what I prefer to call developing countries – are making a living by performing “micro-tasks” in the virtual economy.

What are micro-tasks you might ask? Micro-tasks can range from categorizing products in on-line stores to testing new electronic games and moderating content on social media sites. Some folks apparently even make money playing games for other people who are wealthy enough and too busy to play the game for themselves.

I have visions of someone who develops augmented reality software applications paying another person to play Second Life for them! Is that irony or just a sad state of the growing virtual economy and lifestyle. Apparently the “gaming-for-hire” market was worth a staggering $3 billion in 2009.

The deeper story here, I think, is the potential for developing countries to leap-frog the rest of us in abandoning their reliance on hard currency. Certainly virtual currency favours the un-banked in that they don’t require traditional bank accounts to hold their growing fortunes. Anyone with access to a computer can have a virtual account.

PayPal, Google, BitCoin and others offer or soon will offer accounts that do not require traditional legacy backing from credit cards or other “hard currency” accounts.

What is driving the growth of the virtual economy and why might it someday facilitate the demise of hard currency? It is still my belief that hard currency will survive for many years to come – far past my life expectancy and likely past those three or four generations from now. Much of the background for this post came from a recently released Research Paper from the World Bank.

In their executive summary, bank officials offer a simple explanation for the exponential growth of the virtual economy and by necessity, virtual currency:

The widespread adoption of information and communication technologies (ICTs) in everyday life and commerce has given rise to new digital problems and challenges.
Although information provided by networks is abundant, the human attention required to process it is limited. And although digital resources in principle are unlimited, many online platforms have artificial scarcities built into them as part of their design. The demand for these scarce resources, their supply, and the markets where the supply and the demand meet, constitute a computer-mediated virtual economy.

The International Bank for Reconstruction and Development/The World Bank published in April an article written by Dr. Vili Lehdonvirta & Dr. Mirko Ernkvist.

One organization that is helping fuel this explosion is One Laptop Per Child.