Mar 7, 2017 - facilitate instant revenue registration and automatic taxation. Keywords: blockchain ..... 3.0 do face not only technical challenges but also legal challenges and .... swap DDK with a cryptoDKK, that can then be sent through a ...
Revenue registration and automatic taxation for platform businesses on blockchain By Jens Warnez
Number of characters / number of content pages: 32559 / 15 Professors: Michel Avital Submission Date: 29th of November 2017 Course code: CINTV4001U Course name: Blockchain Research Internship Program: MSc in Social Sciences in Service Management
Edited on 21th of December: minor text improvements
Revenue registration and automatic taxation for platform businesses on blockchain By Jens Warnez https://www.linkedin.com/in/jenswarnez/ Abstract Current Danish legislation is not adapted to the new world with platform businesses. Outdated legislation often favours incumbents and hinders innovative new entrants, this is particularly the case in the personal transportation sector in Denmark. A big part of the public debate about the taxi industry and platform company Uber has revolved around the topic of taxation, or rather the evasion of it. Taxation seems to be recurring issue with new platform business models and requires an equally new type of solution. This paper explores different options for future research in the form of suggested research methods, stakeholder interest map and a preliminary conceptual model for a blockchain solution that would address the taxation issue. Blockchain technology can be used to facilitate instant revenue registration and automatic taxation.
Keywords: blockchain, distributed ledger technology, DLT, personal transportation, taxation, policy reform, legal reform, legislation, innovation, platform business models, taxi industry, Uber, Lyft, self-driving cars, Airbnb
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Content table Introduction and problem formulation
4
The big scene
4
Existing legislation incompatible with platform business models
4
Taxation is relevant – especially for Uber drivers
4
Research questions
6
Research methods
6
Tentative design
7
Participatory design with stakeholders
8
Stakeholder map
9
Designing with blockchain
11
Defining blockchain
12
Decentralised vs Centralised & Unpermissioned vs Permissioned
12
Functionality
12
Tokenisation
14
Usage fee
14
Governance, regulation and ownership of technological blockchain platform
15
Privacy
15
Dispute resolution – Editing the chain
16
Tentative design in the form of a conceptual model
17
Conclusion
18
References
19
Appendices
21
Appendix 1: Simplified crypto-only scenario
21
Appendix 2: Merged crypto-fiat scenario with immediate payment
22
Appendix 3: Background information on Uber in Denmark.
23
Appendix 4: Generic append-only approach with full immutability
24
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Introduction and problem
up and can be a hindrance. It is a common
formulation
problem across industries; legislation is rigid, outdated and often too specific. It should be
The big scene
formulated in more general terms focused
Take a step back and look at the big historical
towards transparency and accountability.
scene. The economy has shifted further away
Legislation should be interpreted in the spirit
from traditional production towards service
of the law without favouring incumbents to
industries. Combined with this long-term
create a more efficient marketplace (Parker,
economic change, the advent of the internet
Van Alstyne, & Choudary, 2016).
and mobile phone applications have further disrupted our way of communicating.
A prime example of the wrong appliance of legislation is Uber being forced out of
For example, the way transportation services
Denmark,
are ordered has drastically changed. Initially,
legislation was once put in place to protect
the waiting line would not be long and that
consumers against cheating taxi drivers.
the taxi would find the pick-up address in a
However, those requirements are unnecessary
reasonable amount of time. Nowadays, one
in
can summon the nearest taxi through a mobile
world
with
self-governing
app transparent charging and payment system.
place a telephone call. The taxi is trackable on
Outdated requirements are an expensive
a map with the estimated time of arrival follow
today’s
platforms, instant reviewing and a through-
app in a fraction of the time necessary to
can
(outdated)
type driver license, etc. Much of this
a (mobile) telephone to order a taxi, and hope
driver
to
sensor, receipt printing system, professional
hope a taxi would stop. Later, one would use
The
due
requirements for a physical taximeter, seat
one would just hail a taxi on the street and
included.
partially
hindrance to more innovative companies
the
entering the market.
passenger's GPS signal to find the passenger,
Taxation is relevant – especially for
and even call if needed.
