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Title: An Introductory Outlook: What Are The
Prospective And Current Issues With Regards
To Accounting For Cryptocurrency?
Thesis Submitted in Partial Fulfilment of the
Masters in International Accounting & Finance
Degree (MSc)
Dublin Business School
Submission Date: 20th August 2018
Name: Nikhita V Ramrakhiani
Student Number: 10362924
Supervisor: Richard O’Callaghan
Word Count: 18,442
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Declaration:
I declare that all the work in this thesis is entirely my own unless the word that are
placed between inverted commas and are referenced with the original source. I
understand the nature of plagiarism, and I am aware of the School’s policy on this. I
certify that this dissertation reports original work by me during my academic
research. Furthermore, texts cited are reference as such, and placed in the reference
section.
Signed: NRamrakhiani (Nikhita Ramrakhiani)
Date: 20/08/2018
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Acknowledgements:
There are number of people who have been helpful in completing this research and
deserve credit. Firstly, I would like to thank God, for this huge opportunity to study
abroad and to help me make my dreams come true. Truly without God, this wouldn’t
have been possible. Secondly, I would like to thank my supervisor, Mr. Richard
O’Callaghan for his unrestricted support and help through-out the research via
guidance, meetings and one to one discussions. His guidance and feedback has
helped me shape this thesis. Thank you Sir, for all the criticism and encouragement!
(with all my heart and soul).
I would also like to thank my parents for always being supportive of what I do, and
professors for all the motivation and support during the initial stage of the course. To
help me mix in a foreign country and always welcoming doubts and discussions. Mr.
James Browne (our professor of Accounting) and Mr. Andrew Quinn (our Finance
professor) for their real and practical discussions in class which put this idea in
motion. Their help and support has helped me finish this course happily, successfully
and satisfactorily.
I would like to thank all my interviewees for their support and help in collecting
primary data, without whom this research could not have been possible. I thank all
the interviewees for agreeing to interview on this new topic, and welcoming my ideas
and questions and answering them with the exact details, which helped me conclude
this research. I would like to thank my close friends for their advice and intellectual
conversations for this particular research. I appreciate every bit of it with all my heart.
Thank you all, for all the support, love, encouragement for the completion of this
thesis.
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Abstract:
The purpose of this thesis is to examine, scrutinize and deduce, The current issues
on accounting for cryptocurrency, to obtain views of accounting and finance
professionals on current issues on accounting for cryptocurrencies. The title of the
thesis was chosen to point out to a reader that there are logical and technical issues
that needs clarification regarding accounting for cryptocurrencies. The thesis also
includes a brief summary of blockchain, just to understand the basics and evaluate
the appropriateness of cryptocurrencies as they are derived from the process of
blockchain.
This thesis advices managers to examine and better understand the key features of
cryptocurrencies that are relevant to their business as so to be able to correctly
account for them as cryptocurrencies have a quasi-asset and quasi-currency feature
and also can be an inventory to some business models. In addition, it states that the
preparers of financial statements should evaluate the appropriateness of their
accounting policies for cryptocurrencies and validate their disclosures about
cryptocurrencies are material and sufficiently transparent to users of financial
statements.
This thesis warrants for standard- setters to undertake research of this area so as to
provide guidance and clarity in accounting for the cryptocurrencies in areas such as
asset classification, revenue recognition, valuation and disclosures. They must also
ensure that the accounting guidance for cryptocurrencies is relevant and useful to
the preparers of financial statements and the users of financial statements.
The research of the thesis will focus on key accounting themes relevant to
cryptocurrencies. Although the literature on the topic of the thesis available, is
limited and narrow. Accounting standards are studied in depth in order to deduct
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their appropriateness on cryptocurrencies for the literature review. Further seven
interviews were conducted with accounting professionals to obtain their views on the
accounting themes for cryptocurrencies.
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Table of Contents
Chapter 1: Introduction
………………………………………………………………………………………………………..
10
1.1.
Overview
………………………………………………………………………………………………………………….
10
1.2.
Definition of the Problem
……………………………………………………………………………………..
11
1.3.
