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Several digital currencies already exist and are currently being used (think about Paypal), but as far as I know, they are not anonymous.

An anonymous digital currency would be available as encrypted numbers that can be used only once, it would not be tied to any paper currency or email address. Initially it could be used between partners interested in bartering (e.g. I purchase advertising on your website in exchange  for you helping me with web design - no US dollars exchanged). The big advantages are:

  • Not a leveraged currency, no risk of "bank run", inflation etc.
  • Transactions paid via this currency would not be subject to any tax

What are the challenges about designing this type of currency? The biggest ones are:

  • Getting many people to trust and use it
  • Difficult to trade it in for dollars
  • The entity managing this currency must make money in some ways. How? Can it be done by charging a very small fee an all transactions? The transaction fee would be much smaller than the tax penalty, if the transaction was made in a non-anonymous currency (digital or not).
  • Security: being an anti-fraud expert, I know how to make it very secure. I also know how to make it totally anonymous.

Anyone interested in this project, or willing to provide some advice?

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Doesn't BitCoin already satisfy most definitions of an anonymous digital currency?

Wikipedia on BitCoin

Yes I've heard about BitCoin, not sure how anonymous this currency is. Here, even if the government seized the transaction database, it would be (by design) impossible to find who paid what to whom - but maybe BitCoin offers this feature already. Emphasis is also to emulate a barter system, to avoid sales taxes on transactions, or income tax if the service you offered via my "barter system" is e.g. work for a company.

The drawback is that you can't exchange this currency for dollars, euros, British pounds or any government-sponsored currency. (you might on a black market, but the operators of this system don't allow it) Indeed it is not even tied to the dollar, and should have much smaller inflation - making it an somehow interesting investment, not losing its value unlike hard cash.

I also plan at some time to create my own digital country with its own laws, and then it might become the official currency of my country.

I don't have any advice, but I would like to know more about it.  Would you provide more links?

Thank you,

Mary Kardel

A few more comments:

This money can not be traded for US dollars or any other currency, making it quite unpractical for money laundering purposes. Why would contraband gangsters be interested in such a money, when they can use US dollars or other currencies?

The idea with my proposed currency is:

  1. To replicate bartering and the way markets worked before currencies were invented. Indeed you could view my system as a pure online bartering platform, rather than a currency system.
  2. To allow for tax-free transactions.
  3. No leverage, no compound interest, no loans offered/backed by the operators.
  4. The people who create/manage this currency make no direct profit, except for the fact that they can use it (like every user) for tax-free transactions.
  5. Since the founders make no direct profit, there is no danger of "Wall Street" greed bubbles, which erodes or even kills confidence in the financial system on a regular basis.

Since the US abandoned the final leg of the gold standard in 1974 it also has the added advantage of exchanging currency backed by tangible goods and services.  However, I don't see how this type of currency can be used on a large scale.  I will be interesting, if this idea takes off, to see the affect of micro-economies on the larger economy.

Apparently, barter transactions must be reported, their value must be estimated and converted in US dollars, then reported on IRS form 1099-B and eventually taxed.

Such barter exchanges already exist, the biggest one being ITNM, using a currency that they call trade dollars (not US dollars). 

However, I think this IRS regulation to tax non-cash (barter) transactions is un-enforceable. In my case, the currency name would not even include the word dollar, and how would you convert my anonymous currency (not tied to any official country) into US dollars? Let say you put a banner ad on my website, and I get 200 hours of work for web development in exchange, how would the IRS would even find out about the transaction in the first place, let alone attach a dollar value? 

Maybe ITNM has pre-set dollar values for anything you can trade on their barter exchange, and they keep a list of clients and transactions (they are indeed a publicly traded company), making it easy to report to the IRS. But in my case no such thing exist: no client database exist, the barter exchange is a private entity (maybe not even a company), and users decide between themselves what they will "pay" (using my currency) to each other for any service.

Using prepaid credit cards would work. Cards with $250 or more require identification, so you need a middle man who purchases these prepaid cards in bulk with valid ID's,  then resell it to clients without asking ID's, in order to guarantee anonymity. 

With such prepaid cards, you could buy wine bottles every day for your father, without fear of being monitored, erroneously labeled as alcoholic by faulty data mining algorithms, and then denied insurance, loans, even jobs. These prepaid cards would also protect you against targeted advertising.

You might even be able to pay employees with these "anonymized" prepaid cards, and thus not declare them as employees on tax forms.

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