Uber drivers
Existing legislation incompatible
Many of the past issues are easy to solve for
with platform business models
regulators if they would be inclined to do so
Technology has changed so much in the way
at least, considering incumbent lobbying.
we interact. However, legislation has not kept
However, when taking a step back and
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looking at the service economy as a whole,
The Uber case clearly illustrates the need for a
there is a recurring problem with these new
solution from an Uber driver point of view, as
platform based business: taxation, or rather
well as the tax authority with the missing
the evasion of it. Tax evasion on corporate
information of 2016 and 2017. The need is
and user level is a matter of constant debate
further
and hinders the acceptance of platform type
documents
businesses, thus leading to an inefficient use
government
and waste of economic resources
(Erhvervsministeriet, 2017; Ilsøe & Madsen,
and
technological advancement.
recognisable produced and
through by tax
different
scholars,
the
authorities
2017; Skatteministeriet, 2017). Better taxation on the “sharing economy” - as it often broadly
The tragic case of Uber serves as an excellent
euphemistical called - is now an explicit goal
example of how absurd the current state of
of the Danish government that released a 22-
affairs
platform
point plan on 17 October 2017 to stimulate
business and taxation in Denmark. Readers
sharing economy (Erhvervsministeriet, 2017).
unfamiliar with the specific situation can read
Point 6 (Erhvervsministeriet, 2017, p. 46) is
an illustrative description in Appendix 3. To
particularly relevant because it states that the
summarise the main points. Anno 2017, the
government wants to start a dialogue with
self-reported taxes, or lack thereof, by Uber
payment service providers to provide a digital
drivers have only been checked for 2014 and
reporting
2015. The Danish tax authorities are reliant
indberetningsløsning”)
on the willingness of the Dutch tax authorities
revenue and tax by 2019. Point 6 fits well
to also hand over information for 2016 and
with an earlier announcement on 9 October
2017. A problematic matter as Uber drivers
2017 stating that MobilePay by Danske bank
were not just taxed but also severely fined for
is working together with tax authority SKAT
being illegal taxi drivers. Some of the fines
to report earnings paid through MobilePay to
are so large that one wonders if the intent was
SKAT (Børsen, 2017a).
is
regarding
regulating
solution to
(“digital better
register
to set examples by bankrupting the circa two thousand Uber drivers. The biggest fine
These new statements and documents released
issued was 486500 DKK (Københavns Byret,
by the government are directly applicable to
2017).
platform business that charge a commission by linking two different user groups, namely producers and consumers. Broadly speaking
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there are also two different kinds of
Research questions
platforms. There are labour platforms like
It should be clear by now that there is an
Uber, Lyft and Upwork. There are also capital
explicit need for better registration and tax
platforms like Airbnb and GoMore. Both
collection on earnings made through platform
types share many characteristics but at the
businesses. How this is supposed to be done is
same time are treated significantly different,
currently unspecified.
especially on the topic of how much they
The purpose of this paper is to function as an
should be taxed (Ilsøe & Madsen, 2017).
avenue for further research in providing a solution. To fulfil this purpose, the following
Even though taxation is the main issue at
three research questions will be addressed:
hand, it is important not to lose track of the big picture with the continued time-buying
1. Which research method(s) can be used
lobbying by the Danish Taxi Industry. The
to design a suitable solution?
debate between Politikens finance debate
2. Which stakeholders are involved and
editor Magnus Barsøe (2017) and Trine
what are their interests?
Wollenberg (2017) from Dansk Taxi Råd
3. How can blockchain be used to
illustrates this point well. Trine Wollenberg
facilitate revenue registration and
claims that the current control systems with
taxation?
seat sensors etc. are required because a smartphone app can be deactivated. To rebut
To make answering the research questions
such arguments, it might be necessary to
more tangible and focused, the Danish
permanently install a location monitoring
personal
device
selling
traditional taxi companies and platform
transportation services in Denmark. Location
company Uber will be used as an example
data could be used to detect illegal rides using
case. Uber may currently be banned, but it is
big data analytics. In short, the lobbying
likely that Uber or a similar company will
Danish taxi industry is a strong stakeholder
return in the future once the taxi market has
that needs to be reckoned with in the public
been - albeit slowly - liberalised.
in
every car
used
for
transportation
market
with
debate.
