What was your journey into cryptocurrency like? What initially caught your attention and why?
My journey started when I began to seriously consider purchasing a home. What became initially evident, was how expensive homes were (especially in the SF Bay Area), and I began to wonder why? This led to me researching market cycles (particularly the boom/bust), inflation, the Federal Reserve, and ultimately Bitcoin. Lucky for me, we have clients dealing with digital currencies, and I could apply my newfound passion and knowledge into my profession.
When did your firm begin offering crypto accounting as a service? What specific services do you offer to crypto clients?
My firm has been helping crypto companies for about 5 years, when we started servicing a large virtual currency exchange. Since then, we have been providing your standard audit, SOC, tax, and consulting services; but we also try to do cool and unique things that blockchains enable, like our partnership with TrustToken and TrustExplorer program, which provides users of TrueUSD confidence their tokens are also adequately backed by USD on a real-time basis. We think this is just the beginning of how cryptocurrencies and blockchains with change the accounting industry.
What are the top three mistakes you see crypto clients make when it comes to accounting?
Underestimating the complexities of reporting: Yes, blockchains are publicly visible, but that does not mean you’re reporting is done for you. In fact, accounting for crypto is typically more complicated most other accounting items I have encountered. Accounting for gas/mining fees, exchange fees, C2C exchange rates, tracking cost basis (especially for interwallet transfers) is not easy to do manually!
Not investing accounting systems and people early enough: For a future finance team or auditor, it is a PAIN to try and recreate or wade through a Company’s transactional history when it is not managed well. If you start taking crypto-accounting seriously early on, you will avoid serious hiccups down the road.
Using bad GL Hygiene: Stuffing 50 currencies over 10 wallets and 3 exchanges into one GL account is going to be a pain to reconcile and a pain to audit!
What are the top three challenges when it comes to accounting for crypto?
Ambiguity of Standards: Not only does trying to squeeze Crypto as an intangible asset not make much sense to me, there are many other areas where clarity is needed. What are adequate pricing sources? How do I price transactions denominated in crypto (and not in USD)? What level do I need to audit crypto-assets? Do I need to know every BIP? Can I rely on explorer tools? There is a lot left unsaid.
Unprepared Traditional Accounting Systems: Many of the existing platforms out there do not handle crypto well. What module do I put my crypto – in inventory? – so I can track the cost basis? – Fx? – to treat it like a true currency when I pay for things? Issues like this make a platform like Blox so important.
Crypto Complexity: HD Wallets, BIP Standards, Consensus Mechanisms, Private Keys, Digital Signatures, MemPool. It really is a whole new accounting (and audit) world out there with cryptoassets; and it can be a lot to learn.
What's the future of crypto accounting?
Blockchains are essentially automated, autonomous, secure, open, and immutable ledgers. Accountants deal with ledgers all day, and we are certainly not automated, autonomous, etc. We will either learn to harness the power of cryptocurrencies and blockchains in our profession, or be replaced by them.