internet issues

Virtual money - virtually inevitable

Several commercial initiatives have recently been launched to tap into the substantial market for monetary transfer through the internet.

These systems have to be highly secure, for all the obvious reasons. It may be less obvious that most of the security considerations are linked to the "real" nature of the money the systems are designed to transfer.

The networks move money from one account to another, and then, with normal money, the receiver can withdraw the funds from the account and spend it anywhere. If it is later discovered that there has been fraud somewhere, it's usually too late to do anything about the money. It's long gone.

Which is why security matters. When the money's gone there nothing left to do but argue about who takes the loss - and it isn't likely to be the lawyers.

Local money can obviously use the same systems. But since the money in those networks cannot be drawn out, but must be spent inside the community of those using that particular system, any fraud can easily be reversed.

The first virtual money systems are likely to appear on the internet very soon. The first significant applications will probably be business to business networks within geographic trading areas. These will be strongly supported by the growing interest amongst business in using internet in general and World Wide Web in particular for advertising, ordering and invoicing.

Although very large scale systems - across national and continental boundaries - are entirely feasible, and will most certainly be developed, the dynamics of such systems are considerably less stable than those of smaller groupings.

Tax and the authorities.

Local money is taxable. The fact that it moves in circles doesn't change anyone's constitutional or moral responsibilities to their local, regional and national communities.

If those who wish to use local currency systems are to avoid a battle with the taxman, there must be clear procedures through which the authorities can, if they have due cause to investigate someone, and the necessary court orders, access the financial records of trading in local money in just the same way as they can presently gain information from banks.

If no such possibility exists, then the risk of tax fraud is substantial, and we may expect governments to be seriously and quite properly concerned.

This basically requires that all local currency transactions by a particular user are recorded through at least one secure site. The recommended registry and account recorder structure meets these requirements.

Every user has a registered ID, which is unique within the domain of that registry, which has a unique identifier within its domain. Thus, John Smith might have the ID "josm" in the Salford registry ("sf") in the Greater Manchester region ("gm") of the UK. So is the full ID for John Smith.

Each registry maintains a list of approved account recorders, who have met necessary standards for data processing, confidentiality, costing, etc and all local money users with that registry must use one of those recorders to maintain their accounts. The "sf" registry will maintain a list of users and their particular recorders.

A transaction routed to "josm@sf" for credit to his account, will cause the server to consult this list and route the transaction to that e-mail address.

Intellectual property

Virtual money will have an enormous effect on payments received for intellectual properties. Shareware will probably become the most common method of distribution and recovery.

Similar networks will emerge to support parallel processes for music and video.

Who's going to pay for internet - and how?

This question is related to another - who is going to pay for the phone service ?

Ultimately, of course, we all have paid, and do pay, and will pay. But whether there are direct charges, or indirect recoveries from commercial advertising revenues - which we pay for when we buy anything advertised - or tax supports, or whatever, has always been a balancing act, and a game of hide and seek.

Direct charges have generally been resisted by the provider, as they are aware that the user is reluctant to part with money, and the cost of processing can be high.

Virtual money systems will make this all much easier - partly because of the ease of direct debit charging, but much more because users will be much more comfortable spending virtual money than normal.

The internet as a local service

Think globally, act locally

Information exchange around the world has been one of the main attractions of internet. The location of users doesn't matter much when what passes between them is immaterial information.

In contrast, in mainstream business, internet has so far had little effect as most substantial transactions - involving goods and materials - are more local than global.

In these markets, transport costs and other considerations tend to focus most business within a particular radius, and patterns of trade are in any case already well established.

Even among those organisations that have already entered the field of electronic data interchange, many are committed to other networks and technology

Local business subscription to internet is still minute by comparison with their use of other media, such as press advertising or yellow pages.

There is as yet little incentive to search internet for local business contacts; consequently interest in doing business on internet, through for instance Web pages, is still somewhat subdued.

It's the usual matter of thresholds; when everyone is doing it, everyone will do it, but not before.

And presently, there is no reason why a local internet user is likely to be a better supplier or customer than any other local who doesn't use internet. In business terms, there is no really useful difference.

Businesses and clients using local money will however have strong financial reasons to seek each other out, and well organised internet Web pages will be a very effective communications medium. The gmLETSystem's Manchester Web Pages is a preliminary demonstration.

It will soon be possible for any business in any community to have a Web page prepared and posted for the cost of a few hours preparation, and maintained on a server for only a few pounds a year.

Virtual money is going to have a profound effect on the local relevance of internet. People and businesses that use local money will naturally network as it is only with other users that they can earn and spend that money.

Written by Michael Linton of Landsman Community Services Ltd.

Version #003 27-7-96