Research methods Design Science Research (DSR) has many variations, especially when cross-using it with
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other research approaches such as Information Systems (IS) research, IS Design Theory, behavioural
sciences,
participatory
design
service
approaches
and (Beck,
Weber, & Gregory, 2013; Gregor & Hevner, 2013; Hevner, Ram, March, & Park, 2004; Weedman, 2008). DSR is broadly used for these two main purposes: •
Figure 1: Information Systems Research Framework, copied from Hevner (2004)
Problem-solving with an artefact as result
•
Tentative design
Theory-generating
The simplified step-by-step plan illustrated in Blockchain technology is still relatively novel
Figure 2 illustrates where this project is now
and - according to my knowledge - has not yet
and where it should go. The introduction here
been applied for the purpose of revenue
and the work of Erhvervsministeriet (2017)
registration and automatic taxation.
clearly indicate the problem awareness. However, no initial suggestion has been made
The approach taken in this paper is primarily
yet besides the vague one by the government
focused on problem-solving for the eventual
to start a dialogue with the payment system
final purpose of creating an IT artefact.
providers, which in a Danish context would
Furthermore, practical findings also add to the
indicate Nets for Dankort/VISA and Danske
theoretical knowledge base, as supported by
Bank for MobilePay.
Hevner (2004) in Figure 1. Findings of this paper and future work contribute to the overall knowledge base and theory about how states can interact with blockchains, in particular
when
dealing
with
platform
business collecting fees on transactions executed through the platform.
Figure 2: General design cycle of DSR, copied from Beck et al. (2013) and Kuechler & Vaishnavi (2008)
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The key goal of this paper in regards to the
stakeholder involvement. The participatory
final research question is to suggest a
design approach with above four steps
tentative preliminary design in the form of
completely brings in stakeholders during the
one or more high-level conceptual models
entire process and lets them continuously
that are to be refined and tested in future
interact. Participatory design is also less
research.
generic than DSR, considering its focus on firms designing for customers as compared to
Participatory design with
DSR dealing more with grander theories,
stakeholders
knowledge and technology in our case. The
Beck et al. (2013) recognise that a first tentative
design
and
approach of companies co-creating value
well-defined
together with customers should not be
requirements are essential to ensure that the
transported naively to designing a new
artefact is relevant to solve a real-world
ecosystem. Especially the case of platform
problem. An essential requirement needs to be
business
added to solve real-world problems, namely
involving
them
in
creation as defined by Ramaswamy & Gouillart (2010). The practical implication of
explained very well by Ramaswamy & They have
four
this all is that careful attention needs to be
key
paid to creating a sort of compromise that still
components in their practical approach:
benefits
1. Stakeholder identification 2. Understanding
and
stakeholder
together
all
or
most
of
the
involved
stakeholders. This approach also entails that
mapping
the goals set at the start are merely a starting
stakeholder reactions 3. Bringing
taxi
actually one of the core principles of co-
by the co-creation approach to process design,
(2010).
traditional
to lose. Creating value for all stakeholders is
later
development. This line of thought is inspired
Gouillart
where
companies and payment providers have a lot
that of consulting all stakeholders and preferably
models
point from which the full strategy and actual
in
implementation is to emerge.
workshops 4. Platform building
When trying to draw knowledge from the IT artefact, it is important to not only look at the
Stakeholder identification and mapping is a
product itself but also to the processes that led
shared trait with DSR, so is the processing of
to the creation of it. (Beck et al., 2013). In this
feedback for evaluation purposes. Though
light, one needs to be critical and consider the
there seems to be a substantial difference in
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particular Danish setting. What works in
Most parts speak for themselves. The image
Denmark,
realistically
boost does need further explanation for non-
implementable in other countries due to
Danish readers. A shared expected interest
political, cultural and corporate (power)
shared by several stakeholders is the image
differences. Regardless of how good a plan
boost of being a relevant innovating entity.
may be, it will not gain enough traction in
This would be the case for the government,
every setting; the (lack of) universal health
the central bank, and especially for SKAT
care in the USA serves as a good example.
considering past billion kroner scandals, the
Therefore, it is necessary that one tries to
government’s plans to split the tax authority
identify and map the interests of stakeholders.
