You might not know much about cryptocurrency beyond hearing the term in the news occasionally. But it’s time to understand the basics and what it could mean for you, your organization or your customers.
“It's still all relatively new,” said Dennis Murphy, Jr., CPA, and principal at Skoda Minotti, an Ohio CPA Proud organization.
Murphy and Nick Ward, senior staff at Skoda Minotti, joined us on the latest episode of The State of Business podcast to talk about cryptocurrency and bitcoin. They’ve worked for years in the crypto space, and as of last year Skoda started accepting bitcoin as payment.
To start with the basics, cryptocurrency is a digital currency that uses cryptography to provide secure online transactions, and bitcoin is a type of cryptocurrency.
“Bitcoin solved something called the double spend problem,” Ward said. “That means if we're transacting with a digital currency, how do I know that what I'm spending isn't counterfeit.”
Ward said bitcoin solved that issue with the blockchain, which records every transaction that ever happens on bitcoin’s network. The bitcoin blockchain network is public, so you can look through and see every transaction that has been made all the way to the beginning.
Sometimes, Murphy said, people will express confusion about bitcoin and blockchain being the same thing, but they aren’t. This is where educating yourself is valuable, so you aren’t getting more incorrect information from those who aren’t properly informed.
When clients are holding cryptocurrency, Ward said it’s crucial to ask them the right questions to understand the potential tax and accounting implications.
“If they're saying they have crypto, ask ‘What wallets do you have? What coins do you have?’” he said. “It's all public knowledge and ask if they have accounted for it. Ask, ‘How much did you get?’ The other important thing is advising your clients appropriately.”
Ward said it’s common to hear about bitcoin being hacked, when in reality it was a specific exchange that was hacked, not the entire bitcoin network. He said accountants should advise their clients on which exchange platforms are reliable and which are not.
“There is a loose regulatory environment right now surrounding cryptocurrency,” Murphy said. “The IRS hasn't come out with anything since 2014 on how to report cryptocurrency.”
Clients need help from accountants to organize their transactions, he said, and to calculate the appropriate gains and losses.
“Rather than just turning in a 1099 from selling stock, there are pieces you have to consider,” Murphy said. “There are different ways to account for it and keep track of it.”Listen to the episode Listen to the episode here. You can hear more from Murphy and Ward at any of the fall accounting shows where they’ll present on cryptocurrency. Learn more!