Cryptocurrency Basics, Bitcoin, Cryptocurrency Accounting, Resources, Crypto Accounting Software, ICO
The first commercial cryptocurrency transaction was in May 2010… for a pizza. Seven years later, a crypto millionaire purchased a $200,000 Lamborghini Huracan by cashing in 45 bitcoins. The largest real estate sale occurred the following year when a Miami mansion was sold for 455 BTC. Most recently, Russell Okung, a former offensive lineman for the Seattle Seahawks, requested half of his $13 million contract be in Bitcoin. Some major corporations that accept crypto currency are Starbucks, Home Depot, Overstock, Tesla, Microsoft, Amazon, Visa, PayPal, Coca Cola, Whole Foods, and Expedia. It appears that crypto is everywhere and everyone is jumping on the bandwagon. However, there is still confusion surrounding this new currency. Consultance Accounting has created this informative blog with resources in hopes to put your mind at ease and answer some questions about cryptocurrency basics, cryptocurrency accounting, crypto accounting software, and more.
What is Cryptocurrency?
Investopedia explains, “A cryptocurrency is a digital or virtual currency that is secured by cryptography, which makes it nearly impossible to counterfeit or double-spend. Many cryptocurrencies are decentralized networks based on blockchain technology—a distributed ledger enforced by a disparate network of computers. A defining feature of cryptocurrencies is that they are generally not issued by any central authority, rendering them theoretically immune to government interference or manipulation.”
Cryptocurrency is not tangible. It is a digital representation of value and exists in the form of data. It is a form of payment exchanged for good and services.
*Think about going to an arcade as a child. In order to play you needed to have certain coins or tokens to put into the arcade games. Handing the cashier money and in exchange receiving a specific amount of game tokens used to play the games, is essentially the concept of cryptocurrencies.
Why is Crypto Popular?
Crypto allows individuals to take complete control over their assets because it is not issued or controlled by a central authority or by the government. It is a decentralized market meaning that technology allows investors to deal directly with each other instead of operating in a centralized exchange. Virtual markets that use decentralized currencies (cryptocurrency) are an example of a decentralized market. A decentralized market uses various digital devices to transmit, and show ask prices or bids in real-time. This allows buyers, sellers, and dealers to be located in different places and still able to conduct transactions.
“As decentralized platforms, blockchain-based cryptocurrencies allow individuals to engage in peer-to-peer financial transactions or enter into contracts. In either case, there is no need for some trusted third-party intermediary such as a bank, monetary authority, court, or judge. This has the potential to disrupt the existing financial order and democratize finance. The size of the cryptocurrency space has grown exponentially in the past decade, with new innovations and a collective market cap of nearly $2 trillion”
Types of Cryptocurrency
There are over 12,170 different cryptocurrencies as of September 2021. The most popular are Bitcoin Cash (BCH), Cardano (ADA), Ethereum (ETH), Binance Coin (BNB), and Tether (USDT). Other valuable cryptocurrencies are Polkadot (DOT), Stellar (XLM), Litecoin (LTC), Chainlink (LINK), Dodgecoin (DOGE), and Monero (XMR).
There is a lot of confusion regarding accounting for cryptocurrency especially for businesses. Generally Accepted Accounting Principles do not currently address cryptocurrency and it is not considered cash or inventory but for federal tax purposes it is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency. Crypto can be indefinite-lived intangible assets, accounted for under ASC 350. Crypto is noted on the balance sheet at cost (whatever you paid for them). It is not amortized but are tested for impairment annually (or more if suggested the asset has become impaired). The impairment is the difference between the carrying value on the balance sheet and the fair value. More confusion arises because a business can write crypto for losses, but not for gains.
Crypto Accounting Software
Gilded, a B2B blockchain payments and accounting software provider, has released Compass, a solution that enables advanced mapping capabilities between blockchain wallets and a business’s general ledger.
Compass integrates with Intuit’s QuickBooks Online. Gilded aims to unify the worlds of traditional finance and digital assets. With Gilded, QuickBooks Online users can reconcile cryptocurrency transactions alongside fiat transactions in QBO.
The market for Initial Coin Offerings (ICOs) and digital assets are growing in popularity. Businesses and individuals are using ICOs to raise capital and investors are looking for new investment opportunities. With any investment there are risks. Before investing make sure you do your research. Investigate the individuals and firms offering the investment and check out their backgrounds on Investor.gov and by contacting your state securities regulator.
IRS Virtual Currencies
U.S. Securities and Exchange Commission ICOs and digital assets
Information about investing in crypto from NerdWallet
Information for small to medium sized businesses and investors from Consultance Accounting
The Consultance Difference
Consultance Accounting has knowledgeable technologically advanced cryptocurrency accounting experts. Our professional accountants work with crypto clients and help them succeed at every business level. Consultance guides clients every step of the way. The Consultance team is made up of highly experienced specialists, with expertise that includes accounting and bookkeeping, state-of-the-art accounting technology, compliance and ethics, financial analysis, process and systems re-engineering, risk management, and accounting system optimization.
Consultance Accounting provides a broad offering of accounting services and tools to improve efficiencies and decision-making in a customizable format to meet each client’s specific needs. We are experts in our fields and are fully certified in the technology platforms we offer our clients. What makes Consultance different is how we deliver our services. Through our people, processes, and technologies, we have proven our unyielding commitment to exceptional client service and knowledge from industry experts. Contact us today for more information about any of our services including cryptocurrency accounting.