into seven smaller parts, and thus the resulting
may
not
be
negative media rhetoric about SKAT. The next section speculates who all the most relevant stakeholders could be and what their
Ideally, all involved parties have some
interest and incentives are. This stakeholder
incentive to participate, this might not end up
map can be evaluated in the future by
being the case in practice or perceived that
performing qualitative interviews with all the
way. Some parties might refuse to cooperate
stakeholders
observing
their
or try to sabotage the design process. Leaving
attitudes
when
some parties out of the initial design phases
gathering their feedback on the tentative
and later coerce them into compliance by
design. Considering that the consent of some
legal means might be necessary.
behaviour,
and actions
by and
stakeholders is more crucial than others, such a qualitative research would go beyond the
Needless to say, having the regulating
purpose of gathering feedback, it would also
authorities on board is crucial. Gathering their
serve as a feasibility study for the project and
feedback will not just be important for
further research as a whole.
improving the tentative design, but also for assessing overall project feasibility. In this
Stakeholder map
sense, relating back to Figure 1 & 2,
Stakeholders have many types of interests:
regulatory approval is the single most
financial, pure survival, political, status,
important evaluation criteria.
cultural, habitual, etc. Table 1 contains initial assumptions to be tested in future research.
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Tax authority SKAT
Government/Parliament political parties
-
Better revenue registration
-
Branding Denmark and Copenhagen as major fintech hub.
-
More taxation
-
Learning to regulate and control blockchain projects + platforms.
-
Major image boost
-
Building blockchain technological expertise.
-
Some might fear the technology due to fear of control loss, others
Central Bank -
Reluctant to change status quo
-
Blockchain expertise building
-
Possible future crypto DKK
-
Increased central bank relevance and
might explicitly grab the opportunity to exert more control -
New high-income and future-resilient blockchain jobs.
-
Some political parties might be against this project, due to part of the electorate being concerned over job loss.
image
Payment providers (Danske Bank, Nets)
Platform-based
Traditional (taxi)
-
Unlikely to be enthusiastic about using
companies (Uber)
companies
blockchain as the original purpose of
-
-
-
A better regulatory
decentralised blockchain is to remove expensive
framework and
about co-operating on a
middlemen such as banks.
taxation of drivers
solution that would
Might be seen as an opportunity to shape
will allow platform
facilitate their platform
private-permissioned blockchain type
businesses to
competitors.
ecosystem and stay relevant.
continue operating in
Blockchain platform provider (IBM)
the Danish market. -
Improved legal status
-
Danish public sector flagship project.
-
Selling of initial development consultancy
can lead to more
services.
platform activity.
-
Probably not enthusiastic
Providing blockchain as a service provides a recurring revenue flow.
Producing platform user (Uber driver)
Consuming platform
Traditional (taxi)
-
Revenue registration and taxation makes tax
user (passenger)
drivers/unions
evasion quasi-impossible. This could be
-
-
-
no crypto DKK is
But producers on other platforms might
directly used by
decrease their activity when forced to pay taxes.
consumer.
Revenue registration and taxation means less worries about correct self-reporting.
-
No difference when
regarded as simply necessary for Uber drivers.
Revenue registration and taxation provides legitimacy that could lead to increased activity.
Table 1: Stakeholder Map
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Concerned about income being put under pressure
-
Concerned about having less employment.
The questions in Table 2 below serve as a
Designing with blockchain
guideline for the discussions on the following
This section discusses several important
pages. The binary choices serve to illustrate
aspects of designing a blockchain solution.
some of the more polarised design choices.
Much of what is written here is based on tacit
Though most design choices are more open-
knowledge acquired during the Copenhagen
ended, and even some of the binary ones can
Blockchain Summer School during August
be debated upon with grey zones.
2017 and the blockchain research internship for which this paper is written.
More binary design choices Unpermissioned (Public)
Permissioned (Consortium or entirely private)
Decentralised
Centralised
(one
(More than one party processing and validating controlling
node
organisation
or
several processing
within and
transactions)
validating transactions)
Tokenised
Non-tokenised
Full immutability
Allow appending transactions that serve to correct others. More open-ended design choices
If tokenised, should tokens be used merely as usage fee, or should they also be used as a transfer of value between parties? Is there is a usage fee? If so, how high should it be? Should it be relative to the value transfer or absolute per transaction? What information should be stored on the blockchain? Is a single blockchain enough, or is an extra blockchain or non-blockchain system necessary for long-term privacy reasons and/or EU GDPR compliance? Can users recover lost funds in case of theft or forgotten password? If so, how? Who should govern the blockchain? Does one even need blockchain? Is there a clear added advantage or functionality? Table 2: Blockchain design choices
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transaction can never be deleted, the record of
Defining blockchain
transactions is thus always intact. Provenance
Some readers might be wondering what
is
blockchain is and how it works. Blockchain is
present
in
most
blockchain
implementations, meaning that tokens can be
a special Distributed Ledger Technology
traced back to their point of origin.
