Financial institutions and currency transactions are highly regulated in the United States. That much is common knowledge. However, game developers may not realize that by creating a system of virtual currency within a game that can be purchased with or redeemed for real currency, they could be opening themselves up to legal issues arising from this morass of federal and state laws, regulations, and rules. Regulation of virtual currency in online games is a largely untested field. Online game companies and their legal advisors are making their best guesses as to how these systems will be treated by courts and regulatory bodies. However, most agree that the laws and regulations discussed below may apply to virtual currency, depending on how the currency system is implemented. (Please note that this article is only intended to provide an overview of regulations that may be applicable to virtual currency systems—in order to determine whether any of these laws apply to your specific situation, please consult an experienced attorney.)

Return with me, for a moment, to the magical cupcake fields of our imaginary social game, Sprinkle Harvest, which is about to launch its lucrative new premium currency, "Cupcake Cash." (CC$25 for only US$5! Free frosting-maned unicorn with purchase!) The makers of the game are faced with decisions such as, should players be able to redeem Cupcake Cash for real money? Or transfer it to their friends? Use it in other developers' games? If a player wants to buy 50,000 Cupcake Cash in a single day, is that ok? What if, several years later, there is still 1,000 unused Cupcake Cash left in that account? Can they give away Cupcake Cash in a promotion? Or use it for an in-game lottery? The answers to these questions have as substantial impact on the legal obligations and liabilities that the developer may confront. These questions, and those posed below, illustrate only a few of the many situations in which the laws regulating currency transactions and financial institutions may be triggered.