"A currency is a unit of exchange, facilitating the transfer of goods and services." - Wikipedia.
"'Fictional Currency' is used as game tokens and have no monetary value in and of themselves and as a result are not be taxable as income. In most cases a fictional currency constitutes a limited license right for use by account holders and is subject to the terms of each Fictional Currency provider. The World Stock Exchange supports the "Linden Currency" (Linden Dollar, LND$, L$, Lindens) and the "World Internet Currency" (WIC, WICS, W$)." - LukeConnell Vandeverre, Chairman and CEO, World Stock Exchange.
Vandeverre is right ... and wrong when he says "have no monetary value". You see, as long as he sticks to first party tokens (W$, in this case) he's right. We're just talking game tokens. However, any interaction with Linden Dollars (L$) or other currencies messes up the statement.
W$ within Vandeverre's system represent a game token. A fictional token, a fictional service - you can get away with calling that a 'game' as Vandeverre does. So long as 'game tokens' can only be purchased, but never exchanged into third-party units of exchange (or third party game tokens) - they remain game tokens. Fictional.
Some jurisdictions consider them tokens even if you can trade them for other units/tokens/goods/services, because they do not fall into that jurisdiction's narrow definition of currency.
Vandeverre's jurisdiction is not one of those. Australia Tax Law recognizes convertible tokens as a barter currency. So, what's a convertible token?
A convertible token is any token which can be converted into a third-party token (third party tokens would be Linden Dollars, for anyone who isn't Linden Lab, US Dollars, Australian Dollars, British Pounds, Trade Dollars, Barter Bucks, or a variety of other mediums of exchange). Like it or not, the Linden Dollar provides access to goods and services within Second Life. By trading in them, and in 'game tokens' that are convertible to them, those tokens automatically become units of taxable value in some jurisdictions, most particularly in Vandeverre's own jurisdiction (Australia).
If you can't use L$ on the WSE or convert W$ to Linden Dollars, Australian Dollars, US Dollars, beer, lap-dances, roof-repairs or anything else that exists outside of the WSE, then they're a game token - but you can, and so they can't be a game token, as he avers.
Now we're into Australian Barter Transaction law. That's records, tax invoices, and the like. Income tax (in and of itself) might not be payable, but there are explicit requirements and taxation on barter transactions, even if I swap you my duck for two of your chickens. Requirements that are no less stringent than any other exchange of currency.
It's obvious from Vandeverre's statements that he doesn't believe that to be so. That doesn't mean he's right, either. I personally, wouldn't place a single unit of microcurrency on the WSE without a published determination from the Australian Tax Office about the status of Vandeverre's 'game tokens'.
That, as I said, is my personal opinion. You, of course, should think about the the issues as you see them and make your own decisions. It's your money - or wait, maybe they're game tokens.
1. Thanks for posting this, Tateru. The link to Australian law is very interesting. :-)
Posted at 3:05PM on Aug 12th 2007 by Nobody Fugazi