Accounting and cryptocurrency often don’t seem to go hand in hand. The rules surrounding the accounting for cryptocurrencies are unclear, to say the least. Regulators have been urging a change of the GAAP to adapt to the crypto revolution, but little has been done.
However, when it comes to crypto blockchain technology, it can make an accountant’s life a lot easier.
Let’s take a look at what exactly a blockchain is and the crypto accounting benefits:
What is a Blockchain?
A blockchain is a decentralized ledger distributed between computers on a network. Blockchains store information like a database, and are crucial for providing safe and decentralized transaction history.
Blockchains allow for trusted peer-to-peer crypto transactions, without the need for a third party. The decentralized network of the technology means that no single institution can control it, but only the blockchain users. And as the name suggests, unlike traditional databases, data is stored in blocks. Blocks can only store a certain amount of transactions, and when filled it is added to the chain. Once this is done, the process is irreversible and the block is set in stone.
No-Risk of Fraud
When crypto accounting you can be sure that there are no fraudulent transactions. The blockchain is irreversible, and all transactions on it are confirmed. The nature of blockchain technology makes it impossible to change the data in a block, meaning that you can be sure that what a business or individual is telling you is the truth.
To change the data in a blockchain someone would have to find the block on which the transaction data is stored, hack it, and change each block from there. The difficulty of the action makes it extremely time-consuming and extremely unlikely the user wouldn’t be caught.
The blockchain can be taught as a bookkeeping open document, where all and every single transaction is recorded. In many ways, it’s the accountant’s dream, all transactions a business or individual has done are visible on it. To use these benefits accountants should process the blockchain data in a standard operating procedure, which in the long term would save up a lot of time. Via specific software all the data needed can be linked, making crypto accounting that much easier.
With all that data safely stored both the accounting and auditing process becomes very straightforward. Auditing every transaction will be particularly straightforward as it will only include reading through a list.
We all know that double-entry bookkeeping does a great deal to increase the trust we have in entities, but cryptocurrency accounting goes above and beyond. On the blockchain, every transaction comes with a timestamp, an exact account of the amount and address. Additionally, each transaction can be verified via the hash string, in other words, the data piece fingerprint.
Clients can trust that the information is correct, which is particularly useful when it comes to crypto tax accounting. A small error when accounting for taxes can have severe fines if authorities find out, and a big one can even get you prison time. Crypto tax accounting significantly lowers the space for human error and builds trust among parties.
Improves the Business
Crypto tax accounting doesn’t stop at just making the whole process a lot easier, the elimination of any intermediary bureaucracy makes the business a lot more efficient. Business owners won’t have to worry about spending a significant chunk of their resources to make sure all the books are accounted for, risking fines and other consequences if they are not.
The nature of the blockchain allows for a more automated and straightforward accounting process. This saves a lot of resources that can be used to expand, improve and scale the business model.
Conclusion – The Truth about Crypto Accounting
Cryptocurrency accounting has still a long way to go before it becomes a viable option for businesses. The benefits are clear, more efficiency, productivity, and profitability, however clearer guidelines are needed. We need clear rules, regulations, and up-to-date GAAP guidelines.
But things are changing, and the needed changes will be implemented soon. And when it happens, full crypto adoption is inevitable.