(DLT) and as with any definition, there are a thousand variations. I prefer referring to the
Decentralised
original Bitcoin whitepaper by Nakamoto
Unpermissioned vs Permissioned
(2008), who has (wisely) chosen never to
From a neutral point of view, one should not
reveal true identity. The paper illustrates well
specify whether blockchain as a technology
how a combination of a public-private key
should be fully decentralised with a lot of
cryptography, hashing, timestamping, proof-
transaction processing and validating nodes,
of-work
decentralised
or whether it should be a centralised system
infrastructure can be used to create “Bitcoin:
with a limited number of players in a
A Peer-to-Peer Electronic Cash System”. A
consortium or even just a single private entity
somewhat misleading title considering that
processing
Bitcoin, is far from peer-to-peer, one always
Neither should one specify whether everyone
needs the miner nodes to process the
should have access to blockchain without
transaction after all. Especially anno 2017
submitting their real identity and being
with a concentration of mining power and
approved to participate, or whether this
more
fees.
should exactly be the case. The discussion
Imperfections aside, the ecosystem around
whether blockchain should be public and
Bitcoin is remarkably well designed and has
decentralised
passed the test of time for over eight years.
centralised
mining
and
expensive
transaction
and
vs
validating
versus has
Centralised
transactions.
more
political
&
private and
and
business
implications that fall outside the scope of this My own definition of blockchain is simple
paper.
and generic “Blockchain is a digital ledger
Functionality
that stores information in blocks of data, in
In
which every subsequent block is linked to all
entails,
by
default,
that
of
functionality
blockchain
technology can be categorised into three
the previous blocks that came before it.”. This definition
terms
different development stages. Blockchain 1.0
a
is very simple transfer of value and mostly
blockchain implementation is tamper-proof.
applicable for cryptocurrencies like Bitcoin.
Transactions can only be appended, a past
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Blockchain 2.0 is more complex with the
by a single or limited set of trusted parties, is
inclusion of more complicated smart contracts
pointless because there are cheaper traditional
that
of
technologies to implement for this singular
protocols under certain conditions, smart
purpose. Hence, the added value of using
contracts on the Ethereum network are a good
blockchain lies in developing the functionality
example of this level. Blockchain 3.0 largely
to include payment and automatic taxation
still an unrealised vision about creating a
through smart contracts. Using blockchain for
Decentralised
Organisation
payment purposes is probably the most
(DAO) that relies on “law by code” and has a
known use case. Traditional finance also
high degree of autonomy (Hasse et al., 2016).
considers
An attempt has been made in 2016 to create a
current payment settlement times and costs, as
DAO on the Ethereum platform, but the more
can be inferred by all the filed patents (Kharif,
complicated the implementation, the more
2016).
allow
for
automatic
Autonomous
execution
using
blockchain
to
decrease
attack vectors, the DAO got hacked and was dissolved (Siegel, 2016). Blockchain 2.0 and
In an actual development test project, one
3.0 do face not only technical challenges but
could
also legal challenges and uncertainties stalling
approach and first implement the basic
development of advanced functionality.
functionality and in a later iteration upgrade
choose
an
AGILE
development
with payment and automatic taxation as Using blockchain for revenue registration and
shown in Table 3. During this paper, I focus
automatic taxation would be categorizable as
on the intermediate end goal of having
a simple 2.0 functionality level. It should be
revenue registration and payment of taxation
noted that using permissioned blockchain in
on the blockchain.
