I am about to build a service where a virtual currency is a vital part. The kind of virtual money, I am talking about here something, which is conceptually equivalent to money in a game like second life, which can be used to buy virtual islands or whatever. The kind of money the users will invest could be several thousand dollars.
My question, is how can I get the users to trust this currency. Specifically, I am asking how I can get my users to trust that they can convert digital currency to dollars in the future. I do have cash reserves to ensure that all of the digital money could be converted to dollars, but how can I prove this to the users? I guess that I could negotiate with an escrow service or something like that, but then I expect to spend 5-10% in fees to them. Are there any other options?
I am already planning on doing everything on the branding side, because I understand the importance of branding with regards to trust.
First of all, you'll always get people who trust you. You have to make sure they always get their money back if they request it. This way you won't get people complaining all over the Internet about your service.
The brand is also very important. Focus on your website and make sure it looks decent. There are many companies I would never trust just because their websites look rubish.
And in terms of how to prove that you have the money - I would register a limited company and declare the money you have. However, this might differ depending on what country you live in. I live in Poland and here each limited company must declare its share capital, pay the money in its bank account, and state this amount on official documents issued by the company and in terms and conditions on the company website. On the other hand, I've registered a limited company in England and there you're not obliged to do so, but you still have to make your annual accounts available online.
Find out how this works in your country, and check whether you can declare the money you have in this way.