Notice 2014-21: Question about "virtual currency" and "temporary variables"

RE: http://www.irs.gov/uac/Newsroom/IRS-Virtual-Currency-Guidance  and
http://www.irs.gov/pub/irs-drop/n-14-21.pdf

Hello, thank you for your team's clear guidance on virtual currencies.
I am not a US taxpayer, however some of my project colleagues and
partners are. I hope I might be permitted to obtain some additional
clarification on behalf of a wider community.

Can you please advise if the particular case of virtual units of
account that occur only as non-persistent temporary variables would be
inside our outside the boundary of "virtual currencies" that Notice
2014-21 applies to?

Here are a couple of straightforward descriptions of "temporary
variable" which I intend to direct this question towards:
https://en.wikipedia.org/wiki/Temporary_variable
https://en.wikipedia.org/wiki/Swap_%28computer_science%29#Using_a_temporary_variable

In the case of temporary variables that could potentially be created
to transition from one country's central bank currency to another
country's central bank currency, the temporary variable may need to
carry all three internal attributes of a currency (a generic unit of
account; a generic medium of exchange; and some external valuation
benchmark). However these units would have no persistence beyond the
computing process performing the conversion, perhaps in the order of
milliseconds. There would be no external market for the temporary
variable currency. But it could be considered that there would be a
virtual market internal to the conversion environment.

If milliseconds was all we needed to be concerned with, I anticipate
that your answer might be simple. But this is probably a little more
complicated. For example if a temporary variable is assigned a
functional monetary value equivanent to say 1 SDR, and a server is
processing an average of a million concurrent conversion processes at
any given time, then there would effectively a 1 million SDR worth of
such units in dynamic existence. A doubling of conversion processes
would mean there would be 2 million SRD in existence at any given
time. Note that doubling the number of conversions of half the average
value of country funds being converted, would double the apparent
value of the temporary variables in existence.  Even though individual
units have no persistence, the continuous processing of transactions
would give the appearance of a "stock" of such units. By analogy, this
would be a little like the frames of an old movie reel, each
individual frame projecting a picture on a screen for a 60th of a
second, and the continuous series of images giving viewers the
impression of a persistent image.

I think some of the new web-based payments systems might move to a
temporary variable sort of intermediate virtual currency, where the
don't have any requirement beyond the processing of conversions
amongst national currencies.  My specific question follows from some
community discussions yesterday at the W3C's international workshop on
web payments:
Papers:  http://www.w3.org/2013/10/payments/papers/
Presentation decks are here: http://www.w3.org/2013/10/payments/agenda.html
Please note that I have c.c.'d the email list of workshop
participants, and the list of the W3C Community Group in Web Payments.

It will be an acceptable answer to my email that you cannot provide a
determination to this issue without further consultation and
consideration.  I'll be happy to assist towards further precision.

Regards,

Joseph Potvin
Chair, OSI Working Group on Management Education About Free/Libre/Open
Methods, Processes and Governance
http://osi.xwiki.com/bin/Projects/draft-flow-syllabus
Operations Manager | Gestionnaire des opérations
The Opman Company | La compagnie Opman
jpotvin@opman.ca
Mobile: 819-593-5983
LinkedIn (Google short URL): http://goo.gl/Ssp56

Received on Wednesday, 26 March 2014 16:25:36 UTC