January 22, 2010

You probably know someone addicted to video games. After all, World of Warcraft has sucked away the lives of many a spouse or child. “What’s the point?” you may have lamented. “It’s not real! Your chain mail, that broadsword, those virtual maidens you flirt with…They’re all just fiction!”

But now, a South Korean court has ruled that virtual money — the onscreen gold that players use to buy their onscreen medieval get-up — is indeed currency. And to that end, Korean gamers are now allowed to exchange that pretend money for real cash.

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The court’s decision came after prosecutors nailed two Korean gamers for making 20 million won ($17,600 USD) by buying and selling millions of “Adena,” the virtual currency of Lineage, an online role-playing game. The pair bought 234 million won worth of the currency (about $206,000) and resold it to other gamers for their 20-million-won profit. Prosecutors, parents’ associations, and anti-gambling activists argued that these transactions were the equivalent of online gambling (apparently illegal in South Korea), but the country’s Supreme Court agreed with an appeals court that earning Adena isn’t the same as poker and other games of chance.

You could argue that a logical next step would be laws governing the transfer of virtual assets. A decade ago, if a thief in a role-playing game made off with your virtual armor, you probably just had to live with it. But let’s say you could have sold that armor for 3,000,000 Adena. In real-world terms, that virtual cash could have netted you 37,500 won, based on the current exchange rate for Adena. So nowadays in South Korea, if a rogue swipes your magic pendant, should you report him to the authorities for petty theft?

We’re not there yet, but we might be close. Last September, another Korean court said that profits from virtual currency trading should be slapped with a 10% value-added tax.

I can see the wheels in bankers’ heads spinning now: Virtual currency tax shelters? Converting your actual debts to virtual liabilities to improve your balance sheet? The possibilities are endless.

There’s an interesting conversation over at Tyler Cowen’s blog about the ruling’s possible implications.

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