Aims and Objectives of the Research
………………………………………………………………….
12
1.4.
Major Contributions of the Research
………………………………………………………………….
12
1.5.
Relevance of the Research ……………………………………………………………………………………
13
1.6.
Definitions
……………………………………………………………………………………………………………….
14
Chapter 2: Literature Review:
………………………………………………………………………………………………
17
2.1. Introduction:
……………………………………………………………………………………………………………….
17
What is a Cryptocurrency?
…………………………………………………………………………………………..
17
What are the features and scope of cryptocurrency?
……………………………………………..
18
What is Blockchain?………………………………………………………………………………………………………
24
What is Mining?
…………………………………………………………………………………………………………….
25
2.2. Connection between Accounting and Cryptocurrency ……………………………………….
26
Cryptocurrency compared to Cash and Cash equivalents:
…………………………………….
27
Cryptocurrency compared to Non-Cash Financial Asset:
……………………………………….
28
Cryptocurrency compared to an Investment property:…………………………………………..
29
Cryptocurrency compared to an Intangible Asset: ………………………………………………….
29
Cryptocurrency compared to Inventories: ………………………………………………………………..
30
Cryptocurrency and its translation:…………………………………………………………………………….
31
Cryptocurrency and disclosure:…………………………………………………………………………………..
31
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2.3. Finance Executives/Accountants and Blockchain: ………………………………………………..
32
2.4. Accounting Policy Themes vis-à-vis the characteristics of cryptocurrencies:
…..
33
2.6. Case study of Overstock.com:
………………………………………………………………………………….
37
3. Research Methodology ……………………………………………………………………………………………………
39
3.1. Research Introduction
……………………………………………………………………………………………….
39
3.2. Aim
……………………………………………………………………………………………………………………………….
39
3.3 Research Question ……………………………………………………………………………………………………..
40
3.4. Research Methodology …………………………………………………………………………………………….
40
3.5. Research Philosophy …………………………………………………………………………………………………
41
3.6. Research Approach:
…………………………………………………………………………………………………..
42
3.6. Data Collection
…………………………………………………………………………………………………………..
43
3.7. Qualitative Ethics: ………………………………………………………………………………………………………
43
3.8. Population & Sample
………………………………………………………………………………………………..
44
3.9. Data collection and analysis …………………………………………………………………………………….
44
Chapter 4: Data Analysis and Findings
………………………………………………………………………………
45
4.1. Introduction:
……………………………………………………………………………………………………………….
45
4.2 Sample and knowledge base of interviewees
………………………………………………………..
45
4.3 Question about non-acceptance of cryptocurrencies ………………………………………….
47
Figure: Reasons for non-acceptance of cryptocurrencies
………………………………………
50
4.4. Research of the views of the accounting and finance professionals regarding
need of a stand-alone accounting standard for cryptocurrencies ……………………………
50
Figure: Opinion on Stand-alone Standards
………………………………………………………………
54
4.5 Can Cryptocurrency be treated as a currency (like any other currency)? ………….
54
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Figure: Asset Classification of cryptocurrencies
……………………………………………………….
55
4.6 Views of professionals on what would be the questions the standard should
answer when they are set;
……………………………………………………………………………………………….
56
4.7. Volatility and Impairment of cryptocurrencies
…………………………………………………….
58
4.8. Can the cost incurred in Mining of cryptocurrencies be considered as a
Research and Development expenditure? ……………………………………………………………………
61
4.9. How can cryptocurrencies be distinguished between long term and short term
assets? ( Non-current or current asset) or is it possible to distinguish between long
term and short term asset?
……………………………………………………………………………………………..
62
4.10. How can one distinguish between payment received or asset received? or
How can we confirm if one has gotten title and control of this particular asset? ….
64
4.11. Research: Financial Statements of Companies accepting Bitcoin as a payment
……………………………………………………………………………………………………………………………………………..
65
Treatment of cryptocurrencies in the financial statements ……………………………………
68
Chapter 5: Conclusions and Recommendations
………………………………………………………………
70
5.1 Introduction
…………………………………………………………………………………………………………………
70
5.2 Conclusions
………………………………………………………………………………………………………………….
