I'm a bit behind the times: I only recently heard of Second Life (SL), a growing virtual world created to mimic the metaverse idea written by Neal Stephenson in his book, Snow Crash (Note that Snow Crash was written in 1992).

In this virtual world, you have property (i.e. land and money) and can transact virtually with other SL inhabitants. Virtual money exist and economic transactions that happen in SL can (and do) have an impact on real world transactions. For example, you could speculate on SL real estate and sell it for a profit to other SL inhabitants. The profits, as denominated in the SL currency of "Linden Dollars", could be exchanged for U.S. dollars outside of SL.

Is this bizarre enough for you?

If so, you best start getting used to the idea. As suggested in my previous post on the gaming addiction, virtual communities are booming. Forums exist for everything from the car you drive to forums for frequent fliers. The internet-based community is here to stay.

And the government knows it. As money increasingly moves around on sights like SL (Or like gold farming in WoW), the gears in the head of the tax-man start turning. Via Reuters (Note that it's Second Life Reuters):

“Right now we’re at the preliminary stages of looking at the issue and what kind of public policy questions virtual economies raise — taxes, barter exchanges, property and wealth,” said Dan Miller, senior economist for the Joint Economic Committee. “You could argue that to a certain degree the law has fallen (behind) because you can have a virtual asset and virtual capital gains, but there’s no mechanism by which you’re taxed on this stuff,” he said.

For example, in Second Life up to US$500,000 in user-to-user transactions take place every day, and the economy is growing by 10 to 15 percent a month.

“Ownership, property rights, all that stuff needs to be decided. There’s just too much money floating around,” game designer Sam Lewis, who trained as an economist ...

It's not too surprising. After all, if you can convert Linden Dollars into U.S. Dollars (thereby exchanging one type of virtual money for another type), that's a taxable transaction as far as the government is concerned. And we all know how the government wants their pound of flesh.

It is only a matter of time. I predict that soon popularity on the internet, convertible into real ad revenue, will be taxable (Imagine property taxes levied on domains).

Prepare for the Department of Virtual Economy, a governmental agency created to monitor economic transactions that occur in virtual communities. It is coming. And the only question is how well virtual communities can hide from such an agency: in other words, the question before us is simple: will we seek encryption and other technology that can hide virtual transactions from the government or will we allow one more bit of the private world to be taken by the state?

I'm pulling for privacy, which is really nothing more than protection -- protection from the everyday theives, of course, but even more so for protection from the master theif, the institution of government.

It it naive to hope for freedom?

More on Second Life