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Korea rules virtual currency as good as cash

The South Korean government has decided that virtual currency can be exchanged for real cash. This could have huge implications for U.S. providers.

Virtual currency has been one of the more confusing areas of gaming and social networking, with different sites, games and even countries treating currency and goods differently.

South Korea has decided that virtual currency is the equivalent of real-world money bringing to light some very real ramifications for users not just in Korea but in other countries as well.

The ruling allowing "cyber money" is the first in Korea and was based on the acquittal of two gamers indicted on charges of illegally making money by selling goods earned in the game Lineage.

In-game or in-site currency has to date not been able to be swapped for cash--at least not in the U.S. Accordingly, there have been few issues related to gambling and taxes, but this decision in Korea brings up a lot of very ugly possibilities not just for gamers, but for the companies that provide these virtual cash exchanges.

Several months ago China decided to tax virtual goods, hoping that players would voluntarily pay the tax (no word yet on how that's working out) on the near $3 billion in annual gaming revenues.

A voluntary system would likely never fly here in the U.S., where I am sure government regulations would quickly come into play related to how games are allowed to distribute funds and what constitutes gambling.

For example, if you are rewarded with in-game currency, then there could be tax implications if you were to sell the in-game asset. Similarly, if you were to sell a virtual-asset to another player, you might be required to pay sales tax, or report the sale as earnings.

You may laugh now, but the possibilities of this happening are very real, especially considering how dramatically the revenues of social-gaming sites like Zynga have grown. That said, I'd like to think that it's early enough for virtual goods providers to self-police and avoid unnecessary regulation.

The U.S. has aggressive policies around Internet gambling, (though I've been told with enough effort you can figure out ways around them) which basically boil down to a players difficulty in extracting funds from bets or wagers they make. Sooner or later social-gamers will want their money back and when that happens, things could get very ugly.