70
5.3 Conclusion: Reasons for non-acceptance ………………………………………………………………
70
5.4. Conclusion: Need of a stand-alone accounting standard for cryptocurrencies
71
5.5 Conclusion: Asset Classification ……………………………………………………………………………….
72
5.6 Conclusion: Questions that need to be answered while setting a standard……..
73
5.7 Conclusion: Impairment of cryptocurrency due to high volatility
………………………
73
5.8 Conclusion: Research & development expenditure………………………………………………
74
5.9 Conclusion: Distinguish between long term (non-current) and short term
(Current) crypto-asset.
……………………………………………………………………………………………………..
75
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5.10 Conclusion: Confirmation of title received and distinguish between payment
received or asset received ……………………………………………………………………………………………….
75
5.11 Conclusion: Financial statements that reflect bitcoin/cryptocurrency
……………..
76
Chapter 6: Self-Reflection on Learning & Performance
………………………………………………….
77
Chapter 7: Bibliography & References ………………………………………………………………………………
81
Chapter 8: Appendices
…………………………………………………………………………………………………………
84
Appendix #1 An extract from Overstock.com’s Form 10-K:
……………………………………….
84
Appendix #2 Bitcoin investment trust
……………………………………………………………………………
86
Appendix #3 Extract from all the other Financial statements ……………………………………
87
Appendix #4 Draft Questions:
…………………………………………………………………………………………
88
Appendix #5 Interview Transcripts: Participant #1
………………………………………………………
90
Appendix #6 Interview Transcripts: Participant #2
………………………………………………………
97
Appendix #7 Interview Transcripts: Participant #3
…………………………………………………… 101
Appendix #8 Interview Transcript: Participant #4
…………………………………………………….. 105
Appendix #9 Interview Transcript: Participant #5
…………………………………………………….. 109
Appendix #10 Interview Transcript: Participant #6 ………………………………………………….. 111
Appendix #11 Interview Transcripts: Participant #7 ………………………………………………… 116
Appendix #12 Consent forms layout
………………………………………………………………………….. 118
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Chapter 1: Introduction
1.1.
Overview
Cryptocurrency is the a type of virtual/digital currency which uses cryptography for
security and is one of the many new developments in the technological
advancements (Monterio, 2014). One of the features of cryptocurrencies is their use
as a digital means of exchange or in simpler words they are digital currencies that are
used for buying and selling of goods and services with the payment being made via
the crypto-wallet (online- electronically) (Monterio, 2014).
Differentiating cryptocurrencies from other fiat currencies or gold, they are not
backed by any regulatory bodies (Sontakke and Ghaisas, 2017). Blockchain came in
the lime light in 2017, in spite of having existed for right around 10 years earlier.
Cryptographic forms of money have become an important area of research in recent
years, even among the most learned speculators. While Bitcoin and Ethereum are the
most well-known cryptocurrencies, there are right now in excess of 1,600 distinctive
digital currencies (Murray, 2018).
This research directly examines the issues organizations experience when dealing
with accounting for cryptocurrencies, particularly how they are reflected using GAAP
models. This can be exceptionally tedious and require over-employment of
bookkeeping staff to benefit this need (Murray, 2018). Likewise, evaluating methods
still require either composed affirmation of year-end accounts receivables or physical
review of solicitations or consequent instalments to guarantee that adjusts exist (Ram
Asheer, 2015). With blockchain/cryptocurrency innovation, the need to inspect
physical reports will be supplanted by downloading the exchange history from the
blockchain (Murray, 2018). As outlined above, exchanges on the blockchain are
permanent and can never be changed once approved. To demonstrate that
organization An owes organization B, an evaluator can basically look on the
blockchain and have full solace in realizing that the sum owed to organization B is
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legitimate and finish, it won’t be required to physically verify transactions and obtain
evidence of transactions as it will be available on the block (Carlozo, 2017).
The thesis will primarily focus on the treatment of cryptocurrencies in financial
statements, particularly from the accounting perspective, this will be done with the
help of relevant study of accounting standards and other academic papers and
journals. The thesis will include the views of accounting and finance professionals on
the treatment of cryptocurrencies in the context of financial reporting.
