Taxing the digital economy:blueprint for a virtual nation?

This short article (1000 words) tries to see some potential side-effects of the digital economy

Certainly, I am neither the first nor the last.

But it is a little bit disheartening to see how the discussions proceed as if reality had been frozen when the discussions began.

Probably SecondLife was the first case where a real-world entity had to sustain a virtual world currency to avoid a crisis of confidence.

If you do not know the story- it was all the rage, few years ago.

Actually, a wonderful marketing campaign, more than reality, as the number of active users is (and was) a fraction of, say, the audience of Facebook or Twitter.

Nonetheless- being able to convert real money into units of a “virtual” currency is going to be the natural evolution of most online social networks.

Just visit Facebook: there are applications giving virtual dollars and, once in a while, using the virtual dollars to generate real dollars to finance a charity or other charitable initiatives.

A nice approach- but completely unregulated.

The point is not the conversion of real dollars in virtual credit- the real issue is the trading or possibility to sell and increase the virtual credit, that originated as real-world dollars.

If our economy becomes more and more digital, it is just natural to consider that, say, I would like to “barter” some of my virtual credit online for other virtual credits needed to get services in the digital economy .

Right now probably the aggregate virtual value of these credits is not worth a crisis.

In my case, it was easier: I was just supporting pro-bono activities that generated no revenue or non-profit.

What if tomorrow I need a new logo?.

And what if I find the perfect supplier online?

Seemingly somewhere in Europe. But actually located on the other side of the world.

If we exchange real-world money, through a wire-transfer, credit card, escrow, etc, it is a normal transaction.

But if eventually there is a large enough number of providers, it is not the end consumer, but small businesses that would benefit first.

Just look at the “lean supply chain”.

Do you know the “six degrees of separation” theory? Some systems, like Linkedin, use that approach to show you how many people separate you from another contact.

Say that, tomorrow, a startup somewhere needs help to do a business plan.

But they have no cash- they have virtual credits gained by selling their expertise in playing videogames online.

Don’t laugh: for intensive players, a “game coach” is like a “business coach”.

And another intensive player, who happens to be a graphic designer, owes them a large amount of credits.

If I need a graphic designer for a website, without exchanging a real-world penny, we could have a triangular economic transaction.

I deliver the required support, while I receive the graphic designer consultancy, giving him part of the credits that I will receive, so that he can settle his coaching virtual bill.

Three parties, probably with a fourth one, the “gaming” platform.

This is feasible today- but tomorrow it could be even more complex.

Imagine: two online companies set a “mutual agreement” and set an exchange rate.

Eventually, the game community agrees on a reference value.

How do you call it? Say… Special Gaming Right (SGR), with a basket of virtual credits linked to the number of active members in each community, or the volume of transactions (their “GNP”).

And who should regulate these neo-financial virtual entities?

If it sounds familiar… welcome to the real world.

The issue is that if our economy evolves beyond the national borders, and into the digital realm, you do not dematerialize just invoices.

Also the fabric of our economy can gradually evolve.

The example that I wrote above is sheer lunacy, today.

But tomorrow, when people will spend online as much as they spend in their real life?

And not just for gaming.

Few years ago, I designed a business and marketing model and business plan for a company using a simple bit of knowledge that I had found while living in UK.

Accountants in India could be quite fast, and at a fraction of the price, certified to deliver services in UK, home to a (then) flourishing micro-company economy, used to computers.

While the tax authorities authorized to use just electronic means to manage your own accounting.

Solution? Dematerialize and delocalize accounting, and sell an accounting services package involving a remote accountant, and a locally authorized distribution.

It is just a tiny example (incidentally, it did not start for a last minute issue between partners).

The real issue is another one, of course.

Regulations of the (virtual) financial flows?

There is already a similar issue with some financial “back to back” approaches used to transfer funds without using the banking system.

That’s just the tip of the iceberg.

If the wealth of your citizens is not only beyond your borders, but outside any jurisdiction, what is based on the economy of your country?

It is fine when this is limited to few corporations, that you can control and “influence”.

But millions? Hundred of millions?

Maybe the XXI century will see the birth of one or more virtual economies, built by initially “absorbing” GNP growth from some real-world countries.

The most interesting part would be, of course, how to manage the economic and political relationships with a country that does not exist, has no territory, and does not belong to any organization, alliance, agreement.

I wrote: does not exist. Now.

But as I wrote in a short story long ago, using as reference some patents held by Google, this could be just a temporary inconvenience- overcome by technology advances.

Anyway, as in “The Hudsucker Proxy”: the future is now.

The transactions in Facebook that I described are real.

The service migration online is real and works.

What is now missing is: just a credible virtual currency.

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