1. Introduction

With the development of internet， netizens start purchasing virtual products and services from the websites. It’s known that these virtual products and services are quite cheap due to the low production cost. It could be quite inconvenient for users to use the common payments like credit card or remittance. Therefore， virtual currency is required to facilitate on-line consumption.

Virtual currency is used to purchase virtual goods within a variety of online communities； which include social networking websites， virtual worlds and online gaming sites. Game coin is the most popular virtual currency， which is widely used in on-line games now.Some portals and SNS issue the virtual currency to provide the users purchasing the services in the website， such as Q coin in Tencent and Renren coin in Renren.com etc.

2. Theoretical Development

Nowadays， virtual currency is widely used in social network， such as Q coin which is produced by Tencent Company， Renren coin produced by Renren.com and so on.

2.1 The ideal model of virtual currency in previous research

Unlike the real money， virtual money requires a new model of issuance， circulation and withdrawal. Here is the ideal model of virtual currency in China.

Issuance

The company issues virtual currency according to demand. The users can only get the virtual currency by actual currency exchange， and the exchange rate is kept stable.

Circulation

Virtual currency can be used in two ways. One is to purchase virtual products and services； the other is deposited in the account. The issuer gets profit from business.

Withdrawal

Virtual currency cannot be exchanged back for real money， which is one way exchange mechanism.

In the following illustration， we set 2 assumptions.

Assumption1：

Actually， the issuance costs are different in different sale channels， so the issuer can only get part of the nominal value of the virtual money. It will be ignored in this study， which means that the issuer will get all of the value of the virtual money， which is 1/E RMB per unit. It caused no difference to the result， since the issuer will balance the price of the virtual money in the sale system.

Assumption 2：

Virtual money is used to purchase virtual products and services the company provides， so the company will keep the exchange rate stable， which will win the public trust.

In the above model， virtual money， exchanged by real money， entered into virtual network. The virtual money is stored or consumed for virtual products and services.

In the whole process， nominal exchange rate is the same as the actual exchange rate， and the prices of both virtual money and virtual products are stable.

E=e；

p=P/E；

m=M/E=.

Pi is the price of the virtual product or service，

Qi is the quantity of product or service bought with virtual money.

We can see from above algorithms that m makes up all the business earnings of the issuing company， which means virtual money in this model is totally a kind of commodity， which brings no influence to the financial real world.

2.2 The actual model of virtual currency in real life

After all， the ideal model is far away from the reality. In reality， the situation is more complicated. Let’s take Q coin as an example.

In China， QQ is as popular as MSN abroad， so Q coin is widely used among the QQ users. Users can buy almost all the virtual products in QQ world such as virtual clothes and pets， games， music and so on. Furthermore， although Q coin adopted one way exchange mechanism， some users resell the QQ coins to make profits in private. So Q coin model is more practical， compared with the ideal model.

Issuance

Tencent issues Q coin according to the users’ demand. The users can exchange one RMB for one Q coin in several ways.

Besides RMB exchange standard， Tencent issues some extra Q coins for free. For example， Tencent sometimes gives a certain number of free Q coins to the users for promotion. In another way， Tencent gives the users free Q coins as a bonus for clicking some certain advertisement web pages.

In addition， the burglars can decipher the QQ account and get the Q coins illegally.

Circulation

QQ， as important as MSN and Facebook in eastern countries， has possessed a large number of users in China. Not only youths but also adults are using QQ every day. QQ farm and QQ Zone are pretty popular among office workers. These brought a huge market for QQ coin.

The variety of virtual products in Tencent’s social network made Q coins the most popular virtual currency in China.The Q coin users can purchase QQ music； QQ games， virtual clothes， house and pets， and they can buy some special member identities.

QQ is used to pay for a small number of bills. And it’s very easy and convenient to finish the payment for users， with no charges. The users may deposit some Q coins in the QQ accounting for common use.

Withdrawal

Tencent adopted one way exchange mechanism， which means， the users can exchange RMB for Q coins but they cannot exchange Q coins for RMB. It protected RMB from virtual currency and decreased the exchange risks.

