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August 11, 2016 - Christopher Watkins

Spend Money to Make Money: Virtual Currency Arbitrage

Fraudsters can exploit differences in currency value using a technique called currency arbitrage. They can simulate their presence in different countries using proxy servers, purchase virtual goods with virtual currency in a location with a weak currency, and then resell these goods in another location with a stronger currency, in order to pocket the price difference.

A recent article from the Wall Street Journal takes on how virtual currency in internationally popular games—such as the near ubiquitous Pokémon Go—can cause interesting financial dilemmas for their creators. The article, “Pokémon Go Illustrates a Currency Problem,” highlights how Nintendo, the company behind Pokémon Go, could end up making less money on in-app purchases in places like Mexico, where the value of the peso is less than say, the yen in Japan.

Go Pokeball! By Shannon
Go Pokeball! (via Flickr)

This is particularly notable information for … fraudsters.

One way a fraudster can exploit this difference in value is a technique called currency arbitrage. Basically, a fraudster simulates their presence in different countries using proxy servers, purchases virtual goods with virtual currency in one location (the one with the weaker currency, in this case, Mexico), and then resells them at another location (the one with the stronger currency, this time Japan) in order to pocket the price difference.

In the case of Pokémon Go, you currently can’t transfer goods in exchange for money. According to Niantic’s Pokemon Go Terms of Service, “Trading Items may be traded with other Account holders for other Trading Items, but Trading Items can never be sold, transferred, or exchanged for Virtual Money, Virtual Goods, “real” goods, “real” money, or “real” services, or any other compensation or consideration from us or anyone else. However, even though transferring items for money is not allowed, players can still transfer items and exchange money under the table. That can result in yet another loss for the game, since those players are less likely to spend money in the game. 

To learn more about how fraudsters are making real money in the virtual goods arena, please read this post our CEO authored for TechCrunch: There Is Real Fraud In The Underground Market For In-Game Virtual Goods.

Photo of Christopher Watkins
about Christopher Watkins
Christopher Watkins is Senior Creative Writer at DataVisor. He brings 15+ years of writing, editing, and strategy experience to his role. He was previously Senior Writer and Chief Words Officer at Udacity. He holds an MFA in Creative Writing from the University of Southern Maine.
Photo of Christopher Watkins
about Christopher Watkins
Christopher Watkins is Senior Creative Writer at DataVisor. He brings 15+ years of writing, editing, and strategy experience to his role. He was previously Senior Writer and Chief Words Officer at Udacity. He holds an MFA in Creative Writing from the University of Southern Maine.