the first place, for mere revenue registration Basic functionality •
Advanced functionality
Blockchain revenue
•
Payment through blockchain
registration
•
Automatic user taxation
•
Cost registration
•
Automatic corporate taxation
•
EU-wide expansion
•
Illegal ride detection with Big Data Analysis
Enables
Table 3: Blockchain functionality enabling advanced functionality
-13-
issuance of cDKK in the future. Nevertheless,
Tokenisation
any other legally authorised party could back
A blockchain by itself does not require a
cDKK, provided they can quasi 100 %
token or currency. One can just have a de facto
event
log
running
guarantee the exchange of all cDKK in
blockchain
circulation to DKK.
technology without any kind of value being transferred. The reason why many blockchain
Though not immediately relevant for this
implementations do have tokens is because
project, it is worthwhile to expand above line
token fees function as an incentive for the
of thought for readers contemplating on
transaction processors (often referred to as
bringing the above concept to a transnational
miners). Thus tokenisation enables usage fees.
level. One could also use a basket currency approach, similar to the X8 project (X8,
For this particular project, a particular kind of
2017). The same approach could be used in
tokenisation is suggested drawing inspiration
individual countries with a weak currency
from the KYC Optimization paper by Parra-
subject to inflation.
Moyano & Ross (2017) and the actually used – albeit imperfect - cryptocurrency USDT
In about a decade, one can expect autonomous
(Tether Limited, 2016). The core idea for a
self-driving cars to enter the transportation
Danish-only initial setup is to work with a
market. A self-driving car could be equipped
familiar unit of accounting and have no
with a wallet to pay for charging and this tax-
volatility towards the pegged actual fiat
deductible cost could be added to the
currency. Thus having a 1:1 peg ratio for a
expenses of the car owner, and thus be taken
cryptographic token to the Danish Crown
into account when paying taxes.
(DKK), one could use cDKK as token symbol. This unusual setup makes more sense
Usage fee
to all actors involved and aids to move value
The matter of charging usage fees is not a
between different actors. The central bank
clear-cut choice as there is no right answer.
could issue cDKK and guarantee that this
Furthermore, such a decision is related to the
cDKK is exchangeable for a “real” DKK.
owner of the blockchain platform, the
Using the central bank would make sense
governor, and the regulating authority, tender
from a monetary policy point of view with the
parameters, etc. Other considerations might
issuing of currency. One can even regard this
be the payback time required for the
as a small pilot project for a nation-wide
investment, amount of transactions to split the
-14-
fixed costs over, etc. Some would even argue
As for ownership of the technological
that if the state makes it obligatory to use,
blockchain platform, rather than attempting to
then the state should be the one investing and
build and/or own a blockchain, it might be
owning the platform, and not charge a usage
more prudent for SKAT to write an open
fee at all. In a merged scenario where people
tender and develop a specific implementation
pay with “normal” money via VISA/Dankort,
with the help of leading consultants on top of
one needs to take into account that this legacy
a known, open, API-enabled, standardised
channel also charges fees and the suggested
blockchain
blockchain system would add an extra cost to
Hyperledger or one of the other Azure
the total transaction.
Blockchain solutions (IBM, 2017c; Microsoft, 2017)
fabric
IBM
is
layer
an
such
interesting
as
with
potential
When it comes to the actual fee setting, one
candidate as it is a premium member of The
can choose amongst different parameters such
Linux
as fixed fee, variable fee, a mixed model, a
Hyperledger Fabric technology. IBM also
minimum fee, a maximum fee, subscription
offers hosting, support and consultancy
model, etc. The preliminary suggestion here is
services. (IBM, 2017c, 2017d; Microsoft,
to charge an absolute fixed fee of 1 DKK per
2017; The Linux Foundation, 2017). In other
transaction. Over time with larger adoption,
words, Blockchain as a Service with a
this fee could potentially be lowered to 0.1
development and service agreement.
DKK per transaction as the marginal cost
Foundation
developing
the
Privacy
strongly decreases.
The General Data Protection Regulation
Governance, regulation and
(GDPR) issued the European Union (2016),
ownership of technological
requires an in-depth investigation by legal
blockchain platform
experts in every industry, the same accounts
Day-to-day governance and regulation could
for blockchain. In GDPR terms, SKAT as a
be assigned to one of the new seven SKAT
public authority would be the Data Controller
departments. This does not limit other parties
entity while IBM, for example, would be the
such as a bank or NETS from functioning as
Data Processor. A better understanding is
transaction
needed on what these parties are allowed to
processing
and
validation
do regarding the handling of personal data.
providers.
