Lawful Neutral: Mr. Krabs’ Wacky Bucks and currency in online games


I used to watch Spongebob religiously. I loved the days when I could put on Nickelodeon and have Spongebob on for hours. One of my favorite jokes from the show is Mr. Krabs’ ongoing quest to fleece more money out of Spongebob for the work he was doing while paying little to nothing in return. In one episode, Spongebob confides that Mr. Krabs pays him not in real legal tender but in Mr. Krabs’ Wacky Bucks! Outside of the fact that they are called Wacky Bucks, the whole premise just kind of made me laugh in a “I can’t believe even a fictional character would fall for that!”

But then, I started to think, isn’t in-game currency just the gamer’s version of Mr. Krabs’ Wacky Bucks?

Existential crisis brought on by a yellow cartoon sponge notwithstanding, it did get me thinking about virtual currencies in games and how exactly they get away with… not being worth anything. It’s rare today for any kind of buy-to-play or free-to-play title to not include some kind of purchasable in-game currency.

So what makes it different, why are developers so adamant about their currency not being regulated like real currency, and what’s happening now to put a wrench in this thing? In this installment of Lawful Neutral, we’ll take a merry jaunt down the lanes of finance law to understand the current state of virtually currency. And as with most Lawful Neutral columns, I’ll be analyzing from the perspective of law in the United States.

Real, virtual, and convertible virtual currency

What is “real” currency? According to the Financial Crimes Enforcement Network (FinCEN), a “real” currency is “the coin and paper money of the United States or of any other country that [i] is designated as legal tender and that [ii] circulates and [iii] is customarily used and accepted as a medium of exchange in the country of issuance.” This is what everyone understands as the US Dollar (USD) the Euro, the Pound, or any of the other national denominations of money.

By contrast, a virtual currency “is a medium of exchange that operates like a currency in some environments, but does not have all the attributes of real currency. In particular, virtual currency does not have legal tender status in any jurisdiction.” Virtual currency is further broken down with by quantifying it as convertible virtual currency: “This type of virtual currency either has an equivalent value in real currency, or acts as a substitute for real currency.” This can be much understood much more easily by saying that convertible virtual currency can be legally converted from the virtual currency back to real currency.

Fun fact: The issue of virtual currency has actually been around since the late 1880s as by definition, coupons actually function as a virtual currency. They are a closed loop system with a single direction conversion; you can use a coupon as virtual currency with the store the coupon is for, but it has no value to anyone outside of the company printing the coupon.

In short, virtual currency cannot be turned back into real currency, but convertible virtual currency can be turned back into real currency.

Let’s look at a quick example: gold in World of Warcraft. Gold can be purchased in World of Warcraft through the Token system; players pays so much in real currency to acquire the token, which they then sell on the Token exchange for some amount of Gold. WoW Gold here is the virtual currency, but it’s not a real currency because there’s no way within the game to turn that gold back into real cashy-money, at least not without violating the Terms of Use by turning to third-party black market traders.

But not all MMOs are so easy to classify. In Intrepid Studios’ Ashes of Creation, your referral code earns you Intrepid Bucks. Those Intrepid Bucks can be used to purchase in-game items or content, or they can be converted back into real money. Here’s an example: Andy gives Bree a referral code. Bree uses the referral code, and Andy gets a credit on his account for so much money. Andy in this case isn’t directly purchasing the virtual currency, but in essence Bree is gifting the virtual currency to Andy. Andy can then convert that virtual currency back into real currency — meaning Intrepid Bucks are a convertible virtual currency.

Money services business and money transmission

Why does convertible vs. non-convertible virtual currency matter? It’s one of three criteria for determining whether a business is a “money transmitter.” If a business is a money transmitter, it gets hit with whole a ton of regulations as it falls under the Banking Secrecy Act/Anti-money Laundering rules. And the BSA/AML requires additional monitoring, reporting, staffing, and many other costs — in addition to demanding the company register with FinCEN as Money Services business.

Money Transmission is defined as “the acceptance of currency, funds, or other value that substitutes for currency from one person and the transmission of currency, funds, or other value that substitutes for currency to another location or person by any means.” That essentially means it “accepts currency and moves the currency between locations or people.” The three criteria that determine if a company qualifies as a “money transmitter” and must register its business are these: 1) it acts as the exchanger or the administrator of the currency, 2) the currency is a convertible virtual currency, and 3) the company facilitates movement of the currency between different locations or people.

Going back to our examples above, we would say that Blizzard doesn’t qualify as a money transmitter because it fails the second criterion, even though it matches the first two. Blizzard is the administrator of the currency WoW gold, as it issues the currency and is responsible for controlling the rewards players can gain with it. We established that WoW Gold isn’t convertible because there’s no way to turn it back into real currency. But Blizzard does facilitate the movement of currency between different locations and people, keeping in mind here that location is fuzzily defined (moving currency from your IRL bank account to your WoW bank actually fulfills this requirement).

But wait, you say. I can turn WoW gold back into real money through a third-party website! Very true. However, as we noted, doing so is technically a violation of the Terms of Use for WoW. Because we have no sanctioned way to work through a money transmitter, Blizzard escapes being a money transmitter on a technicality.

Intrepid Studios, however, would meet the criteria of a money transmitter as defined here. It is both the exchanger and the administrator of Intrepid Bucks, Intrepid Bucks are a convertible virtual currency, and Intrepid facilitates the movement of these funds between people and locations. Notice I say “as defined here” because there are convoluted exceptions that Intrepid Studios has surely taken advantage of to avoid regulation. While I’ve spent hours researching, the laws are very complex and I am not a lawyer, so I don’t profess to have a perfect understanding — just a functional understanding.

