 Hey guys, it's MJ and in this video, I want to talk about tax systems and blockchain. Now it might be weird to try and marry a government institution with a rebel technology, but maybe together they can have some interesting offspring and bring about a super economy. Now I'm going to start off with a simple explanation of what taxes, then going to talk about smart contracts and block rewards, mention the benefits to society and then very briefly I want to talk about how we can possibly do away with tax altogether. Now I do want to first thank my sponsor, SmartCash, who is not only giving away $25 to those of you who comment, see the description below for more information on that, but they've also inspired this idea due to the way they use their block rewards. Again, check the description below for a link to my video that I've done on SmartCash. But let's start with tax. Tax is a non-negotiable payment that is imposed on the public by a government organization. Tax is used to pay for national needs and government functions. Now this concept of tax is fairly easy to understand, but the application of tax systems and the rates the public have to pay can get extremely complicated. So some accountants have dedicated their lives to helping others calculate their tax. As failure to pay the correct amount of tax is met with harsh penalties. And the tax calculation is a source of stress for many households, and if our entire economy was placed on the blockchain, all taxes could be paid automatically. Now this would free up the public's time, reduce the frictional costs to the government of collecting tax, and allow those accountants to do other productive tasks. Now smart contracts and block rewards can help achieve this win-win scenario. But what is a smart contract? It's a program containing a set of rules that aid transactions. And this is me writing up one. I don't recommend that you guys use that one because it probably has some errors. But this was the general logic behind it around marginal income tax, saying depending on what salary you get, there's a stepped income tax. And we're going to send so much to the employee and so much to the government. Now the thing is that smart contracts are not necessarily new to crypto. If we look at some of the original blockchains like Bitcoin, Litecoin, and even Smartcash, we're going to see that they're also having a test done inside of them. What they first do is they get the sender address, they get the receiver address, and they get the amount. They then take this information and they run it through a smart contract that is embedded in the algorithm. And what this test does, it first makes sure that the sender has enough coins, and then it's going to reduce the sender's balance by the amount, increase the receiver's address by that amount. And this is what happens in the normal crypto ones. We then did get Ethereum and Neo and these other blockchains that can host smart contracts that can be created outside of the algorithm, and they can allow for more input data and implement more complex logic. And I mean, one thing that we could also start seeing in the future is addresses that are heterogeneous. And what that means is we can have different rules for different addresses. So companies and people can be treated differently depending on what address that they use. But coming back to our economic blockchain, what we can just simply do is not only say who we're sending it to, how much we're sending it to, but why? We can include a reason field. And I mean, some possible reasons in our economy could be the paying of salaries, which we would then filter with a marginal income tax. It could be for goods and services, which we can then filter with a value added tax type of smart contract. We could have the reason of donations, which then can be filtered with a zero tax contract, or we can even have asset disposal where we can filter the capital gains tax. Now, these are just a few possible reasons. And in the economy, there are way more that the system will need to cater for. But just imagine all the data that we would be getting from this and how it will help us when we do financial planning in the government. So let me maybe back up a bit and we'll cuss through to examples. So in the first example, we have Alice and she wants to send 10 coins to Bev. The minor fee is 0.1. So what we're first doing is we're checking that Alice's balance is greater than 10.1 and Alice is going to give the reason saying that this is for bare salary. So we're going to subtract 10.1 from Alice's balance, going to add 0.1 to the minus reward, add 10 to the salary smart contract, which is then going to check Bev's details. It's going to check the payment amount. Let's say it says Bev's income tax is 20%, in which case it's going to add 8 to Bev's balance and it's going to add 2 to the government's balance. So this is what would happen in, say, a salary contract. But let's say Alice says that no, no, she actually bought some apples from Bev in the same situation. She still wants to send 10 coins to Bev, but we changed the reasoning to apples. Still going to check that Alice's balance is greater than 10.1. It's going to subtract 10.1 from her balance, add 0.1 to the minus reward, add 10 to the VAT smart contract, check the VAT rates. It's going to apply a 10% VAT rate if that's what it is, in which case it's going to add 9 to Bev's balance and add 1 to the government's balance. So you can see how you can choose your reason and that's going to adjust the tax automatically for you. Now, what could be even better is if we start combining this data with GPS data. So every time you make a transaction, we also then capture your GPS. And then we can see which areas of a city are most economically active. And we can also check out more in-depth things like which neighborhood is buying the most apples. Now, if you think that this is a little bit creepy with all the surveillance, and it's this whole big brother's watching you, you're right. But everyone will have access to this data, not just the credit card companies and the government. But entrepreneurs will also have access to it and they can use this information to better plan their businesses. Also, what would be really cool is if the miners are the people and they own this whole network infrastructure. And then the block rewards that we spoke about could almost act like a universal basic income. Okay, maybe I'm getting too idealistic there. So let's back up and return to looking at taxes. So yeah, as we were talking about them, some taxes are deducted at source. For example, most salaries received are net of tax where the company then pays the government or what we have is sales tax is also generally included in the price in some countries like my own. But in both these cases, two transactions have to be made and the calculations have to be done manually. And these are the easy ones. We don't have time in this video to go into the complicated tax law that is forever changing due to them closing loopholes that have been previously exploited by very smart people who can hire lots and lots of accountants. And because of this, governments spend billions on their tax collecting institutions and are forever investigating someone who is trying to dodge their tax bill. And that's a problem. The tax is the citizen's responsibility and some citizens either make mistakes or they take chances and try and hold some back. And we can't be naive, okay? People will try and game the system. So we will need to implement some sort of monitoring software that uses machine learning and pattern recognition to catch anyone who gives the wrong reason for their payments in order to reduce their tax. For example, if you have a company and you're giving monthly amounts to people that are online with the average salary, but you're labeling it as donations, then the system can be like, uh-oh, we need to throw up a red flag. And what government can also do is they can reward other firms to inspect the blockchain and notify them of any unusual activity. So yeah, let's talk more about these whole benefits to society. Like I said, less collection costs means the government can ask for less tax and still get the same amount of money. More economic data will allow for better financial planning and urban development. More transparency will highlight criminal activity and attempts at tax evasion. And all of this should result in a more efficient economy that results in a wealthier society. So that's all cool, right? But maybe governments can be even smarter by looking at the smart cash model. And the smart cash model, it's quite simple. And that is that they've got a governance system that takes a high percentage of the block rewards and the government could do that as well. So when we have the mining of coins and stuff, we can put a whole chunk of that towards the government. Now, as far as economics go, what we've been looking at is fiscal policy. So how do we collect taxes? But there's another way government can fund itself through monetary policy in what I'm talking about here is money supply. And through the use of a clever algorithm around block rewards, governments could possibly do away with tax systems completely and fund all of their activities through the creation of new money by the block rewards. Now, this gets quite controversial and various economists will have various different opinions. So I'm going to maybe conclude the video there and ask you guys to throw in your thoughts in the comment section. And once you've done that, make sure to check out my previous video where we looked at re-insurance transfer. And stay subscribed because next week we're going to be looking at foreign markets and blockchain. So like I said, subscribe to see that final video and remember to comment. Thanks guys so much for watching. Cheers.