Cryptocurrency Accounting: Keeping Up with the Times
As cryptocurrency is becoming increasingly widespread, the number of crypto users is expected to increase to more than one billion by the end of 2022. And where there’s (crypto)currency, there’s also accounting. Thus, there are millions of users out there who will need to make sure that their accounting is in proper order.
With that in mind, let us examine the current state of cryptocurrency accounting, as well as its future – what do you need to do in order to keep up with the times?
What is cryptocurrency?
In a nutshell, cryptocurrency is a digital form of money. It functions thanks to blockchain technology. Information on these chains is organized into blocks, including the data pertaining to all transactions. While the users themselves are mostly private, other data is transparently available.
Cryptocurrency is decentralized, meaning there’s no central authority that regulates the value of crypto. On the contrary, its value is defined by the demand among users.
Another advantage of crypto over traditional fiat currencies lies in its safety. In fact, crypto is, practically, impossible to steal.
The rapid evolution of cryptocurrency
The world of cryptocurrency is very dynamic. New cryptocurrencies are being introduced, while the old ones crash. More sophisticated technology is regularly changing the cryptocurrency landscape.
What we know today may not apply tomorrow. For instance, even if you’re now aware of how to trade BTT (to name a popular crypto token), you’ll still need to keep track of the crypto market and industry in order to make a profit with BTT.
Of course, the same applies in terms of accounting for cryptocurrency.
Cryptocurrency accounting: How we account for cryptocurrencies
With this tech still being relatively new, crypto accounting comes with many challenges. Crypto is an entirely different asset class, and it is unlike traditional currencies and commodities.
Any digital coin or token is a crypto-asset. Crypto-assets are mostly unregulated, but that will change soon as national institutions have their eyes on crypto.
Due to the current lack of regulations and consistency, some cryptocurrencies are held as intangible assets, while others are considered to be tangible. Intangible assets do not have a physical form, but they have a monetary value. Conversely, if an asset is tangible, it’s held as property.
However, anyone interested in crypto accounting will need to dedicate plenty of time to learn about this specific kind of accounting, especially when dealing with businesses. What we’ve mentioned is just the tip of the crypto accounting iceberg.
The future of cryptocurrency accounting
As crypto becomes more regulated, this will lead to the establishment of new accounting standards. Not only will such standards make the accountants’ job much easier, but they will eventually provide additional clients for professional accountants or auditors.
An average user will benefit from the assistance of such a professional, who will, in the future, be in a far better position to provide advice. While the accounting industry has more frequently provided consultation than compliance services in the past few years, accountants and auditors will be able to find new opportunities to assist their clients.
According to the International Federation of Accounting (IFAC), thanks to blockchain technology, accountants and auditors will be conducting their work differently in the future. How does blockchain affect accounting? In short, it streamlines the process. There’s no need of entering data into different ledgers, and each transaction is validated by blockchain technology.