Private Virtual Securities Exchanges

The Return of Real Money Transactions

Now that virtual securities are accepted and trading them is trustworthy… why bother with a public exchange? … or cryptography? … or blockchain?

… why not just have bits in a database?… and centrally controlled user accounts (no need for anonymity)?

… like an online game?

… or an old fashioned stock market?

No complaints about power consumption or criminals.

Just the fun (and profit) of virtual security trading based on anything.

  • You don’t need a public exchange (eliminate the middleman).
  • You can do a much better job of controlling payments and security.

The NBA is now trading “Top Shots”. Porn stars are trying to do the same… but facing a public market backlash… so do it yourself.

But, David Bowie publicly listed Bowie bonds back in 1997.

This article is part of a series on Virtual Securities Business Models.

Creating your own synthetic securities isn’t new

Magic: The Gathering collectible card game or Topps created scarcity by manufacturing rare cards – taking this online is not new or news, but clearly the monetization options have grown.

With the opening up of the virtual security business, the potential to cross games (or gamification) with virtual securities is an open world waiting to be explored and exploited.

We’ve come full circle to RMT.

The Weakest Link – Math Security vs. Real World Security

A lot of crypt-security folk attack security problems through the cryptography. I get it, the math is pretty neat and sophisticated AND, if you succeed, it can be a pretty significant thing.

I’m much lazier.

I prefer to attack the link between the math and the real world.

  • A person is not a username/password pair or a private key.
  • A piece of art or game ticket or digital sword isn’t a database entry or a digital signature or entry in a blockchain log

Too often, these links are weak to begin with.

Many of the new cyber currencies are built on a premise of anonymity – no link between a person and an account. A digital “numbered Swiss bank account” or bearer bond by design.

Undermining identity in a weak identity system is usually trivial.

  1. Carry out a personal transfer between two or more accounts. Or
  2. Transfer the account itself (some variant of a username/password or private key)

The only thing that slows this down at all is if there is a notable cost with the creation of new identities or a high transaction cost for all transfers of assets (or adding “transactions to a blockchain” or whatever).

Weak links between assets and their virtual representations are even easier to subvert as they are meaningless. The one exception is an old school stock.

Really, the digital records held by our various stock brokerages are the authoritative “owners” and certifiers of ownership for stocks.

If you are old enough, you may have a physical stock or bond certificate, but this is largely a legacy system (and, as we found out with some stocks that were given to my wife when she was a child, a big PITA to sell).

Now, everything is digital and held in a “Street” account by your brokerage.

We could do this with art (and tickets) and … if we chose to control the secondary market (which is really what a stock market is anyway) with a unified, strong identity system.

The Scalper Problem (Secondary Markets)

Events have scalpers and online games have account sharing and Real Money Transactions… unauthorized trade in virtual goods.

There are two challenges:

  1. Stopping transactions entirely
  2. Making sure that you get your “cut”

Stopping transactions entirely is virtually (bad pun, sorry) impossible. The system that can almost always work is the direct trading of accounts outside of your system:

Person One simply provides Person Two their account credentials (username, password) in exchange for some payment somewhere

As this occurs entirely outside of your “ecosystem”, there is no way to stop it. In online games, this led to a number of problems where players would sell or share their account credentials to have their character get “power leveled” up or simply buy or sell an account.

This was annoying.

But, it became much more annoying for game companies as an untrustworthy power-leveling group or account seller would use the “Password Recovery” system to take the purchased account back (as many purchasers would not go in and change the password recovery settings in the account immediately on purchase).

Crooked crooks? Shocking!

But, it then became a customer service problem for the game company as the defrauded buyer (involved in an unauthorized activity) would complain to the company.

The fact that the transaction was unauthorized didn’t matter.

Back to scalping.Fisheye view of crowded basketball stadium from a skybox at night

The key to preventing unauthorized transactions is creating a strong identity system (with or without trading).

As I live in the SF Bay Area, let’s use the Golden State Warriors as an example.

Strategy One – Individual Tickets

If you were trying to stop ticket scalping, you might link an individual ticket to a lottery entry… not for a little prize, but something big… or a wide range of things that can be won, big or small.

And it’s linked to the person who purchased the ticket’s identity information.

Wrong ID, no prize.

So, the prizes are drawn (maybe at half-time, maybe intermittently during breaks in game play) and you have to show up to pick up your ticket (or, for evil fun, someone comes to your seat with the TV cameras looking at you) to give you your prize (and verify your ID).

Marketing Promotion and Security!

Strategy Two – Season Ticket Holders

If you are concerned with season ticket holders. You can link their ticket / account identity to the ability to purchase food and items at your stadium store (or online) … creating a risk for the account holder to give access to their account to a potential scalped ticket purchaser.

Double down on this with a ticket being replaced by a credit card.

Strategy Three – Trading Partnership

Push trading transactions for free (or modest fee) through some established trading platform (such as eTrade) where both parties need an account. You may make more from the partnership deal than the trading and an open, liquid trading platform (as well as allowing ticket holders to return tickets at cost if they can’t come) would minimize the black market scalping opportunities.

Strategy Four – Rich Transaction system

Heck, we’re in an article on virtual securities, why not run your own transaction platform? You could always hold back some tickets or unused capacity for individuals to trade in tickets. You don’t need fancy NFTs, you can build a rich transaction system platform with loyalty points, trading in old game tickets, and all sorts of things to link fans to your team. Tickets could have a random player picture or game moment or even something as simple as a Suit and Number so participants can build up sets and other groupings to create value.

Questions, Comments, Extensions?

Would you like more information about how private virtual security exchanges work? Do you have suggestions on how to improve this article? Other comments? Let me know.

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