Internet Currencies for Virtual Communities

This was written back in 1997 and is a timely read even today.

Well, in a complete tangent to the article, currencies are whatever you make them to be. Most online communities have "currencies" in that there is a specific numeric marker of value attached to each user - HN has "karma".

Of course, the currency has no spendable value (since everyone has the right of issue in HN - although not to themselves). Instead, it is used only for the indicator of the wealth-creators (since they accrue high karma). This of course relies on altruistic awarding - and the lack of quid-pro-quos that break that system.

The old Java forums used to have "Duke Dollars" which you could offer along with your question on the forum, and award the dollars to the answerers. While a good system, it broke down due to a) Inflation - each new user was given 10 dollars. b) Lack of value to the accruers - most of the "value" was created by a core group who would answer everyone's questions, so they would get all these Duke Dollars - so it ended up for them as a marker of wealth, and they seldom spent it. Of course, this mirrors real life currency where a few people have most of the money (with or without reason, depending on your point of view) and have no realistic method of spending it all except as an indicator of their bling.

It is hard to introduce methods of spending karma points - as they are so cheap to accumulate anyway - the spending thus can't be a system of real value. The Duke Dollars could have been (as giving a point lost you a point, so it wasn't created but merely transferred), but then you'd have to stop giving them out for free to new users. (User creation is extremely high, and users vs activity is a power law distribution.)

Paul Graham's idea of spending karma to downmod is brilliant because it allows the wealthy to spend their currency performing what on the surface appears as a complete waste of their money - punishing "bad" members of the community. But this actually makes perfect sense (http://www.nature.com/nature/journal/v415/n6868/abs/415137a....) as altruistic punishment is fantastic to preserve a community setting. What the wealthy get in return is some sort of preservation of their position - since they get to control the discourse - but not completely, and so they cannot be tyrants.

Finally, you don't need the currency to be convertible to real currency - in fact, if you don't allow it, you force its spending to remain within the community - and can control the channels of dispersion into externally recognizable value. If you do want the value to be externally recognizable, you need to introduce deflationary tendencies as well, and can't give new users free money... So it becomes a lot harder to manage (you're then trying to mimic a central bank, which is hard - ask Trichet or Geithner.)