If you weren’t living under a rock, you would agree cryptocurrency is what everyone seems to have talked about in 2017. As we enter Q3 2018, it’s quite clear the buzz around the ‘cryptic’ term refuses to die. The virtual currency market created less than ten years ago, has already minted multi-millionaires and billionaires.
Making to the list are the Winklevoss twins, Tyler and Cameron, who famously sued Mark Zuckerberg in 2004, claiming he had stolen their ConnectU idea for creating Facebook. In April 2013, the brothers announced they owned 1% of all bitcoin in existence at that time, instantly making them trillionaires. Can you believe it?
So, how would one define cryptocurrency?
In layman’s language, cryptocurrency is a form of currency existing only digitally and relying exclusively on encryption for the security of transactions. The digital money is submitted as an entry on the blockchain – a global ledger that keeps a record of every crypto-transaction made till now.
Ever heard of Bitcoin, Ripple or Ethereum? These are different types of cryptocurrency and are now in use by many organizations. For instance: Big Four accountancy firm E&Y accepts Bitcoin as a form of payment for its consultancy services.
The Australian Securities Exchange is also going to soon implement blockchain technology in clearing and settlement system of share trading. Since 10% of global GDP will be stored on blockchain-related technology by 2025, it looks like they are moving in the right direction!
Accounting for cryptocurrency
The speed, ease of use and cost savings associated with cryptocurrency has made it a popular choice for payments. PayPal, DELL, and eBAY accept Bitcoin payment. Holdings of such digital currencies could be volatile given how quickly their value increases. Bitcoin increased by approximately 700% between Jan 2017 to Nov 2017.
Naturally, this new kind of currency and technology supporting it is going to affect accounting in many aspects:
The blockchain technology will enable automated reporting to get added as real value-added service offered by accountants. Cryptocurrency features will be added by software vendors, which means accountants’ job will get more comfortable, and more automated. They will spend less time doing the mundane tasks of bookkeeping and reconciliations.
2) Client servicing
Clients who can afford to take the risk and are early adopters of technology are the kind of people who are more inclined towards accepting cryptocurrency. They will need help in understanding the reporting and tax ramifications of trading cryptocurrency.
The blockchain technology will also make it easier for accountants to measure the accuracy of data, which means no fraud and minor accounting errors. Of course, auditing – an essential element of accounting – will also get fueled by the blockchain technology.
We are looking at a new cycle in revolution – from electronic money to cryptocurrencies. The impact will continue to grow as our world becomes more fast-paced and virtual. Accountants can’t ignore it if their clients have started to engage with it.
There is enough opportunity for them to bank on it. But they need to make sure their practice is ready to handle the changes that cryptocurrency is about to bring to their profession, and to the industry.