Virtual Money in Electronic Markets and Communities

Article: Orman, Levent V., Virtual Money in Electronic Markets and Communities (June 7, 2010). ICAST Journal of Institute for Communication, Social Informatics, and Technology, Forthcoming; Johnson School Research Paper Series No. 27-2010.

Available at SSRN: http://ssrn.com/abstract=1621725

Abstract

"Money is an information system to value, record, and track economic transactions. It is an information system with minimal semantics and centralized control. Consequently, the monetary system fails to support many transactions directly, but requires intermediaries such as banks, brokers, insurance companies, credit card companies, and investment firms, increasing transaction costs greatly. Semantics of money can be increased, and the management of money can be decentralized by creating virtual money. Management can be decentralized by issuing private currencies and creating an automated peer-to-peer network of currency exchange systems to support complex transactions. Semantics can be increased by incorporating transaction information in the money, and building semantic hierarchies of money types by aggregating underlying privately issued currencies. Resulting virtual money can disintermediate many financial institutions, possibly leading to drastic reductions in transaction costs."