With the recent two days of Congressional testimony by David Marcus of Facebook, it is clear that blockchain and the cryptoasset space have moved firmly into the mainstream financial and accounting conversation. As the discussions continue to evolve and as more organizations enter the space, CPAs will need to remain on top of how this arena changes. Here are some core issues that CPAs should keep top of mind:
- Stablecoins, although criticized by some members of the bitcoin community, appear to be a legitimate and fast-growing segment of the cryptoasset landscape. Connected in some way to a fiat currency or other asset, these cryptoassets seek to address the price volatility issue that appears to be a headwind preventing broader consumer and enterprise adoption.
- The current accounting taxonomy does not provide an ideal classification for Libra, bitcoin, or other cryptoassets. Whether the interest in Libra will spur the (Financial Accounting Standards Board (FASB) and/or the International Accounting Standards Board (IASB) to develop standards remains to be seen.
- Redeeming stablecoins is an issue that needs to be addressed from an accounting and control issue. Stablecoins can be connected to either a single asset or (in the case of Libra) a basket of assets, which may reduce volatility from an economic and geopolitical perspective. The specifics of how Libra (and other stablecoins) can be redeemed or converted back into fiat currencies (like USD) remains something that requires further clarification. Specifically, questions around how this process occurs, who can authorize this redemption, and how any gains/losses upon conversion are accounted for are open items.
- Steps should be taken to safeguard and secure ownership information linked to cryptoassets. Hot wallets — like the Calibra wallet associated with Libra — have been hacked and do expose investors and customers to hacks, breaches, and other actions that could cause the loss of financial assets. With a May 2019 breach of the hot wallets at Binance (an established cryptoasset exchange) leading to investor losses of over $40 million USD, this is not a theoretical concern. CPAs need to ask the right questions to determine control and custody policies appropriate for the client in question.
- Whether or not insurance and cybersecurity policies need to be updated or modified to contend with the burgeoning cryptoasset ecosystem should be part of any dialogue. From a cost or compliance perspective, it is evident that blockchain platforms and cryptoassets are changing cybersecurity and the controls around cybersecurity policies. No matter if a specific firm or client has current investments in cryptoassets, the conversation around cryptoasset or blockchain insurance is a conversation that needs to be had.
Blockchain and the cryptoasset ecosystem represents both a potential challenge and opportunity for CPAs employed both in public practice as well as in industry. Be sure to join and/or follow the NJCPA’s Emerging Technologies Interest Group for updates and analysis on Libra and other crypto/blockchain trends as they develop. You can find out more here