Cryptocurrencies have been likened to asset bubbles and technology as revolutionary and long lasting as the internet. The reality is somewhere in between. Let’s examine the impact of cryptocurrencies on accounting. We’ll address real world applications of cryptocurrencies and their underlying technologies, not the theoretical applications that may be years away, and how they are affecting the accounting profession.
Bitcoin remains the biggest cryptocurrency, though it has spawned literally dozens of competitors. The truly revolutionary technology is the open and yet anonymous, ultra-secure asset tracking algorithm behind it – Blockchain.
Blockchain is starting to be used to track the ownership of assets from stocks to real estate. It is readily verifiable, which is why several nations are starting to use it to verify educational records for students from kindergarten to college.
As adoption of Blockchain for asset tracking expands, asset management will be dramatically simplified. No more will cities bulldoze houses they sold months before to someone else, well, maybe if they don’t check the records, but no more will they lack clear records on who owns the property. The mortgage backed securities that fell apart because no one could prove who owned the house after the mortgage had been divided between lenders and re-sold in tranches to institutions now would be tightly linked to the underlying asset. And reporting is simply a matter of pulling a report that can tell you the status of everything the company owns that very minute.
Cryptocurrency has a bad rap because of its dark web ties. But, despite the reluctance to adopt Bitcoin, many do so for the advantages. Making payment fraud nearly impossible and eliminating credit card processing fees are two of the biggest reasons. Eliminating the need to implement multiple layers of IT security to protect payment information from thieves because Bitcoin keeps people’s personal information private is another. This means that those earning a masters in accounting will need to know how to process payments in Bitcoin and convert it to the local currency whenever necessary.
One potential problem for accountants is the fact that Bitcoin transactions protect anonymity of users. This does leave open the door to someone receiving payments that they don’t pay income taxes on until they convert Bitcoin into their local currency. However, tax accountants simply need to remind clients of their obligation to report all income, including payments they receive via Bitcoin. The general consensus you’ll learn in an online masters in accounting program is that you have to pay capital gains taxes on the difference between what you bought it for and what you sold it for.
Conversely, for charities and political organizations receiving payments via Bitcoin, the transparency and reporting tools make it far easier for everyone to see what they receive and how they spend the money. Accounting in these cases is dramatically simplified as long as the accountant understands the reporting tools.
We can expect cryptocurrencies to have a profound effect on accounting. Accountants of the future will need to understand cryptocurrencies and blockchain technology if they want to perform their functions.