1.2.
Definition of the Problem
Cryptocurrencies are now being used to undertake commercial transactions in the e-
commerce world and are also being considered as investment options (The Fintech
Revolution Is Just Beginning, 2016). Therefore, it will need to be accounted for and
there will need to be a basis to value cryptocurrencies for the purpose of reporting
them in the financial statements. Although there is a large body of research on e-
commerce, there is very little formal academic research on the accounting
implications of cryptocurrency including considerations on how cryptocurrencies
should be reflected in financial statements (Ram Asheer, 2015). Cryptocurrency,
being a new form of technological advancement in the field of finance, studying its
impact on various professions and professionals is important (Boomer, 2016). Despite
gaining popularity, there are still very few works analysing the accounting treatment
of Cryptocurrency. There are significant questions yet to be answered around the
accounting issues of the cryptocurrency. The accounting literature on cryptocurrency
is very thin and many of these research focus on the technological issues. So far,
there are only a few accounting models/comparisons developed to examine the
accounting for this new payment system. This research will focus on the effects of
cryptocurrencies on accounting as a profession and accountants as professionals and
not about the blockchain technology. This research will focus on the accounting
standards and how cryptocurrency could be accounted for in the financial statements
of a commercial enterprise.
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1.3.
Aims and Objectives of the Research
The research focuses on:
1. The views of accountants and other finance professionals on the current
impact of cryptocurrencies on financial records and financial accounting;
2. The views of accountants and other finance professionals on the future impact
of cryptocurrencies on financial records and financial accounting;
3. The views of accountants and other finance professionals on the appropriate
accounting treatment of cryptocurrency;
4. The views of accountants and other finance professionals on whether
cryptocurrencies require their own accounting standards;
5. To analyse characteristics of cryptocurrency with an aim to offer a normative
perspective on financial reporting of Cryptocurrency;
6. The views of accountants and finance professionals about the asset
classification of cryptocurrencies and
7. To evaluate the need of having a new set of standards to incorporate the
growing use of virtual currency.
1.4.
Major Contributions of the Research
The first cryptocurrency, Bitcoin has since its creation in 2009 by Satoshi Nakamoto,
has experienced multiple peaks and successive ups and downs. The question here is,
whether it is a safe investment or it is a prospective speculative trap. Can it be
considered as a short term hedge or a poor investment option (Kam, 2017). There are
different investment asset classes like equity stocks, bonds, commodities, foreign
exchange and real estate, they all derive their intrinsic value from fundamental
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valuations. Digital currencies/ cryptocurrencies are a developing asset class and
assessing their intrinsic values might be a troublesome area (Sompolinsky and Zohar,
2018).
Present day accounting is a double entry framework – an arrangement of
recordkeeping that enables firms and organizations to keep records of what it owes
and what is owns in a particular span of time. Triple-entry accounting system alludes
to the possibility that exchanges on the blockchain are basically accounting entries
that are secured by using the cryptography technology that also prevents tampering
and nearly gives results of real-time auditing (Kiviat, 2015).
Cryptocurrencies have drawn a substantial attention from investors, advisors, market
regulators and most importantly accountants (Boomer, 2016). The questions about
cryptocurrency’s asset classification are frequently and heavily asked which indicates
the prime importance of talking about the accounting phenomenon of
cryptocurrencies. This research will specifically examine the accounting related
impact of cryptocurrency. This study aims to capture expert opinions on including
cryptocurrency in financial statements and provide a view on the correct treatment of
the same.
1.5.
Relevance of the Research
The questions of accounting, valuation and classification of the cryptocurrency would
make a significant contribution to the research on the practicality of implementation
of accounting concepts in reference to cryptocurrency. These questions are crucial to
the field of accounting as the usage of cryptocurrency in the e-commerce market is
growing rapidly (Ram Asheer, 2015). This Research will focus on the impact of
cryptocurrency, primarily on its impact on accounting and how it will be reflected in
financial statements. Thus, this research will be helpful to the accounting profession.
