Revenue registration and automatic taxation for

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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 Outdated legislation often favours incumbents and hinders innovative new entrants, this is particularly the case in the personal transportation sector in Denmark.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

-5-

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

-6-

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

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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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