Top 3 Insights for Blockchain Companies & Individual Investors
Of late, there is a lot of excitement surrounding blockchain business, especially with the price of the bitcoin and other cryptocurrencies continuing to break all-time highs. Numerous individuals and companies are making upwards of fifty and one-hundred (and even one-thousand!) times their investment in cryptocurrencies. And dozens of companies are raising hundreds of millions of dollars through initial coin offerings (ICOs). As a result, new businesses are seeking to venture into the blockchain space and have a share of the pie. However, owing to its new technology and the unchartered territories of decentralized internet, there is no established approach to valuing these blockchain companies and the crypto assets. We sat down with Levi Richards from the Nomad Financial Accounting team who works with many of our clients involved with blockchain technology. Here are his key insights regarding blockchain reporting, its challenges, and some of the exciting things the future holds for these businesses. A New and Complicated Technology Blockchain technology is complex and many of its applications are still unknown, even to many of the experts in the space. Because we only have a surface-level understanding of the potential applications, there are no standard methods or approach to valuing blockchain companies or their crypto assets. Experts and leaders in the space are working hard to build structure and standards for how we should treat blockchain technology from a legal, financial, and regulatory standpoint. Though the reporting standards specific to blockchain are still evolving, companies and individuals must still abide to existing standards for legal and financial reporting, particularly as it relates to taxes. Having a team of legal and financial professionals to help you navigate the regulatory hurdles is very key to avoiding potential pitfalls. These teams can help ensure that you are checking off the right boxes to meet basic regulatory requirements and mitigate financial risks. Be Proactive with Reporting Establish back-end systems For owners of crypto assets, having a robust and accurate backend system will help you keep track of fluctuations taking place in the market for cryptocurrencies. Additionally, the system should provide a solid accounts payable tracking system that accounts for all the transactions in a business’ Coinbase account. These backend systems will help ensure that you keeping proper records to back up your financial reporting if you are a company issuing or holding crypto assets. Regular Reconciliations Regularly reconciling accounts and all transactions coming through a business is necessary in order to understand both the expenses paid with the currency as well as fluctuations in the overall asset value. This is especially true if you are conducting transactions with Bitcoin or other cryptocurrencies. Doing a monthly (or even weekly) reconciliation helps to balance its value back to the current market value and ensure you are appropriately recording gains and losses due to price fluctuations. What is the Future of Blockchain Technology? With new technologies like blockchain redefining the way we understand the Internet, established networks, and currency, the rate of development and change is extremely exciting. Blockchain technology is allowing for decentralized systems and peer-to-peer (P2P) transactions that is challenging the status quo and incumbents who currently rule the internet and banking systems. By removing the middleman out of the equation, individuals and businesses can exchange money and execute transactions without having centralized entity verifying each side. The applications for these types of networks are limitless and has potential to provide a more equitable and freer Internet for all. Considering the undeveloped nature of the blockchain industry, it is advisable to venture into the business in an orderly fashion as a precaution. And taking steps to make sure you are protecting yourself from a regulatory and reporting standpoint will help both individuals and companies alike. You should first have a good understanding of the technology and platform if you plan to invest in or start a blockchain company. These companies usually have white papers that you can read and educate yourself about the applications they are building on top of the blockchain technology. Regulators and industry leaders are working to make sure that safeguards are carefully put in place to protect the public while not restricting business development. You must stay up-to-date with the changes in blockchain regulation and reporting, and having a team of experts to help support you can be a huge game changer.