High Fidelity is the first of what I call the “Big Five” social VR platforms (i.e., HiFi, plus Sansar, Sinespace, VRChat, and AltspaceVR) to set up a blockchain-based in-world currency, called High Fidelity Coins (HFC). On January 8th, 2019, High Fidelity announced that it would begin testing the trade of High Fidelity Coin and Ethereum (ETH; a popular cryptocurrency):
Initially, we will allow users to purchase HFC using ETH. We will conduct trades of HFC in fixed amounts equivalent to $25 or $50 (HFC 2,500 or 5,000). Since HFC is a stablecoin pegged to the US Dollar, while Ethereum varies against the Dollar, the exchange rate between HFC and ETH will fluctuate.
We are currently allowing creators and performers that have earned in-world currency to sell their HFC for payment directly for USD. These trades are handled in-person with High Fidelity staff. As we enter the New Year (2019), we will begin offering automated tools to support selling HFC for ETH.
As we’re still learning about trades for ETH, we’ll begin by scheduling in-person (in-world) trades for users buying HFC with ETH. A High Fidelity banker will specify an Ethereum wallet to deposit your ETH to pay for the trade. You’ll receive HFC from the bank on the successful completion of your trade. You can schedule an appointment here.
If you’re new to the world of blockchain trading, you can learn more about one of the more common trading platforms (Coinbase) here. You can learn more about the steps required to set up a wallet for payment here.
Over time, we see this being our primary method for purchasing and selling HFC. It’s convenient, global, well-governed and broadly adopted. In future, we may enable trades to other cryptocurrencies or tokens, either directly or through third-party exchanges. We also hope that HFC will be used by other VR platforms or applications, making the transfer to Ethereum even more useful.
High Fidelity also published a list of Frequently-Asked Questions (FAQ) about this move:
Who can trade HFC and ETH?
All High Fidelity users will be able to buy and sell their HFC for ETH. An ETH wallet will be required.
What is the HFC to ETH exchange rate?
HFC is pegged to the US Dollar. US $1 = HFC 100. Since the value of ETH floats against the Dollar, the value of High Fidelity Coin floats against Ethereum in turn.
Why is HFC a stablecoin?
Speculation in High Fidelity Coin as a cryptocurrency would be counter to our goal of creating a thriving economy in High Fidelity. If the real world value of HFC changed unexpectedly for non-economic reasons, the potential rewards for creators and those working in High Fidelity would become unpredictable, discouraging users to hold and trade with the currency. We want people to know they can cash out their HFC at any time for a fixed real-world value.
Can we still trade directly for US Dollars?
Yes, but this may be discontinued in 2019.
Will you start trading HFC for Bitcoin?
In future, we may enable HFC trading for other cryptocurrencies, including Bitcoin.
Why aren’t you just using ETH in the first place?
High Fidelity has developed its own cryptocurrency, HFC, since traditional blockchain currencies are not suitable for a virtual world environment. Specifically, ETH is more of an asset class than a stable trading currency. Its value varies over time, making it difficult for traders to use the currency in fair exchange for goods. Additionally, HFC trades more quickly and without built-in transaction fees. Currencies that rely on a proof of work method to generate and confirm blocks (e.g. Bitcoin) currently require too much time to be used as a real-time transactional currency.
This is uncharted territory for High Fidelity, and a step not without some risk, despite their assertion that they want HFC to be a “stablecoin”. Many other social VR and virtual world platforms will no doubt be watching closely to see how well HiFi’s economy adapts to this change. High Fidelity is still having a bit of difficulty getting its economy off the ground, and encouraging content creators to make and sell products on its Marketplace, at least compared to the relative success of the Sinespace Shop and Linden Lab’s Sansar (where the Sansar Store now boasts well over 18,000 items on sale). Linden Lab and Sinespace currently have no plans to introduce cryptocurrency on their platforms, as far as I am aware.
Could this move backfire? Given the constraints that High Fidelity has put in place, it seems doubtful that this could fail. However, many Ethereum owners will likely hesitate before exchanging their hard-earned cryptocurrency to HFC. While HFC might prove a safe haven in the current bear market, it may also prove a trap in times when ETH is soaring in value. Frankly, blockchain-based virtual worlds are just too much of a risk for me to even contemplate investing a penny, and I would urge anybody who does to do every single scrap of their homework before investing in any cryptocurrency.