From: Billy Brown (bbrown@transcient.com)
Date: Wed Mar 08 2000 - 14:57:40 MST
Paul Hughes wrote:
> A server is set up offshore. On this server is housed a sophisticated
barter
> exchange. The way it works is simple. If you have something to sell, you
post
> it online. The catch is your selling your identity to the buyer for 300
'barter
> units'. 'Barter units' are fictitious units of value that are measured by
the
> consensus of the people on it. If you want to sell that used VW of yours
for a
> million barter units that's your business. Keep in mind that another
individual
> is selling his brand new Lexus for 5000 barter units, so you're likely
never
> going to sell that used VW of yours.
What you've actually done in this scheme is create a completely electronic
floating currency system with only one bank (the 'barter' site). Most
governments won't let you do that, but I'm sure you could find someplace
that would. Once you cross that hurdle, though, you're doing exactly the
same thing that Ebay already does.
> The barter exchange company is very careful to maintain that these barter
> units are not currency, only an arbitrary measure of value online to
facilitate
> the barter process.
That is all that any currency is. The only unusual feature is that the
value is allowed to float freely, instead of being tied to the supply of
some physical good. Which reminds me - you're going to have to somehow
create an initial supply of 'barter units' (call them BUs) for people to
spend, and some way for people to get an initial allocation of them. That
leads straight into the money-supply problems that all floating currency
systems have to deal with (i.e. how many BUs do you start with, how quickly
do you make more, how much currency does it take to get some, etc.)
> The question of the night is, with the easy and availability of public-key
> encrypted schemes for both users and the transaction of these fictitious
> "units", what's keeping people from capitalizing on such a fantastic idea?
If
> the exchange assesses a mere 1% unit acquisition on each barter, the
exchange
> stands to make a considerable amount of units for themselves to
> barter with.
How about the fact that it doesn't offer any particular benefit to most
people? Small-time traders can avoid taxes even on dollar-denominated
trades, and businesses can't get away with avoiding taxes in the long run
even if they try this scheme. If the dollar were less stable it might make
sense as a private currency, but right now that isn't the case.
In essence, in order to compete with Ebay and the like you need some
advantage for the customer that offsets the extra trouble of dealing in BUs
instead of his native currency. There isn't an obvious one, which is
probably why no one is doing it. If you can find a non-obvious advantage,
then you may have something.
> Since it is conducted offshore and identities of all the participants are
only
> made available to matched buyers and sellers, how can it be taxed?
The same way any other international transaction is taxed. I don't know
about other countries, but in the US a citizen is required to pay tax on
income earned in other countries. Obviously it is easy to hide an
occasional transaction, but the same is true of Ebay. Businesses, however,
have to file so many cross-referenced documents that it would be virtually
impossible to hide participation in such a scheme, and if they admit to
participating then they would have to pay income tax.
You do get to avoid sales taxes, of course, but again so does Ebay. Being
offshore might help if the states succeed in spreading sales taxes to the
internet, but then again it might not (what if the feds decide it counts as
a real international sale, with all the attendant import/export hassles?)
Billy Brown
bbrown@transcient.com
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