It will briefly introduce blockchain technology, although this limited explanation of
blockchain is a means to an end i.e. it is the basis of cryptocurrency but the research
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is not about blockchain as a technology but it is about what could be the impact of
virtual currency on accounting. The research will also attempt to identify treatments
in the traditional accounting methods that currently do not incorporate
characteristics of cryptocurrency and the research will consider the need of stand-
alone accounting standard for cryptocurrencies. The research is not designed in any
way to make contribution in the area of Blockchain. Accounting aspect of
cryptocurrency is an area where much valuable information is not available and
therefore, this research seeks to add value in the same field.
1.6.
Definitions
A number of accounting terms are used through-out the dissertation and unless
otherwise stated, they should be interpreted as follows;
a) Cash is defined as, “Cash comprises of cash in hand and demand deposits.”
Additionally (foreign) “currency is a financial asset because it represents the
medium of exchange.”
b) Cash equivalent is defined as, “short-term, highly liquid investment that can
be readily converted into known amounts of cash and which are subject to an
insignificant risk of changes in value.”
In IAS 32, The Standard defines a financial asset as being “any asset that is:
1. cash
2. an equity instrument of another entity
3. a contractual right:
i. to receive cash or another financial asset from another entity; or
ii. to exchange financial assets or financial liabilities with another entity
under conditions that are potentially favourable to the entity
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4. a contract that will or may be settled in the entity’s own equity
instruments and is:
i.
a non-derivative for which the entity is or may be obliged to receive a
variable number of the entity’s own equity instruments; or
ii.
a derivative that will or may be settled other than by the exchange of a
fixed amount of cash or another financial asset for a fixed number of
the entity’s own equity instruments…”
c) The definition of investment property under IAS 40, “Property (land or
building – or a part of a building- or both) held by the owner or by the lessee
under a finance lease to earn rentals or for capital appreciation or both, rather
than for: use in the production or supply of goods and services or for
administrative purposes; or sale in the ordinary course of business.”
d) An intangible asset is defined in IAS 38.8 as “an identifiable non-monetary
asset without physical substance.”
e) The definition of monetary assets as in IAS 38.8 being “assets to be received in
fixed or determinable amounts of money.”
f) IFRS 13 Fair Value Measurement defines an active market as a “market in
which transactions for the asset or liability take place with sufficient frequency
and volume to provide pricing information on an ongoing basis.”
g) IAS 2.5 defines commodity broker-traders as “those who buy or sell
commodities for others or on their own account, for the purpose of selling in
the near future and generating a profit from fluctuations in price.”
h) Block Chain: An electronic log of all Bitcoin transactions (Woo et al, 2013).
i) Cryptography: The science of altering and/or transmitting data so that only
the intended recipient can read it (Kessler, 2014).
j) Fiat money: Money that is regarded as legal tender by a central authority, and
is backed by the assurances of that authority (Christopher, 2014).
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k) Mining: The process by which mathematical puzzles are solved through the
use of computing power in order to add Bitcoin transactions to the block
chain (Shcherbak, 2014).
l) Neoliberalism: In accounting, this represents a shift towards reporting that is
focused on faithful representation, and less on reliability (Ravenscroft and
Williams, 2009).
m) Specie money Money that is backed by a valuable commodity, such as gold or
other precious metals (Christopher, 2014).
n) Stewardship In accounting, this represents the idea that reporting should
ensure accountability (Murphy et al, 2012).
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Chapter 2: Literature Review:
2.1. Introduction:
What is a Cryptocurrency?
Fintech (or financial technology) is one of the current driving force behind
innovations in the financial services industry. One of the most debated innovations is
cryptocurrency, or digital currency, which uses blockchain technology to make a
direct electronic payment between two people possible. This transaction is executed
without going through a third party (like a bank) or expensive intermediaries which
might result in cost savings (Labbé, Crabb and Lai, 2018). This section briefly reviews
some of their key features and its popularity.
Cryptocurrency is virtual money with zero intrinsic value issued by a computer code
in electronic portfolios, which is not convertible into anything and does not have the
backing of any central banks or any government (Murray, 2018). The value of a
cryptocurrency is neither determined by a convertible tangible asset ( such as gold)
nor a fiat currency (such as dollar), it is determined by the interplay of its supply and
demand (Low and Teo, 2017).
