China to Crack Down on Virtual Currency

...and, while I'm reading today's NYT, this too has some pretty interesting implications...

The Times piece focuses on the threat that this will pose to China's notorious gold farming industry. But I think the effects will be even more severe for China's underground economy and, maybe also, for political dissidents within the PRC. Which is, of course, pretty clearly among the Chinese government's aims. But the rest of world also has reason to watch this carefully.

In my experience (never mind what experience) all sorts of legally sub-rosa online businesses operate off servers located in China (though, of course, the people running such businesses may not be, and typically are not, actually located there themselves). And it's easy to understand why. At least to date, regulations governing internet hosting have been pretty slack and, of course, corruption among Chinese regulators has been demonstrated again and again. So long as you are not selling porn or trafficking in criticism of the Chinese government, China has been probably been one of the safest well-wired jurisdictions from which to run a legally questionable online business.

But virtual currency is the weak link. From the scofflaw (or, if you like, libertarian) perspective, the real deal is not so much MMORPG gold, but serious money-moving ventures like e-gold. Without a way to reliably realize profits in a real, spendable currency...well, crime doesn't pay does it?

Politically and legally today's news can be read as just one more instance of an authoritarian government at work. But given the sheer volume of virtual currency that passes through China, this may well mark (another) beginning of an end. In this case, the end of the Friedmanian dream of a 'strong privacy' digital economy beyond the reach of governments.

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