The Chronicle of Higher Education chronicles how the use of badges can be used as a virtual diploma of sorts:

Educational upstarts across the Web are adopting systems of “badges” to certify skills and abilities. If scouting focuses on outdoorsy skills like tying knots, these badges denote areas employers might look for, like mentorship or digital video editing. Many of the new digital badges are easy to attain—intentionally so—to keep students motivated, while others signal mastery of fine-grained skills that are not formally recognized in a traditional classroom.

At the free online-education provider Khan Academy, for instance, students get a “Great Listener” badge for watching 30 minutes of videos from its collection of thousands of short educational clips. With enough of those badges, paired with badges earned for passing standardized tests administered on the site, users can earn the distinction of “Master of Algebra” or other “Challenge Patches.”

Traditional colleges and universities are considering badges and other alternative credentials as well. In December the Massachusetts Institute of Technology announced that it will create MITx, a self-service learning system in which students can take online tests and earn certificates after watching the free lecture materials the university has long posted as part of its OpenCourseWare project.

MIT also has an arrangement with a company called OpenStudy, which runs online study groups, to give online badges to students who give consistently useful answers in discussion forums set up around the university’s free course materials.

I know of one great organization that uses badges!