So why does any of this matter?

There are lots of downstream repercussions for games, both where the currency is convertible and the studio is considered a money services business. One of the downstream impacts is a topic that’s oh-so-close to our hearts: lockboxes and gambling in games. Convertible virtual currency actually does have legal value which brings us several steps closer to finally acknowledging the gambleboxes are, you know, gambling. And that’s without getting into the impact of virtual currency having value and what that means for the value of in-game items and game design as a result.

Additionally, and probably more ethically concerning, is the fact that because game companies are actively structuring their Terms of Use to avoid [3] being classified as a Money Transmitter, they are largely ignoring the fact that third-party markets exist for their games that encourage money laundering (which will be the topic of a future Lawful Neutral). So while yes, businesses themselves are protected from regulation, they are incentivized to turn a mostly blind eye to the fact that criminals are using their games to launder money.

So yes, it’s funny to think that WoW gold has more in common with coupons clipped from the Sunday paper than it does with real currency, but from a regulatory standpoint, that’s where we are. But it makes sense from a business perspective and explains why most games are so adamant about establishing that their currency has no real value – not only from the consumer perspective but also as a shield against regulations. For better or worse, in-game currency by its very nature meets two out of the three regulatory requirements. It’s only the non-convertible nature of the in-game currencies that saves it from regulatory hell.

Is the Krusty Krab a money transmitter? Can his Wacky Bucks be converted back into… whatever passes for legal currency in Bikini Bottom? Is Plankton using Wacky Bucks to launder money to sustain the Chum Bucket that somehow stays in business without ever having customers? The world may never know.

Every other week, Andy McAdams braves the swarms of buzzwords and esoteric legalese of the genre to bring you Massively OP’s Lawful Neutral column, an in-depth analysis of the legal and business issues facing MMOs. Have a topic you want to see covered? Shoot him an email!

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Reminds me of the miners in the 30’s who were paid in company scrip that was only spendable at the company store.


Reminds me of deployment script used during the Vietnam war. It wound up making the black market worse by concentrating it into an officer’s cartel.


Looking forward to the article about money laundering. Rockstar opened a casino in GTA 5, and you can buy in game currency with real money, so my first question was if that could be used to launder money. There’s no legitimate way to convert the in game currency back into real money. But, if there’s an illegitimate way…raises questions about real life criminals using a game about fictional criminals for real life illegal activities.


You are not per definition laundering money, if there’s only an illegitimate way to convert the in game currency back into real money!

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Ashfyn Ninegold

Thanks for this great column on the choppy waters of currency regulation. It’s interesting how the entire “Free to Play” argument about games has moved on from how damaging it is to game design and exploded into what boils down to “How much of a mark am I?”

After watching YongYea’s report on YouTube last week about tricking players into mass spending, I’ve had to refine my question: How much do I still want that skin/weapon/mount even though I know I’m being manipulated into wanting it?”

The whole unreal currency to buy unreal items adds a psychological buffering layer. It’s not really $25 dollars. It’s just 30,000 yak dungs.


I’ve been explaining this to people for a long time now but unfortunately most people don’t get over the “But I paid $5 for this, so it’s worth $5” level of thinking on the topic.

What I think people also don’t understand is the kind of impact laws and regulation will end up having on game design. I often times see Black Desert as the kind of future of those games because it’s designed from the ground up (intentionally or not) to be resistant to most forms of legislation. For example by removing trading from the game you remove any possibility for RMT transactions or sales at the cost of a cooperative game experience. Similarly by putting the RNG into the game and selling you ways to cope with the negative effects of that RNG you bypass any gambling for $$ legislation as well.

Also who’s waiting for the first big company to announce their own cryptocurrency or get in on a cryptocurrency for gaming? (:

Jim Bergevin Jr

And another issue that haters of lockboxes seem to miss is that as soon as we get games regulated in this way, everything you earn in game becomes taxable income. Prepare to fill out a tax form for every quest reward. And God Forbid you get one of those high value ultra rare drops – you’ll have to mortgage your real life house to afford the taxes on it. Which brings up another point – paying property taxes on your in game housing.

Don’t laugh, it’s a real possibility when you think like a politician does.


Really depends on how they go about things. For example in Belgium it was an interpretation of the laws (IE: They determined because the virtual goods were desirable then they were considered to have value and could be regulated as gambling) but no actual laws changed. They don’t have any actual real world value and can’t be taxed as such.

However if a new law comes into play and states that virtual currencies and the goods they buy have to be considered to have their real world equivalent value at all times (IE: You buy $5 to get 500 “wacky bucks” then each “wacky buck” is worth 0.01c and anything purchased for $5 is considered to have a value of $5) then yes you start running into all sorts of crazy scenarios. Sales tax, digital holdings having value and having to be taxed (like we see with bitcoin), etc but also addresses the “gambling” issues as well because now you’re wagering something of real world value for something else of real world value (the most common definition of gambling in most laws around the world).

Personally I’m less concerned with that scenario (but as we see the government push for collection of sales tax with online commerce it’s not outside the realm of reason) and more concerned with them creating legislation and an excise tax (“sin tax”) placed on videogames/microtransactions and we end up paying more for basic things to fund the agencies who will enforce such legislation.