Virtual Dosh: A Taxing Question

Here's the latest contribution to the (academic) debate about whether and in what circumstances virtual dosh should be taxed:

Although it seems intuitively the case that the person who auctions virtual property online for a living should be taxed on his or her earnings, or even that the player who occasionally sells a valuable item for real money should be taxed on the profits of those sales, what of the player who only accumulates items or virtual currency within a virtual world? Should the person whose avatar7 discovers or wins an item of value be taxed on the value of that item? And should a person who trades an item in-game with another player (for an item or virtual currency) be taxed on any increase in value of the item relinquished?

(Via Terra Nova.)

China Virtually Clueless

Oh dear:

Worried that virtual currencies from online games could undermine the country’s financial system, Beijing has taken steps to restrict their conversion into yuan and use to buy real goods, and banned the opening of new Internet cafés.

Beijing is struggling to rein in the hot money flushing around of the country, hoping to keep the yuan from appreciating too fast against the dollar.

The measures against virtual currencies, announced by China’s state news agency Xinhua in a joint communiqué by 14 government agencies, were said to be aimed at preventing them from wreaking havoc on the real-world economy.

Titled, “A notice about further steps in strengthening the management of Internet cafés and Internet gaming,” it says that the redemption of virtual currencies in value exceeding their original purchasing prices will be banned to prevent attempts to realize profits. It also says they cannot be used to buy real goods, only virtual products and services provided by the gaming operators who issue the currencies.

Which means, of course, that as well as being virtual, all this dosh will now go undergound, making it even harder to control.

eBay Loses the Plot - and its Future

One thing that is evident online is that the line between real and virtual is increasingly evanescent (for the full half-hour argument, read Ed Castronova's thought-provoking Synthetic Worlds.) It follows that the companies that will thrive tomorrow are the ones that can seamlessly accommodate the sometimes disturbingly virtual alongside the comfier real.

Cross eBay off the list:

eBay is now delisting all auctions for 'virtual artifacts' from the site. This includes currency, items, and accounts/characters

So, here's a question for all you entrepreneurs: who wants to become the eBay of 21st century? (Via Virtual Economy Research Network.)

Update: eBay has managed to find a couple of neurons, it seems.

Virtually a Real Currency

And so the line between what is a "real" and "virtual currency" blurs yet further:

Tencent, QQ.com's parent company, is being sued by an angry user for impersonating a friend and getting him to link through to a contest site. Damages sought: 40,000 Q coins, and 445 5-digit QQ numbers (see previous post on the value of QQ numbers). Is this the first time that a court of law has been asked to award virtual currency in a settlement? It all points to the way that Q coins are increasingly being used as an alternative to the [Chinese] RMB for online economic transactions. It makes sense, given that a) so few Chinese have credit cards with which to pay for online goods and services; b) the vast majority DO have QQ accounts and Q coins with which to purchase online goods and services; and c) You can accumulate Q coins by playing online QQ games.

The post also links to this useful introduction to the world of QQ coins.

China's Virtual Money Woes

It's spreading:

As if Chinese leaders did not have enough of a headache trying to manage the country's rising but still undervalued currency in the testy world of international trade, now the growing popularity of virtual money enters the already complex equation.

The so-called "QQ" coin - issued by Tencent, China's largest instant-messaging service provider - has become so popular that the country's central bank is worried that it could affect the value of the yuan. Li Chao, spokesman and director of the General Office of the People's Bank of China (PBOC), has expressed his concern in the Chinese media and announced that the central bank will draft regulations next year governing virtual transactions.

So tell me again the difference between real and virtual currencies....

Carousel Fraud: Virtually Virtual

I'm always amazed when people raise their eyebrows over the money involved in virtual worlds, because it's obviously not "real", and so doesn't count (ever stopped to consider how valuable that piece of paper you call a banknote really is?). But when I read things like this, I have to shake my head:

Missing trader or carousel fraud cost Her Majesty's Revenue and Customs £3bn in the last financial year.

...

Carousel fraud involves importing, or claiming to import, goods from another EU country without paying VAT, then selling them on and pocketing the tax. The same goods will often go from country to country earning fraudulent tax at every stage.

Increasingly, the goods don't even physically move.

So, this is fraud to the tune of billions of pounds per year, "increasingly" involving goods that don't move - and that presumably only exist as disembodied numbers passing through the UK government's IT system: and they're telling me that virtual money doesn't count?

Bill Gates's Virtual Wealth

Here's a very sharp post from Urizenus Sklar, which is a comment on Wagner James Au's post, which in turn was commenting on the news that Second Life has its first (dollar) millionaire:

Anshe Chung has become the first online personality to achieve a net worth exceeding one million US dollars from profits entirely earned inside a virtual world.

As Au points out, Chung doesn't really have this million dollars: her ability to realise it is contingent on all sorts of factors:

If Anshe Chung gradually sold all her Second Life assets over the span of a year or two to prevent market devaluation, and if all the assets actually in the inventory of various avatars working for Anshe were successfully transferred back to her, and if throughout that time the in-world economy remained stable and the population continued growing, and if Second Life did not suffer any serious interruptions of service either through hacking, scalability failures, sale of the company, or other unforeseen acts of God-- why, Anshe Chung's account holder would have, at the end of that long and arduous process, well over $1,000,000.

But as Sklar brilliant notes, Bill Gates's wealth is equally chimerical and contingent:

If he started slowly selling his stock, but not so fast that the value tanked, and IF open source software doesn’t wipe him out before he sells and IF Google doesn’t wipe him out before he sells, and IF a lawsuit doesn’t wipe him out first, and IF his business doesn’t get dismantled for anti-trust violations, and IF he doesn’t get shot, and If as soon as he gets his money out he doesn’t put it in financial derivatives and they tank and IF as soon as he gets it out his wife doesn’t make him spend it on starving children in Africa before he gets to stuff his mattress with it, then I suppose he is a billionaire. But what are the chances of that?

Beyond the wit, what this post serves to underline is that there is no substantive difference between "virtual" wealth made in the "virtual" world, and "real" wealth made in the "real" world.

You Know Second Life is Real...

...when they start phishing for your passwords to steal your virtual money.