A presentation on the evolving digital economy as of year 2005 CE. This presentation was made to the Indian Professionals Association, Paris, France on 26-Feb-2006 by Vijayan Ganapathy Explores the footprints of the digital economy, the transformation of the notion of money, the convergence of technology and resources, digital money, virtual money, internet, digital control and intelligence, the pains of a digital life, flight of money, digital money taxation issues, digital crimes, digital value preservation, examples of virtualization from daily life and the transforming digital economy, examples of privacy and piracy issues and their impact on e-commerce. The presentation ends with a peek into the evolving future and some general guidelines on how to tread safely and derive value from the digital future. Note: The information in this presentation was sourced from various articles which were available on the internet as of the date of the presentation. The author does not vouch for the veracity of the information. Since the material for this presentation has been sourced from multiple sources for a purely academic purpose, the author may not be able to individually credit each of the sources from where the information was sourced. If you feel that you deserve credit for some or most of the information presented, please reach out to the author of this presentation.

1. Virtual Money, Internet,
Privacy, Piracy and
E-commerce
Indian Professionals Association
26th February 2006
Presented by Vijayan GANAPATHY

2. The Digital Economy
 Money, Privacy, Piracy, Internet, E-Commerce
 Using a credit (or debit) card, Surfing the internet,
Checking our bank account balance online,
Viewing a pirated version of a block-buster movie,
Buying the latest iPod online
 Amazon.com earned 8.42 billion in 2005, Apple
iTunes (represents 5% of the company’s revenue)
 Top sellers online include travel, books, music,
videos, electronics and toys
 Leading consumer purchases on the Internet -
gambling, games, pornography and information
leading to automobile purchases

3. The actors in the digital economy
 Suppliers or Service Providers
 Buyers or Customers
 Facilitators – Venture capitalists
 Mr. X – The Government and Secret
Services

4. Money
 The notion of money
 Virtual money
 De-nationalization of money
« Private enterprises that issued distinct
currencies would have an incentive to
maintain their currency's purchasing
power »
- Friedrich August Hayek

5. The convergence of resources
and ideas
 Technology backbone
 The development of the Internet
 Low-cost computing power
 End of bandwidth
 Low-cost international tele-communication
 Public key encryption

6. Technology meets the Economist
 Circa 1990
 No smart cards or digital funds transfer
 The economist had no idea what the internet
could do
 The people who were implementing
payment systems didn’t understand the
international monetary mechanics
 Public Policy issues involved

7. The money transition
The currency note
 Wrinkled, dirty, germs and drugs
 Even worse with coins – we don’t have the right
set of coins or tokens when we need them
In the digital age, all that is going to disappear…
Smart card and smart keys
 Chip with information which identifies you
 It has some protection features (PIN, biometrics)
 Value attribution (money, points, etc.)

8. Real-time settlements
 The currency note is a non-earning asset
 Loses one or two percent value every year
 Most of us carry some quantity of it
Why ?
 There is a time period between getting rid of one
productive asset and acquiring another productive
asset, good or service we want
Changes !
In the digital age, this time period can collapse to a
fraction of a second, and suddenly the need for
money as we thought of it begins to disappear

9. The risks for Mr. X
Over the Internet, from your home or from your
telephone, you will be able to take digital money
and transfer it around the world virtually at the
speed of light
You can easily encrypt any message, just with a
couple of keystrokes on your computer and no
government or anybody else will know what
you’ve done, and with a new public key
encryption, it’s almost impossible for any security
agency to break your secret code.

10. Privacy – Then and Now
 Phone tapping at the phone company
 Analog systems
 Armed with a court order
 Phone tapping at the phone company
 Digital systems
 Codes to the digital systems
 Law

11. Mr. X: Houston we have a
problem
 Mr. X wants to know what is going on
 Public key encryption empowers the sender and
the receiver of the message
 The new technologies are very liberating
 Nothing can be derived from the encrypted
message
 The need to know who encrypted what and who
decrypted what
 The continuing struggle between financial privacy
and new technologies

12. Central Banks – The change
 No reason to produce real money anymore
 Most of the digital money will be issued by
private institutions
 Banks are facing an uncertain future
 There is no reason why any well known
company can’t go ahead and start supplying
digital money
 Trading of digital money at par or at a
discount

13. Many Faces of Virtual Money
 Frequent Flyer card (miles)
 Fidelity card + credit card (points and money)
 Parking card (money and points)
 Debit & Credit cards (money and points)
 Company Restaurant card (money and points)
 Building access control cards (employee or
occupant id)
 Etc.