This nascent crypto-currency can fulfil various business functions. It can facilitate
business transactions from person to person worldwide without any intermediaries. It
can not only reduce trade barriers but also costs, and increase productivity (Phillips
and Gorse, 2018). Nevertheless, the usefulness of cryptocurrency remains uncertain
because of its sizeable price volatility, the inelastic nature of the money supply coded
by mathematic formula and the lack of legal security (Kiviat, 2015). Cryptocurrency is
in a nascent stage and is closely associated to multiple risks stemming from its extra
volatility and its speculative nature.
The Cryptocurrency, which can appear to be identical to traditional currencies,
though has major differences when compared to the “fiat” currencies. The
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cryptocurrencies are not regulated by central banks – .i.e. it is not printed or issued
by a particular government or a regulator, it is mined using a technology. It has
started to gain familiarity as a means of settling e-commerce transactions and lacks a
backing of goods and services and is also said to have no intrinsic value (Ram Asheer,
2015).
Although there is a large body of research on e-commerce, there is barely any formal
academic research on the accounting implications of cryptocurrency including
reseacrh on how cryptocurrencies are being reflected in financial statements (Ram
Asheer, 2015). Cryptocurrency is one of newest form of technological advancement
in the field of finance, studying its impact on various professions and professionals is
important (Boomer, 2016).
What are the features and scope of cryptocurrency?
Traditionally money is used as a medium of exchange, legal tender for repayment of
debt, standard of value, unit of accounting measure and a means to save or store
purchasing power (Phillips and Gorse, 2018). Bitcoin may not fulfil all the functions of
money but its scarcity value, anonymity (or pseudonymity), transparency, and
autonomy from the government, make it attractive to users who are speculators,
traders, merchants, consumers and netizens disenchanted with fiat money (Kam,
2017). Despite the alluring features of cryptocurrency, it is not spared from potential
abuses such as internet-crimes, tax evasion, fraud, online black markets, money
laundering and terrorism financing (Sanchez, 2017).
There are 1649 cryptocurrencies, out of which 1376 have a market capitalization
totalling to $374,966,747,595 (All Cryptocurrencies | CoinMarketCap, 2018) (as at
7th July 2018) The highlight of the study is, the growing usage and the consistently
volatility in the market capitalization of all the cryptocurrencies (All Cryptocurrencies |
CoinMarketCap, 2018). There are 1649 cryptocurrencies and generally only 5 are
known and spoken about.
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From April 2018 to July 2018 – number of cryptocurrencies have gone up from 1584
to 1649 .i.e. approximately an increase of 4% (65 in number) in a span of three
months and a hit of decrease in market capital of 23% in the same span of time; .i.e. a
decrease in 86.5 billion in the market capitalization of all the cryptocurrencies
(Cryptocurrency Market Capitalizations | CoinMarketCap, 2018) (All Cryptocurrencies |
CoinMarketCap, 2018) .
Further-more, as on 17th August 2018, there are 1855 cryptocurrencies in circulation,
and the total market capitalization of all the currencies is totalling to
$212,077,636,506. (All Cryptocurrencies | CoinMarketCap, 2018).
Hence,
the
increase
in
the
cryptocurrency market during the
span of the research (April 2018 –
August 2018) warrants for a
regulated accounting policy for
accounting for cryptocurrencies
in a logical and a consistent
manner. All the cryptocurrencies do not have a ready market to be traded, as only
few are being freely traded and therefore, have a ready market in which they can be
used as a payment method. The research revolves around how the current set of
accounting standards will be used to account for digital currencies and will also cover
the need for amendments in the definitions of various assets to incorporate
cryptocurrencies within the scope of assets or a need for a different accounting
standard along with a different class of asset i.e. crypto-assets. The cryptocurrency
market capitalization is substantial; also, the market in the near future will grow and
there will be a need for the accounting regulation of the recording cryptocurrency
transactions.
