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Thousands of programmers poured millions of hours into creating the illusion of reality, often using little more than some software and a pair of 3D displays built into a headset.

Although a small number of companies are making a buck out of the VR industry, much of the hype seems to have subsided and a level of rationality has returned to this segment of the IT world.

But a new kind of virtual reality seems to be enjoying a surge in popularity right now, perhaps mostly because it offers the chance for regular folks (even those who can't write a byte of code) to make some real money.

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I'm talking about the massive virtual worlds created online by a legion of players and traders right across the globe.

Although these worlds exist solely in the ether that makes up the Net, people are trading for assets, opportunities and services within these virtual worlds using real dollars.

For example, one report recently published reveals that the economy of a relatively small virtual world known as "Second Life" has reached a turnover of around US$2 million per month -- which is about the same as Tuvalu.

Even more astounding is that there are around 100 people who are working at and being paid for full-time at jobs that exist solely in this virtual world.

This whole virtual-world reality was highlighted last week when a guy called Jon Jacobs paid a cool US$100,000 to buy a space station. Now that might sound like a pretty good deal in "the real world (tm)" but Jacobs wasn't buying in the real world. His $100K simply bought him an asset in the virtual world of Project Entropia.

Whereas Second Life has just 60,000 residents, Project Entropia has already attracted over 300,000 folks who are interested in living, trading and profiting from a virtual world.

The worrying thing for bureaucrats and tax-men around the (real) world must be that people involved in such things could be making a very good amount of money which, until it's withdrawn into real-world money, is probably not taxable.

What can the IRD do, for example, if some bright Kiwi sets up a business in one of these virtual worlds and accumulates millions of virtual dollars?

The fact is that this person would have become rich, very, very rich. However, while the money remains in the virtual world -- it's presently untouchable by the taxman. Only when it's converted back into real-world dollars will their be any trace or chance for the IRD to get their hands on a share of it.

I'm sure this will be annoying the snot out of people like Cullen and his counterparts in other governments -- perhaps to the extent that they will legislate that the operators of all virtual communities must also tax all virtual earnings and pay that money (in real dollars) to the various tax collectors from the countries involved.

If this doesn't happen, there's a very real chance that an underground economy will result from such virtual worlds. Eventually, some individuals or companies will start offering real-world goods and services in return for virtual-world dollars. That would really screw that taxman!

So, given that the amounts of money that's changing hands and being accumulated is already getting well into the millions of dollars, how should we address the tax issue?

Will the IRD be posting a "Gamers wanted" add in the Situations Vacant section of the paper in the near future perhaps?

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