IP Democracy: Real Journalism Inside a Virtual World

Reuters reporter Adam Pasick has a virtual world doppelganger called Adam Reuters. They’re one and the same, although Adam Pasick reports from the real world while Adam Reuters reports from Second Life, the avatar-populated virtual world. And so far it looks like he’s doing some serious economic reporting on the phenomenon of alternative financial exchanges that can crop up in these complex yet non-existent worlds.

I must admit I think this is a bizarre phenomenon — putting journalists inside virtual worlds to report on what’s happening in these places. But as strange as it seems, Pasick is not the first journalist to write about the goings-on in these cyber places. CNET News has a permanent virtual presence in Second Life.

But does CNET have a “virtual building made to look like a hybrid of Reuters’ London and Times Square buildings?” I think not, and therefore it looks like Reuters is throwing some serious cash at the effort.

Speaking of cash, one of Pasick’s, er Reuter’s, first reports from Second Life focuses on Congress is investigating the tax implications of these virtual worlds. Even though the money in Second Life consists of just a bunch of bits, 0s and 1s, real world funds can back up some of the cyber-world transactions.

It’s pretty clear how to handle virtual world cash-outs, tax-wise.

The rapid emergence of virtual economies has outstripped current tax law in many areas, but there are some clear-cut guidelines that already apply. For example, people who cash out of virtual economies by converting their assets into real-world currencies are required to report their incomes to the IRS and other national tax authorities, depending on where they live in the real world.

But what about capital gains, and conducting asset valuations? That’s totally new territory for the IRS.

Less clearly defined is how to deal with virtual income and capital gains that never leave the virtual economy. In the real world if you earn income or own an asset that increases in value, you are usually required to pay taxes. In a virtual economy the situation is unclear.

“Let’s say the IRS decides they want a valuation of your assets. We don’t have a stock market where we can as of the 31st of December, these assets went up, these went down,” [game designer Sam] Lewis said.

I don’t think I realized before how much activity takes place in Second Life, having never made it off “Orientation Island.” On second thought, I’m glad we’ve got reporters in there.

Posted by Cynthia Brumfield on October 16, 2006 4:01 PM to IP Democracy