14. Digital Control & Intelligence
 ATMs, Parking meters, Vending machines with in-
built intelligence
 Replacement of electro-mechanical devices and
humans by digital devices
 Centralized control or intelligence stored in cards
 Security cameras and surveilance
 Electronic recognition and identification – facial
or fingerprint
 Theft prevention devices in shops and
supermarkets (RFID chips)

15. The pains of a digital life
 Loss of anonymity
 Loss of privacy
 There is a total electronic trail of everything
we do with the card or key
 Embedded RFID chips in the currency notes
track where and how the money goes
 The ability to detect where we were and
what we were doing when

16. The fight to control encryption
 Deny encryption except to a select few
 Keeping it at low levels
 Export controls on encryption
 The fact that a book describing encryption
can be exported but a disk or CD containing
the program cannot

17. The fight to control bank secrecy
 The banks are obliged to report any big
transactions to Mr. X
 The limit keeps lowering
 Know your customer programs
 The cost of fighting fraud is enormous

18. The fight to control taxation
 The problem is overwhelming
 Massive violation of civil liberties
 Inability to enforce the tax
 Monitoring issues related to each
transaction
 The choice of currency to pay such a tax (?)

19. Virtual flight of capital
 Digital money can change hands in a
fraction of a second
 The talk of tax harmonization
 Extensive information sharing among
governments
 Almost any asset can be securitized
 Financial capital will flow through any
electronic hole that is not blocked

20. Virtual facade of crime
 Personal & institutional financial
information are subject to leaks and misuse
 Financial privacy no longer exists
 The possibility of sensitive information
falling into the wrong hands deliberately or
inadvertently puts individuals and
institutions at risk
 Civil society is being undermined and
ultimately destroyed

21. Virtual value preservation
 The governments will lose their ability to tax
 This may mean a downsizing of governments
 Pension funds will be in trouble
 Governments try to deny pensions by using a filter
criteria
 Default in bonds or inflation
 Better to have assets in things that are real
 You can preserve value by choosing where you
live rather than accumulating more of digital
money and living in an expensive city
 Shift in taxation from capital to labour

22. Virtual company
 Tries to have minimum staff
 Sets up operations in a tax friendly state or
country
 Sells products or services that are virtual
(externalized, outsourced or catalog based)
 Has the ability to send a product over the
internet (eg. digital music, digital
documents, digital movies, digital services,
etc.)

23. Virtual piracy
 Digital content flows as fast as digital
money
 The ability to replicate, copy, convert to
formats that mask the origin of the original
 The ability to see virtually anybody,
anything, anywhere, anytime and to
send/receive encrypted voice and video in
real time

24. Virtual threats
 Viruses, trojans, worms, hackers, spyware
 Distributed denial of service attacks
 Spam mail from virtual users due to flaws
in the email systems
 Software which hijack PCs and networks
 Phishing
 Public opinion

25. Virtual people
 People across the world are communicating with
each other in real time using fake email addresses,
fake Ids – boy posing as a girl (vice-versa), using
a fake location, a fake name and a fake identity
 This is causing the common person to be lured
into internet scams, internet hoaxes, internet fraud,
auction scams, chain letters, Nigerian scams,
Pyramid scams, investment scams, marriage
scams, etc.
 The difficulty to trace the real person who
perpetrated a crime

26. Virtual credit
 The digital economy is making us think different
about the extent of credit a person has access to
 A person can own as many credit cards as he
wants, whether he has the capacity to pay all of
them or not
 We will see more credit card defaults,
bankruptcies, etc.
 We will also see people vanish without a trace and
assume altogether new identities and gain access
to fresh credit
 We may even see the same person under multiple
identities (the recent Demat scam in India)

27. Virtual marketing
 Get Rich Quick for Doing Nothing
 Many people have gotten all excited about
affiliate, associate, referral, or co-op
programs as they are sometimes called
 But very few of the thousands of these
being promoted have any real chance of
making any significant money for the vast
majority of people who get involved

28. Virtual sales
 People are selling more and more virtual
things and concepts
 Eg. Selling things for which there is no
known ownership (like land on the moon)
 Making money from virtually nothing
(people, scenarios and objects in online
games)

29. Virtual network
 We build our virtual network by knowing and
meeting more people online
 Things get done faster
 Enables greater access to knowledge of the
privileged few, provided we know how to navigate
through this mass of information
 There are good and bad people and information
out there
 So, we need to have the intuition to see through
this virtual facade and make intelligent choices
 Empowers us to have an edge over competitors

30. Virtual end of this presentation
 We see more and more virtual concepts and
ideas emerging everyday
 Whatever you do, look for ways to keep
yourself engaged in making this virtual
money securely work for you
 Finally, our value is not in the amount of
digital money we have or make, but in the
choices we make using the information
from our real and virtual networks

31. Virtual questions
 Virtual / Real answers