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Spend Money to Make Money – Virtual Currency Arbitrage

By DataVisor August 11, 2016

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There’s an article in the Wall Street Journal today that 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 face 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)

You know who else notices things like this? Fraudsters.

One way a fraudster can exploit this difference in value is a technique called currency arbitrage. Basically, a fraudster simulates his or her presence in different countries using proxy servers, purchases virtual goods with virtual currncy in one location (the one with the weaker currency, in this case, Mexico), and resells them at another location (the one with the stronger currency, this time Japan) and 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. 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. This is just one of the many ways fraudsters can exploit both game companies and their players and an issue with virtual currency.

If you’re interested in learning more about ways fraudsters are making real money in this land of virtual goods, take a look at this post our CEO authored for TechCrunch: There Is Real Fraud In The Underground Market For In-Game Virtual Goods.

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