No. of
Cryptocurrencies
Market capitalization
Apr-18
1584
461,466,747,595.00
Jul-18
1649
374,966,747,595.00
Aug-18
1855
212,077,636,506.00
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TOP 100 CRYPTOCURRENCIES WITH MARKET CAPITALIZATION . (All Cryptocurrencies
| CoinMarketCap, 2018)
# Name
Market Cap
#
Name
Market
Cap
1 Bitcoin
$110,203,990,676
51 RChain
$137,208,899
2 Ethereum
$29,635,254,619
52 Status
$132,780,797
3 XRP
$12,596,555,847
53 Hshare
$129,364,946
4 Bitcoin Cash
$9,594,776,756
54 KuCoin Shares
$127,993,354
5 EOS
$4,553,402,881
55 Mithril
$127,980,079
6 Stellar
$4,213,099,871
56 Komodo
$123,500,716
7 Litecoin
$3,251,206,663
57 Dentacoin
$116,366,164
8 Tether
$2,728,532,707
58 IOST
$113,774,436
9 Cardano
$2,568,932,509
59 Ardor
$110,842,891
10 Monero
$1,575,761,488
60 MaidSafeCoin
$108,352,970
11 TRON
$1,382,942,265
61 DigixDAO
$104,487,529
12
Ethereum
Classic
$1,365,676,603
62 Huobi Token
$103,281,610
13 IOTA
$1,360,798,024
63 Waltonchain
$102,922,273
14 Dash
$1,247,982,424
64 Mixin
$98,408,192
15 NEO
$1,164,702,929
65 Aion
$97,956,294
16 NEM
$949,987,422
66 MonaCoin
$96,622,403
17 Binance Coin
$936,537,758
67 Kin
$95,980,535
18 Tezos
$804,240,411
68 aelf
$94,754,236
19 VeChain
$678,322,109
69 FunFair
$93,667,118
20 Zcash
$652,482,030
70 ChainLink
$93,632,647
21 OmiseGO
$556,163,323
71 Cryptonex
$91,069,482
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22 Lisk
$404,705,090
72 GXChain
$89,753,512
23 Qtum
$398,062,280
73 ZenCash
$87,761,629
24 0x
$391,513,718
74 Bitcoin Private
$86,920,091
25 Decred
$316,825,735
75 Wanchain
$85,559,070
26 Bitcoin Gold
$315,303,567
76 Bancor
$83,781,892
27 Bytecoin
$308,691,039
77 Holo
$80,962,747
28 Ontology
$306,283,869
78 Nebulas
$74,703,663
29 BitShares
$289,273,359
79 Aurora
$74,379,738
30 Maker
$284,917,636
80 Emercoin
$73,767,356
31 Dogecoin
$277,523,693
81 Decentraland
$73,755,727
32 DigiByte
$276,391,635
82 MCO
$73,348,615
33 Zilliqa
$265,064,942
83 ZCoin
$72,296,665
34 Steem
$250,813,586
84 TaTaTu
$70,026,007
35 Aeternity
$249,637,350
85 Power Ledger
$69,287,241
36 ICON
$240,693,093
86 Ark
$68,995,564
37 Waves
$208,074,273
87 Elastos
$68,295,202
38 Verge
$205,834,151
88 Cortex
$67,962,068
39 MOAC
$204,346,162
89 Nxt
$67,515,731
40 Basic Attenti…
$203,978,578
90 WAX
$66,739,627
41 Siacoin
$203,819,759
91 ReddCoin
$66,100,251
42 Nano
$199,966,336
92 TrueUSD
$65,697,163
43 Populous
$195,387,208
93 Loopring
$65,115,116
44 Augur
$194,199,572
94 PIVX
$62,842,176
45 Bytom
$171,778,051
95 TenX
$61,196,348
46 Bitcoin Diamond
$164,963,559
96 Dropil
$59,588,978
47 Pundi X
$155,745,022
97
Kyber
Network
$59,537,964
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48 Metaverse ETP
$150,764,822
98 QASH
$59,283,605
49 Golem
$145,627,527
99
ETERNAL
TOKEN
$59,051,999
50 Stratis
$140,083,814
100 Nuls
$57,507,306
The volatility of this type of currency is very high, thus making it difficult to account
for it. For example the value of Bitcoin approximately increased up to 700% and then
also decreased considerably towards the end of the year 2017 (Bitcoin: Bitcoin zooms
past $18,000; rallies over 700% so far this year – The Economic Times, 2017). An
additional complication has come up, however secure and cheap the digital
currencies are with respect to cash and credit cards, the values of these currencies
keeps on fluctuating. Virtual currencies are subject to large swings and are only as
strong as the market they are traded in. The future of bitcoin is still unclear because
we don’t fully understand the capacity of this new technology, what it can do and
achieve and how it can be utilized but it will surely have an impact of the business
community (Barlin, 2017).
