Blockchain cryptocurrencies are now widely known to the general public following an array of Initial Coin Offerings (ICOs) in 2017 and the involvement of government regulators who, among other aims, try to guard against “bad actors.”
Yet the underlying “blockchain” technology perhaps unnecessarily remains a mystery to many people. Blockchain metaphorically might be seen as akin to a “read only” Excel document that everyone can see. In brief, an actual “blockchain” involves creating a series of virtual “blocks” that are unalterably stacked on top of each other, with people able to see the virtual chain, but not able to change either the chain or its individual components (those “blocks” created to the current date/time).
The latter, of course, is perfect for ensuring integrity with virtual currencies (cyptocurrencies), but the notion that the blockchain concept would be connected solely to currency is limiting. It can be used in almost an industry, such as healthcare, for example. There, an unalterable blockchain could be implemented to protect users’ data, or, separately, facilitate data transfer from one person to another using a permission-based system.
Chris DeMayo, CPA, partner, and practice leader, technology and emerging growth services group at the accounting firm Withum, also suggests that the art world – which is subject to theft – could potentially place all global art on a blockchain, revealing the history of the artworks’ ownership to all persons, with an unshakeable confidence in the ownership list’s authenticity.
He also offers, “Imagine if a company had its entire supply chain on blockchain. It would be able to sell an iPhone, and immediately, every single supplier that supplies parts to Apple will know that an additional part needs to be produced, so that they can replace the phone that was just sold … without any paper trail, without any lag time.”
Yet fully comprehending the blockchain concept might not be necessary for many people, akin to the notion of not needing to “fully understand the internet” in order to profit from it. A business owner can use a “mobile app,” for instance, without grasping the fundamentals of SS7 cell phone tower protocols, the intricacies of 802.11b WiFi – or even how smartphone “firewalls” operate, other than to know they all are crucial and must be expertly monitored.
In tandem with all of the aforementioned concepts – and as various cryptocurrencies and the broader blockchain concept increasingly enter mainstream commerce – businesses are seeking assistance from accounting firms regarding issues ranging from auditing internal controls/safe environments surrounding blockchain, to asking that CPAs attest to the number of crypto “coins” they have in circulation, for example.
Withum’s DeMayo offers just one concern his clients have: “It is not necessarily hard to track cryptocurrency because that’s what blockchains are for, but how do you convert the activity on a blockchain into an auditable accounting entry within your financial statements?”
He adds, “It is [akin to] bookkeeping for cryptocurrency. For example, there are currently not a lot of options that one has to go to their crypto wallet, and say, ‘Tell me all of the transactions – in and out – of cryptocurrency that I have had, turn that into an accounting journal entry and put it into my QuickBooks.”
He emphasizes, “That doesn’t really exist right now [in the marketplace.] There are companies racing to try to solve that problem, but from an accounting perspective it is a real opportunity.”
Sal Ternullo, KPMG director and cryptoasset services lead, tells New Jersey Business, “The challenges that our clients are facing vary substantially based on the maturity of their crypto capabilities. Some are working through the process of building and developing core custody capabilities to safe keep cryptoassets and interact with an ecosystem, while others are examining adjacent product and service innovation opportunities. Our clients also grapple with regulation – which varies globally – such as compliance with existing regulatory structures. The variations in jurisdictional regulatory approaches has led companies to build businesses in locations where there are clear and well-defined guidelines for asset treatment and related business licensing.”
Separately, the traditional accounting world at large has been inalterably impacted by software and artificial intelligence, reducing the need for many lower-level accounting tasks, and creating a need for accountants who focus on guidance, consulting and strategic concerns for their clients, for example. The blockchain arena represents its own accounting-industry profitability possibilities (for the accounting firms themselves).
It is, again, all within the global blockchain evolution.
Regarding cryptocurrencies, KPMG’s Ternullo, says, “The race for institutional grade crypto custody solutions and integration into existing global financial institutions is very real, and governments around the world are anticipating the launch of Central Bank Digital Currencies to realize strategic and competitive advantages within the global trade system. Technical challenges are increasingly being overcome, leaving focus on governance mechanisms and regulatory approaches. Furthermore, efforts are underway to define standards for accounting treatments with regards to valuation and reporting.”
Many blockchain and cryptocurrency applications are not yet realized, not only by individuals and corporations, but by aforementioned government entities.
Ternullo concludes overall, “We are watching the emergence of a new era of trusted commerce and B2B2C and C2C business models that have not previously been possible. And, the potential of cryptoeconomic incentive systems is also exciting, along with their applications within existing business models and economic systems, as well the emergence of fundamentally new economic systems.”
Facebook’s potential Libra currency is arguably especially worthy of monitoring, not only for its impact on various forms of commerce, but for its other potential impacts.
Whatever the ultimate iterations of global cryptocurrencies, blockchains or regulatory concerns, accounting firms continue to enmesh themselves in these scenarios and – quite literally – likely help “account” for what happens in much of this envelope, both stateside and abroad.
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