How does this work? I've read something about it on wiki but still little bit confused.
https://en.bitcoin.it/wiki/Transferable_virtual_property
https://en.bitcoin.it/wiki/Transferable_virtual_property
Lets say the Mastercoin protocol works as described and we have both smart property and user currencies.
You would have two ways which you could transfer virtual property. If it's infinitely duplicated property like an mp3 or a limited but known supply game or game item then read below:
The easiest way would be to turn virtual property into a voucher which can be redeemed. Under Mastercoin you would want to use the user currency issuing capability to issue a voucher in the name of the virtual property you wish to transfer. You set the amount of units of these vouchers as if they are currency. You then sell each voucher for Mastercoins. These vouchers can represent anything virtual and be redeemed.
Production can be tracked as a data stream so that people purchasing know the progress you are making on the game if it's a game and they are pre-ordering. Participants will be able to bet on whether or not you'll meet your release date offering them a speculation opportunity.
Those who have your vouchers will be able to redeem those vouchers in exchange for a copy of the virtual property if they redeem by a certain expiration date meant to protect both them and you. So you can set the voucher to be redeemed within a six month time period and this will keep people from hoarding vouchers they don't really want and force them to swap vouchers until the people who really want your game are in possession of the vouchers at the time before the vouchers expire.
These vouchers can be traded for the game and then you release the decryption key to the lockbox allowing all who redeem to play the game.
Mastercoin will make it very easy to do stuff like this on a decentralized exchange.
One other way to do it is to use the smart property functionality. If it's a single product then you can digitally label with a unique currency id for that product and trade it for Mastercoins. The number of properties should be set to 1 because only 1 of that property is in existence.
Technical details:
Mastercoins are a unit of measurement, not a currency or stock.
The Mastercoins are used to measure the value of an escrow and to control supply and demand of user issued currencies. Mastercoins in escrow represent the goods and services of the issuer at the time because Mastercoins are backed by the goods and services of the issuers in the decentralized market.
Quote
The currency held in escrow is the parent currency of the data stream. In this example it is MasterCoins, but it could also be any currency derived from MasterCoins. For instance, GoldCoins could later be held in escrow to support a currency whose data stream uses GoldCoins as a parent currency.
When an issuer issues a currency, the price if it's for example a bitUSD it would rely on a data stream feeding it the price of USD and the supply can be increased in order to decrease the price, while the supply of the currency decreased (bitUSD transforms back into Mastercoins and bitUSD are destroyed) to increase the scarcity and increase the price. As a result the Mastercoin escow is actually a scale and is designed to keep the price of the issued currency stable in response to changes in demand for that currency and according to the data stream. So if your game is approximately $60 then it creates more vouchers if they sell out so that the price of those vouchers is stable. If that didn't happen then people would be buying and selling vouchers like a stock and the price would go up and down similar to how Bitcoin does.The escrow keeps the price in a strict range using Mastercoins. For this reason Mastercoins are a unit of measurement and not a currency.
More on Mastercoin
http://www.mastercoin.org/
https://sites.google.com/site/2ndbtcwpaper/