2.3 An improved model of virtual currency

After the observation of all the SNS cases above， we try to consider some new possible withdrawal mechanism in SNS virtual money.

2.3.1 Purchase actual goods with virtual money

In the ideal model and actual model， virtual money can only be used to buy virtual products and services， or deposited in account. We may consider the possibility that using virtual money to purchase actual goods with the precondition that the exchange rate E of virtual money to RMB is kept stable. Since RMB is legal tender， the seller of actual goods needs to exchange virtual money for RMB. Therefore， the seller and the issuing company have to make an appointment that the seller accepts virtual money as a payment medium and the issuer will withdraw the virtual money from the seller with a certain price ratio.

In this model as shown in figure 1， let’s say E1 as the exchange ratio of RMB to virtual money， E2 as the exchange ratio when user buy actual goods with virtual money， E3 as the exchange rate that issuers withdraw virtual money from the sellers.

Figure 1 Relation schema of actual goods Purchase with virtual money

Source： Reference 7

Let’s say θ percentage of virtual money has been used in actual goods exchange， which can be predicted by the statistics of empirical value.

M1 is the nominal value of virtual money used in actual goods purchase.

M1= （M+N） θ；

m1= （M+N） θ/E1；

m2 is the actual RMB value of these actual goods bought buy virtual money， and m3 is the actual RMB value of the virtual money issuer withdrawn from sellers.

We can see from the above that m2≤m3， so that the actual goods sellers can get profits.

m2=M1/E2=m1E1/E2≤m3= M1/E3=m1E1/E3，

so we can get E2≥E3.

And we can get m1≥m3， so that the issuing company can get profits.

M1/E1≥M1/E3，

so E1≤E3，

From the above algorithms， we can get

E1≤E3≤E2

If E1E3E2

If E10.And the issuer will get a profit of π2= m3-m2>0.

Another condition is m1≤m，

（M+N） θ/E1≤M/ E1

N≤M （1-θ）/ θ.

So when the condition

E1≤E3≤E2

and N ≤M（1-θ）/ θ

are being fulfilled， actual goods purchase can work in the virtual money model. But in the model， the business earning of issuer decreases， which is

m-（M+N）θ/E3= m-m3.

Here is the actual goods’ purchasing model.

2.3.2 Exchange virtual money for RMB officially

Another way more direct of withdrawal is allowing exchanging virtual money back for RMB by the issuer.

In this model， as shown in Figure 3， let’s say E1 as the exchange rate of RMB to virtual money， E2 as the exchange rate of virtual money to RMB.

M1 is the virtual money exchanged back for RMB， M1= （M+N） θ.

m1 is the actual RMB value of M1， m1=（M+N）θ/E1.

m2 is the RMB users can get.

Figure 2 Official withdrawal

Source： Reference 7

To issuer， m1≥m2 and m1≤m.

So we can get E1≤E2

Under the above two conditions， official exchange can work in the model and it will control the issuance of extra free virtual money.

3. Conclusion

In our project， we use the knowledge of monetary economy and E-commerce to observe how virtual money makes profit for SNS and its influence to virtual world and actual world. And we also proposed a relative effected model for SNS which we have mentioned before. Withdrawing virtual money officially is good withdrawal mechanism from both theoretically standpoint and users’ view point. Purchasing actual goods will be benefited for SNS， so if the company opens the function， it must consider the benefit for the customers.

In conclusion， virtual currency should be changed back into RMB in SNS， and the company could open the function to use virtual currency to buy real goods only if it is considered from the users’ perspective.

References

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作者簡(jiǎn)介：

高潔（1986-），女，安徽巢湖人，香港理工大學(xué)電子商務(wù)專業(yè)碩士研究生，目前工作于中國(guó)電科38所

曹雪（1987-），女，遼寧大連人，香港理工大學(xué)電子商務(wù)專業(yè)碩士研究生，目前工作于中信銀行大連分行