Figure 1: A graph showing the growth of Bitcoin.
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A study of 2 cryptocurrency depicting the volatility via charts:
As seen in the charts of bitcoin and ethereum prices below, the two most
used/traded cryptocurrencies and it is noticed that in a span of one year- Bitcoin
market cap has raised from near zero dollars to beyond 300 billion dollars ( July 2017
to January 2018) and has also dropped to 120 billion dollars ( January 2018 to July
2018). Similarly the prices have fluctuated in the same proportion, as we can see in
the chart below.
As also we can see the fluctuations in the Ethereum as compared to value in US
dollars and value in Bitcoin, also the market capitalization movement in US dollars- it
is seen in the charts that the market cap goes from zero to approximately 150 billion
dollars and then falls back again to 50 billion dollars. The volatility of this type of
currency can be seen by the charts mentioned and we can conclude that it has been
quite risky in terms of investment. Interestingly in chart #2 the price correlation
between bitcoin and USD is more in 2018 as compared to in 2017, this could be
because of the increase popularity in the later stage which could also correspond to
their difficulties in use.
Chart #1
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Chart #2
What is Blockchain?
Blockchain (blockchain is explained in the later part) is a digital ledger of economic
transactions with a list of records which is stored in blocks (Ram, Maroun and
Garnett, 2016).
There are two types of records in blockchain database;
1. Transactions
2. Blocks
Each Block is a collection of transactions. Each block is dated on which the
transactions has taken place and it is also linked to previous block. No transactions
can be altered retrospectively (Carlozo, 2017).
Blockchain is a list of records stored in blocks and it is a ledger which is completely
public i.e. anybody can have access to view the ledger (Carlozo, 2017).
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Importance of blockchain to accountants and finance professional:
The Scope Blockchain is broader than cryptocurrencies: Blockchain overall has
much wider scope. Bitcoin and blockchain are connected but are different. Although
blockchain was created to help transact in Bitcoin, Blockchain is a global digital
ledger which not only records crypto currency transactions but also stores various
documents such as property deeds, birth records etc in blocks (Carlozo, 2017). While
this research is about accounting for cryptocurrency, it is just to explain how
blockchain works and its applicability on accounting and accounting professionals
(Carlozo, 2017).
Emerging technology which can change the dynamics of finance: About 60% of
the finance and accounting executives have knowledge about the blockchain
technology. A major catching up has to be done in this area by finance leaders as lot
of awareness is being created on the impact that blockchain will have (Carlozo, 2017).
As there is lack of awareness (about 40% of finance and accounts executives) it is
significant that they are made aware about cryptocurrencies and how it will affect
their function.
Powerful tool to do business: The scalability of this technology is still not known.
With the degree of sophistication this technology has reached magnificent efficiency
in business transactions with is incorruptible, there are lot of experimenting with this
technology and interests in applying this technology in business (Carlozo, 2017).
What is Mining?
Cryptocurrency is not produced by minting money in an unlimited supply, but
through a virtual “mining” process designed to control the supply of “money” and
make it more valuable (Eyal and Gün Sirer, 2018). The increasing pace in financial
innovation is pushing regulators to make a change in the way they define money and
what money can be (Hern, 2018). Although mining of cryptocurrency doesn’t mean
physically digging out coins off the ground, it means solving puzzles/algorithms
with the help of computers (i.e. a cost is associated to this mining process –