Even the question whether to consider a public key in blockchain as private data is
-15-
debatable, Even when data on the blockchain
to see. Confidentiality can thus be limited to a
is not considered personal data by itself, in
subset of participants (IBM, 2017a).
conjunction with other data it might be
Dispute resolution – Editing the
regarded as personal and thus be subject to
chain
the GDPR. The same considerations may
Even when ignoring the privacy aspect, there
apply to encrypted and hashed versions of personal
data.
There
are
also
is still the matter of handling mistakes. By
several
default, all transactions on the blockchain are
individual rights which need to be considered
final. So, assume for a moment that there is
such as the right of access, rectification, right
only crypto DKK as in the simplified crypto-
to be forgotten, right to data portability.
only scenario in Appendix 1, and that a driver
Fortunately, the processing of personal data
needs to refund a customer that paid through
for the purpose of taxation would seem to be a
blockchain. If the driver refuses to do so
legal obligation by an official authority, hence
himself, how could a driver be forced to do so
a national provision would be possible based
on a blockchain system?
on Article 10 in the GPDR (EU, 2016).
Editing the chain is a matter almost never
Further research is needed to determine what
addressed
is personal data, under which conditions it
exceptions. Based on this one could derive a
considering blockchain is by default wholly only
allows
blockchain
proposal (Siegel, 2016) is one of the few
Understanding this is of vital importance
and
unpermissioned
literature. The Ethereum DAO soft fork
should be stored, altered and removed.
immutable
in
system of blacklisting previous transactions
appending
and in turn create new tokens to distribute.
transactions. It might be necessary to link
More information can be found in Appendix
non-personal data in the blockchain with off-
4. To be more direct it is worthwhile to
chain personal data in a more manageable
mention that a permissioned blockchain such
regular database.
as Hyperledger uses a Certificate Authority Similar
considerations
could
be
(CA) that is responsible for user enrolment
raised
and transaction certificates (IBM, 2017b).
amongst businesses not wanting competitors
This also entails that the governing party can
to see transactions. Fortunately, it is possible
issue and revoke these certificate and also has
in a permissioned setup for participants to
the power to append correcting transactions
only see the transactions appropriate for them
on the chain.
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Tentative design in the form of a conceptual model
Figure 3: Conceptual model with merged crypto-fiat scenario and delayed payment via platform company
After considering the possible design choices,
needs to be refined and evaluated in further
I created the preliminary conceptual model in
research with different stakeholders.
Figure 3. This high-level conceptual model
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The assumption is that consumers will
Note that the DKK-cDKK swap payment
initially still pay using legacy payment
between the central bank and other actors
methods. The prices Nets
charges for
would not occur for every single transaction.
Dankort/VISA/Mastercard
A daily aggregated settling transaction with a
processing
transactions are not publicly listed on their
larger amount is more appropriate.
website and Nets uses individual agreements. Nonetheless, a fee of 1.5 % seems to be a
Conclusion
reasonable
the
In the grand scheme of things, the line of
maximum prices listed on the Nets (2017)
thought presented in this paper could have
website. The full remaining amount goes to
far-reaching consequences for current ways of
Uber first. So, there is no direct payment
taxation, finance, business and employment in
today, a conceptual model with direct
general. Though, the immediate focus was to
payments would look more like the one in
function as a starting point for future research
Appendix 2.
in the novel field of blockchain, particularly
assumption
based
on
to register revenue and automatically tax the Uber lists on its website that driver payments
producing users of platform-based businesses.
currently happen every Thursday of the week (Uber, 2017). At this point, I envision that the
A combination of Design-Science Research
company would need to settle the payments
and participatory design is recommended to
directly with a payment provider like Nets or
conduct further research. More specifically,
Danske bank. Knowing the nature of the
interviews should be used to refine the created
transaction, the payment provider would then
stakeholder
interest
map.
swap DDK with a cryptoDKK, that can then
stakeholders
deserve
particular
be sent through a smart contract on a
considering the required legal support for this
permissioned blockchain. During this process,
project. This stakeholder analysis will thus
earnings for the identified driver would be
also function as a feasibility study. The
added to the blockchain, potentially along
tentative design in the form of the presented
with other relevant information such as
preliminary conceptual model shown in
individual trip geolocations information and
Figure 3 can be used to illustrate the concept
trip durations.
and are to be further refined based on interviewee feedback.
