Paying for Inattention

Opinion: Money's masters are very late to the virtual markets.

Not that Id know, but Im told that having too much portable wealth can lead to unwelcome government attention. In Neal Stephensons 1999 novel "Cryptonomicon," several hackers advise a business associate with an inconvenient stash of gold to exchange it for digital cash. "Anonymous. Untraceable. And untaxable," they tell him.

"Whatll that buy me?" the associate asks in derision. "Pictures of naked girls on the World Wide Web?" The reply is telling: "Soon enough, itll buy you anything that money can buy." Seven years later, "soon enough" is now, and governments are way behind.

Reuters has just opened a bureau to cover cultural affairs and financial news in the Second Life cyberspace of San Francisco-based Linden Lab. Yes, financial news. With its annual economic activity equivalent to $130 million in U.S. currency, Second Life would hold position 179 on the International Monetary Funds ranking of real-world countries—right behind Tonga and displacing the Democratic Republic of São Tomé and Príncipe off the west coast of Africa.

Thats not a huge new arrival on the fiscal scene, but its big enough—especially in per capita terms—that governments are starting to wonder how theyre going to get their cut.

As I said before, though, its astonishing how late the government agencies seem to be in taking this issue seriously—seven years after Stephenson spelled it out at considerable length in his 910-page novel (918 pages if you include the appendix Bruce Schneier wrote on implementing strong encryption with a deck of playing cards). I have to wonder if its de rigueur for governments to ignore anything thats "only a story."

Banking wouldnt be the only domain that suffered from this willful blindness. Dont even get me started on the subject of the final scene of Tom Clancys "Debt of Honor," published in 1994, and its foretelling of events of seven years later. (If you havent read it—SPOILER ALERT—theres a passage beginning with, "One hundred tons of jet fuel erupted from shredded fuel tanks.")

But even if fiction is beneath the real-world spooks notice, serious scholars have been analyzing e-cash questions for at least 10 years. "Consumers may have to resort to strong forms of anonymity if they wish to restrict the spread of information about their tastes and activities," wrote legal scholar A. Michael Froomkin in a 1996 paper, "Flood Control on the Information Ocean: Living With Anonymity, Digital Cash, and Distributed Databases."

Considering that had yet to complete its first full fiscal year, Froomkin did well to forecast the rapid growth of online commerce, warning, "If Internet tools such as the World Wide Web become a major national and international communications medium with an embedded micro-charging mechanism, every newspaper article accessed, every online catalog perused, every political debate sampled will leave an information residue. These data can be collected to form a highly detailed profile of the consumer-citizen." We all have reason to like the idea of a means of untraceable payments.

And even if the academics werent taken seriously, its been five years since PayPal put the real-world handwriting on the wall. Independent analyst Steve Bodow, in the September 2001 Wired article "The Money Shot," might have been paraphrasing Stephenson when he wrote, "With a PayPal account, anyone on the Net can transfer value with greater anonymity than they could with a Swiss bank account. Hard to tax. Harder to regulate. Nearly impossible to control."

Im not pining for the privilege of being taxed more. Then again, neither am I eager to experience the tipover into anarchy whose prospect led Japanese economics scholar Tatsuo Tanaka to observe—in his 1996 paper "Possible Economic Consequences of Digital Cash"—that "If digital cash spreads successfully in the 21st century, its history may be written as a record of its battle with nation-states." It would be nice if the real worlds gnomes would get a little bit ahead of the curve.

Technology Editor Peter Coffee can be reached at

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