Ask HN: Is there an accounting platform for a crypto first company?
For people who set up a crypto first company e.g. a crypto game, or an exchange that takes fee in crypto - they probably pay salaries and other fees/expenses to defi platforms in crypto. Is there a product that does accounting like recognising sales, expenses, funding etc. in a crypto first format - and offer secondary FIAT reporting statements?
Or rather the question is that is there a need for this? My thought process was - if the functional currency of an entity is primarily crypto - it would be easier to create crypto first statements and then have a second set of derived statements for reporting (if any).
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Are you paying your suppliers in crypto? Salaries?
It’s a bit like a farming operation still uses dollars. They don’t record their salaries in number of cows just because they’re in the cow business
I don't think the analogy is right. If in this cow business everyone instead of transacting in dollars and milk supply contracts start using a whole new language called "ether" then your accounting platforms/accountant/electronic receipts are not made for it.
Even mainstream accounting stuff is quite flexible in terms of how you define functional currency.
Its really not something where crypto somehow magically requires different accounting calculations.
>whole new language called "ether"
Quite. Existing accounting captures custom written contracts all the time though. Defi while revolutionary in many way doesn't really change the dynamics on this in a way that affects accounting.
If you're still unconvinced look at Coinbase IPO. Did they tell the exhange no we can't file the usually accounting info? Nope...they filed classic USD financials.
:) You owe me a building, not just a keyboard!
Most (all?) accounting software can handle multiple currencies. Set up your preferred cryptocoin as a foreign currency and enjoy.
A lot of accounting has to be done to meet national legislation, especially for payroll and tax. So that has to be done in your local fiat currency anyway.
e.g. I get equity funding in my company. Now: accountant needs a contract like a share note to create a line of equity on the right hand of the balance sheet.
But in the future, the system is linked to a token sale and the shareholders are automatically updated.
Or, I am making sales of lets say NFTs on my platform, then the revenue on each transaction is automatically linked via the same NFT contracts to the revenue line. The ETH fee is directly attributed to the costs line etc.
The whole thing creates an auditable statement that can be used for data/regulatory audits/dashboards/getting crypto financing etc...
1- the internal accounting system. This is not really different from the traditional world, it can be done with most accounting services already. The company I work for (OneStream) focuses on consolidation/planning rather than low-level general ledgers, but handling crypto would just require to use a custom currency (I think we allow up to 7 or so). Managing exchange rates can be done in actual code, so you’d just set up some api calls to decide how you want to calculate those rates and be on your way. I honestly don’t see anything crypto-specific here. The only annoyance would be seeing loads of “0.00000...” in a naively-setup system, but that can also be dealt with trivially in most services.
2- external integrations. This is really where the hole in the market is, I guess, and probably what motivated you to explore the space. Services that will automatically pull your transactions from cryptocurrency exchanges and similar hangouts, might be thin on the ground today; I honestly don’t know. But consider that, for the likes of Xero, because of point 1 above this is basically just a bunch of plugins that are fairly trivial to write, should they decide to steer. If they solved “legacy” banks, they can solve online banks pretty quickly.
So, would a product focused on 2 be successful, in a market already crowded that can probably self-extend to crypto fairly easily? I’m skeptical, personally, but I might be wrong. I’m also skeptical that significant numbers of businesses will go “cryptocurrency-first” and look for such a service. Cryptocurrencies are more like commodities than actual currencies, and I bet no company is “gold-first” in 2021.
On number 2 - I wouldn't call it "cryptocurrency" first but rather (and forgive my lack of articulation here) crypto/defi/blockchain first.
Think of crypto like the new internet protocol - rather than equating it to gold. But unlike the internet protocol, this extends much beyond e.g. crypto is wealth, an application, a service, a medium.
This means a whole new set of services and revenue streams / protocols on revenue (from selling products) and expenses (guessing these get built on a host of defi applications). All these integrations - will XERO focus today? Nope. Is the potential market for this massive - yes, well if you are bullish crypto.
Early examples of companies that would use this - https://upland.me/, https://nbatopshot.com/
Crypto-assets are variously regulated more as property, commodities or securities; and from an accounting perspective I don't think that's a distinction that can be willed away.
For example, there are just certainly tax implications that won't be accurately recorded if you assume that income of 1 BTC offsets expenses of 1 BTC. My understanding is that the IRS wants you to calculate the USD fair market value of each of those transfers at the time they occur in order to determine the tax implications.
ref. https://www.irs.gov/irb/2014-16_IRB#NOT-2014-21
Q–1: How is virtual currency treated for federal tax purposes?
A–1: For federal tax purposes, virtual currency is treated as property. General tax principles applicable to property transactions apply to transactions using virtual currency.
Q–2: Is virtual currency treated as currency for purposes of determining whether a transaction results in foreign currency gain or loss under U.S. federal tax laws?
A–2: No. Under currently applicable law, virtual currency is not treated as currency that could generate foreign currency gain or loss for U.S. federal tax purposes.
Perhaps I'm naive but since primary currency is no more than a convention in your bookkeeping software: find a firm willing to put BTC (or whichever) where usually there is USD?
One of the things to be mindful of is that tax accounting is not GAAP financial accounting. Say you close your book year in a period with high volatility in your cryptos price. This might materially impact your fiat numbers (if you have enough fiat costs). Your tax auditor might want to look twice at the reported fiat numbers.
[1] https://www.accaglobal.com/us/en/technical-activities/techni...
If we take example of a SAP or XERO like software, a conventional company uses integrations/receipts from banks, sales platforms, physical receipts etc. In a crypto first company e.g. a crypto game dev company - the sales are in crypto, the funding via tokens is via crypto, the platform fees (defi apps) is in crypto - so a SAP/XERO like software is not build for purpose - hence my question that is a crypto first accounting/expense/reporting software needed.
Volatility will still remain if you use current mechanisms depending on how you book these assets on your balance sheet. Which more depends on how the taxman classifies them going forward.
fyi, are you interested in this?