Today, virtual currency trading is widely accepted in China. Billions of RMB in virtual currency is being traded online, and this amount increases by 20% every year. There are two major types of virtual currency. The first type of virtual currency is offered by instant messaging and portal-based issuers. Examples of such currency include Q Coins from Tencent, U Coins from Sina, POPO Gold Coins from NetEase, and Baidu Coins from Baidu. Q Coins is the most popular virtual currency in China because Tencent’s instant messaging software QQ dominates 90% of the market in China and has four times the users of MSN. Starting in May 2002, users can purchase Q Coins with RMB at the exchange rate of 1:1. Tencent has always prohibited users from selling back or exchange Q Coins for real money. Tencent’s original intention was for users to spend Q Coins on Tencent operated websites. However, the popularity of Q Coins has projected Q Coins beyond Tencent’s control and Q Coins are now being trade for real money and used as an online payment system.
The second type of virtual currency is offered by online game-based issuers. Examples of games that offer virtual currency include World of Warcarft from Blizzard Entertainment/The 9, Fantasy Westward Journey from Netease, Legend of Mir II from Shanda. In these massively multi-player online role-playing games, online game currency can be purchase with RMB or earned by killing monsters and completing designated missions in the online game. The concept of earning virtual currency has created the phenomenon of “gold farmers,” which are Chinese workers employed to play online games day and night in order to earn virtual currency and equipment. The “farm owner’ then sells the earnings for real money. Trading virtual currency and equipment can be a lucrative business as it accounts for about $600 million dollars in business for IGE.
The popularity of virtual currency stems from the economical need to have an efficient online payment system. China traditionally has heavy restrictions on PayPal-like online payment platforms, and little credit card usage among China’ s online population. These pitfalls allowed virtual currencies to quickly become an online payment system. Online giants such as Shanda, Tencent, Sina and Soho all have their own virtual currencies to facilitate online payment transactions. For example, in April of 2008, Tencent reached an agreement with Beijing Rising International Software Co., Ltd., a popular anti-virus software company, to allow the purchase of the company’s anti-virus software with Q Coins. Such companies expressly forbid users to trade their virtual currency as real money or for real money.
However, as with Q Coins, virtual currency in China are being traded for real money. Virtual currency are traded on auction sites such as Taobao, 5173.com, IGE and eBay China. Virtual currency in China has matured enough to have the basic essence of real money: valuation, liquidity, methods of saving and methods of payment. Using Google, a search for the Chinese words “virtual currency trading” results in 561,000 hits. This number signifies the immense volume of online trading today.