The future of cryptocurrencies and blockchain is poised to enter into day-to-day life. From purchasing a coffee at Starbucks with a crypto debit card, to supply chain management solutions for retailers like Target, the power, and potential of this technology is undeniable. Moreover, the introduction of Facebook’s crypto project, Libra, is destined to be the push needed to amplify the speed at which crypto is entering the mainstream universe. Furthermore, with mainstream use becoming more popular, crypto accounting is becoming ever more important.
However, the meteoric rise has introduced a unique and unexpected series of challenges – bookkeeping and accounting for crypto assets and transactions.
As it stands today, there are no firm legal guidelines, best practices or government intervention for how to calculate cost basis, file taxes or account for crypto assets. But, that is sure to change. If the crypto and accounting communities are to better understand how to move forward, it is imperative to know the current landscape of crypto accounting – from expert CPAs, and updates from institutions to holistic technology that aims to solve the aforementioned challenges.
Events & Coalitions
There are a growing number of events and organizations that are focusing on dedicated crypto and blockchain accounting. For example, ABC, the Accounting Blockchain Coalition, focuses on bringing together like-minded individuals, professionals and businesses that are trailblazing the future of the crypto accounting community. It is hard to avoid these organizations and the tremendous strides they have made. Recently, the California Society of Public Accountants (CalCPA) announced that they are seeking far more clarity on crypto holdings from FASB, the Financial Accounting Standards Board. Crypto is backed by a very strong community, and if crypto accounting can receive even half of that support, it will be destined to succeed in its endeavors.
The phrase of “crypto accounting” is a very new term, and the first crypto-focused CPAs and accounting firms only started to appear in 2016-2017. Because of the infancy of this niche service, there is very little information on best practices and legal guidelines, so many professionals are working together to develop the first layer of crypto accounting framework for CPAs. Today, there are three primary challenges crypto accountants face:
Lack of awareness on crypto taxation, cost basis, and legal guidelines
Missing client information or incomplete information from crypto exchanges and other source
Unorganized, manual-entry and inaccurate record keeping
Many investors and crypto enthusiasts neglect to disclose all their assets under the assumption that no legal framework means no legal consequences. However, all crypto assets and transactions are taxable, which requires cost basis calculations to measure profit and loss based on the original purchase value. Failing to pay taxes on crypto assets is illegal, making it important to educate new and existing crypto investors.
Crypto CPAs have their work cut out for them and their tasks are never easy. Tracking and accounting for digital assets is plagued with unique technical challenges such as tracking thousands of transactions, dozens of wallets, exchanges, and accounts. They need access to all the information from their original sources (Example: Transaction activity from Coinbase or Binance), and any missing or inaccurate data can lead to disastrous results when reporting and calculating for P&L or cost basis.
Today’s CPAs and bookkeepers require strict organization practices and a methodical approach to bookkeeping, and that is twofold for crypto-focused services. The cryptographic nature of blockchain make it is inherently difficult to track, identify and classify long strings of alpha-numeric transactions or accounts. Most of this work is done manually on outdated, unsecured spreadsheets that are prone to human error. This is why many CPAs are always looking for the best solutions that integrate automation, security and undeniably accurate to alleviate the complexities of crypto bookkeeping.
Legal & Institutional Guidance
Since the emergence of cryptocurrencies, most professionals and businesses were unaware of the legal classification of cryptocurrencies. Experts in the field of economics and finance have bounced around definitions of this asset class, but none have truly stuck. In fact, in 2014, the IRS gave notice that this “virtual currency” should be treated with existing general tax principles. Today, there is still no clear clarification on the future framework for crypto classification.
However, in May 2019, the IRS Commissioner has vowed to make it a priority to issue more comprehensive tax guidance for crypto assets and transactions, which will include calculating cost basis, cost basis assignment and tax treatment of blockchain forks. This affects everyone from investors, blockchain businesses, crypto exchanges, mining operations and of course, CPAs and accounting professionals.
The crypto accounting community, as small as it is, are making a splash in a very big pool – and that is a great thing. Seeing real professionals that want to help cryptocurrencies and blockchain succeed can be an important ingredient to reach the dream that crypto and blockchain has promised the world.
Some may see light at the end of this dark crypto tunnel, but according to the FASB and IASB, the organization for accounting standards worldwide, Bitcoin will be gone within five years. That may be a brazen claim, but it does explain why they have been dragging their feet. This news is already affecting crypto CPAs in the US, making it difficult for them to provide consistent and sound guidance to their clients.
The Tech Landscape
The blockchain/crypto community is no longer small and voiceless. Today, companies from Ernst & Young to Facebook are launching enormous blockchain projects. It is impossible to ignore, especially when Mark Zuckerberg personally developed Libra, the new Facebook blockchain project. Brands like Starbucks, Target, Visa, Mastercard, Ford and dozens of Fortune 500 companies are initiating or investing in blockchain projects and ideas, which results in the spotlight returning to shine on crypto.
Blockchain is a technology in itself, but it is other tech that will really maximize its potential. A report from Intuit, the parent company of leading tax software, Quickbooks, states that 81% of professionals are looking for more office automation technology.
Similar to Quickbooks and TurboTax, businesses want smart innovations for managing and accounting for cryptocurrencies. Spreadsheets are static, require manual data entry and are prone to human errors. Other traditional accounting software is not yet refined to support crypto assets and transactions, and most CPAs are unaware of the tools at their disposal.
It is also important to note that this industry of crypto assert accounting and management will continue to innovate and challenge the status quo. We see evidence of this already with companie projects like Defi, the rise of Stable coins, DEX (Decentralized Exchanges) and many more coming down the pipeline. This particular vertical is a blank canvas for financial innovation and for the first time in history, anyone is welcome to experiment, pioneer and make their mark.
In case it is not clear, there is a bright future for the world of crypto accounting.
Blox is one of the only crypto asset tracking, management and accounting platforms that provide a truly all-in-one solution for crypto CPAs and bookkeepers. A full spectrum of features was built to serve a wide range of crypto companies – from crypto exchanges to massive mining operations with cloud-hosted mining rigs, Blox is extremely flexible in its offerings – regardless of complexities.
The industry-leading SaaS platform is the next generation of digital accounting services that was birthed to solve these emerging and rapidly evolving industry challenges. By introducing smarter automation, Blox helps professionals and businesses to easily sync and track their crypto assets, organize and classify transactions, develop a chart of accounts and even educate clients on new and popular best practices.
Some businesses have considered building in-house solutions, but they are costly, time-consuming and will take years to perfect to reach the level of accuracy needed for businesses and enterprises. That is why some of the biggest crypto companies and operations in the world trust Blox for reconciling transactions, organizing assets and books, integrating with general ledgers (Quickbooks, Xero) and even improving the operational workflow for enhanced productivity.
To understand the current state of crypto accounting means to fully comprehend all the moving parts and how the gears can be linked together to drive a community that advocates for the advancement of the crypto accounting cause. The pending rise in crypto and blockchain adoption and its expected entrance into the mainstream arena means that today is the day to ask yourself – how am I accounting for my companies crypto assets?
The real question is – why are you only asking now? The time to begin accounting for your crypto, or find the right tech to streamline your crypto accounting process, is today. The sun is about to rise on blockchain and the future is bright for crypto accounting, crypto CPAs and all of its professionals.