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Cryptocurrency – The Currency of the Future
The world today is passing through a digital revolution that has touched every aspect of peoples’ lives. Look around you and you will hardly find anything that is not ruled by the Internet and a virtual environment. The financial sector too has shifted from the traditional modes of working to one where going digital and speed of transactions is the mantra. A prime example is one of the accounting service providers. From tedious long drawn bookkeeping procedures of a few decades back to that where specialized software and cutting-edge hardware are used, the shift here has indeed been radical.
In keeping with this trend, it is time to welcome cryptocurrency, a digital currency that exists electronically; only it does not have a fixed issuing authority or a federal or Government body controlling it. It is brought into the digital fold through a process called mining and has to be confirmed in a public or global ledger called the Blockchain. The ledger has a record of every cryptocurrency transaction ever made and can only be updated or modified when the majority in the chain agree to it.
Bitcoin and Litecoin are two such examples of cryptocurrency and any transactions in them can be very difficult to trace. It can be lethal in the wrong hands and is susceptible to illegal money laundering activities or funding of terrorism. This is one of the reasons why reputed cryptocurrency exchanges have stringent AML safeguards in place and conduct external audits to independently monitor the systems along with risk mitigation programs. On the brighter side, the end result of dealing in cryptocurrency is that the process is fast, cheap and most importantly very secure.
Accounting process for Cryptocurrency
Cryptocurrency is banned in many countries of the world because of the inherent difficulty in tracing the transactions and the fact that it is mined and not issued by Fiscal regulatory authorities and Governments. However, in the USA it is considered to be property and the IRS requires that any transaction in it, whether payment or receipt be reported in US dollars after converting to fair market value. Since the value of cryptocurrency is very volatile and fluctuates greatly against the dollar, it is necessary that the help of an experienced accounting company be taken to maintain all records scrupulously. This is to make sure that any gains or losses in crypto are reported accurately.
If you have ever traded in stocks and securities and have filed your personal tax return or have got a third party accounting service provider to do it for you, you should know how the process works. You are required to precisely show at what cost you bought stocks and at what price you sold them. The same rules also apply to any business dealing in crypto.
According to Bitcoin Unlimited:
Two examples, one where you receive payment in stock for services rendered and one where you pay in stock for services received will better illustrate what trade in crypto is all about.
First is receiving stocks for services offered. The cost of the stock can subsequently go up or down and you can strategically sell or pay someone with it when you are in profit. The same can be done with crypto also. Next, consider the case where you need to pay someone and you decide to do so with stocks. You have a stock of a certain cost and when you choose to pay with it the stock might have appreciated in value. That increased value will be your gain also. This will be the exact scenario when you have old crypto and want to make a payment after the market price has gone up. These two examples draw a parallel between stocks and crypto because their functioning as a mode of payment or receipt is not much different.
With cryptocurrency making its mark in a big way, the financial world is set to get more complex. You will now have to deal with cash which is the traditional fiscal option, crypto, the new digital addition and tokens represented by assets or equity of a definite value. To maintain authentic and accurate bookkeeping records, you will do well to engage a third party accounting company to do the job meticulously for you.
If you need a top end accounting outsourcing service company to manage your bookkeeping comprising of cash, crypto and tokens get in touch with us at Cogneesol. We have vast experience in this field and our team of accountants is well versed in accounting procedures with crypto. For more details, call +1-646-688-2821 or write into us at [email protected].
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