What Is a Closed Virtual Currency?

A closed virtual currency is an unregulated digital currency used as payment only within certain virtual communities. It has no connection to the real economy and cannot be converted to legal tender. Closed virtual currencies are also known as non-convertible virtual currencies, closed-loop currencies, closed-flow virtual currencies, or in-world money. These are in contrast to open or convertible virtual currencies that are directly exchangeable.

How Closed Virtual Currencies Work

Technology advancements all over the globe are driving disrupting changes in the traditional way of doing things, including the way goods and services are acquired and paid for. The rise of 澳洲幸运5官方开奖结果体彩网:e-commerce🤡 and virtual community platforms has led to a demand for alternative m🐎eans of conducting transactions.

One rapidly evolving payment technology that is making waves in the digital world is virtual currencies, for instance, in the case of bitcoin, a type of digital money used to purchase real-world goods or services online but is not recognized as 澳洲幸运5官方开奖结果体彩网:legal tender in many countries—note that El Salvador (in June 2021) became the first country to recognize bitcoin as legal tender.

Closed vs. Open Virtual Currencies

Virtual currency can be either open or closed in r꧑egards to its reach. An opᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚen virtual currency can be substituted for real money using online exchange systems or ATMs that are designed for virtual to real currency exchanges.

An example of an open virtual currency is bitcoin, the most popular decentralized 澳洲幸运5官方开奖结果体彩网:cryptocurrency online. Because open currencies have a determinable value in real money and can be exchanged for real money, they are treated as properties or 澳洲幸运5官方开奖结果体彩网:capital assets for tax purposes in the U.S.

Closed virtual currencies were created to operate in closed-loop environments and are limited to transactions in virtual goඣods within the closed environment. A closed platform allows for real currency to be exchanged💎 for its virtual currency. In contrast, open virtual currencies can be redeemed for real goods and real currency.

Closed virtual currencies are centralized by design, compared with decentralized peer-to-peer currencies like bitcoin that are ungoverned by any central authꦍority. With a closed virtual currency, there is a c🧜entral system that issues the currency, establishes rules for its use, records transactions made by its users, and reserves the right to withdraw the currency from circulation.

Closed Virtual Currency Criticisms

There are some prevalent setbacks with closed currencies. The currency is usually illiquid and digitally scarce with no way to create more of it, unlike 澳洲幸运5官方开奖结果体彩网:bitcoin mining, which creates more bitc൲oins for its users. A user can lose all of their earned coins in a matter of seconds through cyber thefts, software bugs, or account term🔴ination initiated by the virtual administrator or the user themself.

Real-World Example of a Closed Virtual Currency

Think of closed virtual currencies as closed-loop payment cards like the Nordstrom store credit card that can only be used in Nordstrom. Further, the currencies used in many online games are closed. Virtual assets acquired in-game can be traded for other in-game tools or currency and therefore, do not produce any 澳洲幸运5官方开奖结果体彩网:taxable income.

Examples of closed-🧔loop virtual 🦂gaming platforms and their specialty currencies include:

• World of Warcraft’s Gold
• Entropia Universe’s Project Entropia Dollar
• Ultima Online’s Gold Coins