1137506415 by Unknown

Author:Unknown
Language: eng
Format: epub

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B e y o n d B i t c o i n

grows, Steam has a strong incentive to keep its members spending money on the platform.

3.3. The Future of Platform-Based

Currencies

The examples above illustrate how different attributes of currencies induce different usage and behavior of users.

Therefore, the optimal set of attributes depends on the platform’s business model.

A general design feature of platform-based currencies is not to allow for cash-out. This is directly related to the platforms’ effort to increase loyalty and lock-in for their members. This is particularly important for platform businesses because there are strong consumption externalities leading to network effects. A member who keeps spending time on the platform will make the platform all the more attractive to others. This largely explains why most platform-based currencies have no cash-out options. A notable exception is the category of virtual worlds. As we saw, in this case, providing strong incentives for people to invest in the platform content requires the possibility for members to recoup their cash.

Strong network effects also favor the idea that users can buy the platform currency with state-issued currency.

Again, this can only grow total activity on the platform and, in the presence of consumption externalities, make the platform more attractive to existing as well as new users. This argument has a limit in one particular case: when some platform-specific meritocracy is a key part of the platform’s value proposition. Allowing for buying in may disturb this meritocracy and have a negative externality on the users. Indeed, if some sort of in-game meritocracy is important for the functioning of the platform

P l at f o r m - B a s e d C u r r e n c i e s 93

then the platform should refrain from allowing buy-in for their members. This was most visible for the case of MMORPGs, where skill was important for all players to enjoy the game, and one could fake skills by purchasing certain items. Moreover, as we have seen, a dual currency system allows meritocracy to successfully coexist with economic exchange.

Transferability is probably the most critical design feature of a currency and the most nuanced. In practice, it is the only feature that is necessary, but not sufficient, for the currency to have impact outside of the platform. Transferability is necessary if the platform needs to promote economic activities for its value proposition, which is the case for many of the interactive business models. Yet, once transferability is allowed, it opens a back door for users to buy in and cash out even if the platform’s policy aims to avoid that.

Are Restricted Currencies Really Currencies?

Most platform-based digital currencies are restricted in at least some of their attributes. Some, like Facebook Credits and Amazon Coins, are even restricted in transferability, arguably the most important attribute of a currency. One can legitimately ask whether restricted currencies are still money.

In the previous chapter, we discussed the economic deff-inition of money and its limitations. Money is defined as a (1) unit of account, (2) store of value, and (3) medium of exchange.

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