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The
public attention
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Appendices Appendix 1: Simplified crypto-only scenario
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Appendix 2: Merged crypto-fiat scenario with immediate payment
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Appendix 3: Background information on Uber in Denmark. Uber has been operating in Denmark since 2014 and stopped operating in April 2017. Uber driving was deemed illegal and in violation of the taxi legislation during several court cases in 2016 and 2017. Uber’s HQ in the EU is situated in the Netherlands, and thus ironically Uber itself cannot be fined nor taxed according to Danish legislation (Berlingske Business, 2017; DR, 2015). The drivers, on the other hand, are not as privileged. On 14 September 2016, the Danish tax authorities received a list in Excel format from the Dutch tax authorities containing the names of about 2100 registered Uber drivers during 2014 and 2015. The number can be downscaled to about 1500 drivers in 2015 when ignoring the registered drivers that never ended up doing rides or only earned less than 1000 DKK. Conclusion: drivers being taxed correctly up to 2,5 years after the revenue was collected can be considered quite slow and inefficient.
Though the complete sense of absurdity hits with the retro-active fining of drivers for being in violation of the taxi legislation. One particular driver earned 497735 DKK before taxes and was called by the police on 7 March 2017 with the message that a fine should be expected of 590000 DKK (Børsen, 2017b). The actual amount ended up being 486500 DKK on 28 August 2017 (Københavns Byret, 2017). Note that even without income taxation, which one can reasonably assume to be about 40 %, the driver would already have earned only 11235 DKK after correcting for the actual fine. When assuming the taxation is 40 %, the driver would not have earned anything and would have had a loss of about 187859 DKK, before even taking into account expenses such as car maintenance and fuel.
Furthermore, according to Børsen (2017b), the Dutch tax authorities seem to refuse to give the Danish tax authorities the same kind of list for 2016 and 2017 on the grounds that the information was only intended so that Uber drivers could be correctly taxed, not fined for just being an Uber driver in violation of Danish taxi legislation. A story worthwhile following.
Appendix 3 disclaimer: do not cite this paper directly regarding information in Appendix 3. Many news articles reported different numbers on this matter. An attempt was made to use the most reliable articles and official sources to the extent possible. Københavns Byret and SKAT were contacted for confirmation of the taxation calculations, but no confirmation nor denial was received.
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Appendix 4: Generic append-only approach with full immutability Editing the chain is a matter that is almost never addressed in unpermissioned blockchain literature. One of the few exceptions to this is the DAO Hack on the Ethereum chain with the soft fork proposal and later the hard fork proposal that resulted in a chain split with a legacy chain called Ethereum Classic (ETC) and the further updated Ethereum (ETH) chain. The following paragraph is inspired by an article by Siegel (2016) who describes how a soft fork can be used to block stolen funds from being spent.
Forking the entire chain to tackle a single issue is a drastic measure. However, blacklisting certain funds as part of the soft fork proposal is an interesting idea. One can draw a comparison with central banks issuing new notes and declaring old notes no longer to be legal tender. One could make it an inherent functionality in the chain for authoritative actors to declare certain accounts blacklisted. An equal number of tokens could then be added to the token supply and sent to the party claiming a refund. So, in our example case part of the funds of the driver would be blacklisted, thus taken out of circulation. An equal amount of tokens would be added to the system, thus put into circulation, and distributed to the customer.
The forward-thinking critical reader might wonder what is to be done when the wrongly received funds have already been spent before this intervention and the account has insufficient funds left to blacklist. In this case, assuming the driver has no other accounts to immediately credit, an existing debt collection process would start. A possible outcome would be that part of the future earnings for the person in question would be collected or blacklisted.
Blacklisting, token creation and distribution could also be used in cases where the user has lost access to their funds. When creating a system in which each cryptographic account is linked to a personal identity, theft becomes less of an issue considering the thief would be easily identifiable. Thus, the most likely application would be when users lose their private key. The mentioned process is quite “primitive”. The reason being that most blockchain fabric layers currently do not support functionality beyond rudimentary account creation and password management (Glaser, 2017).
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